ITEM
1. FINANCIAL STATEMENTS
American
CryoStem Corporation
Consolidated
Balance Sheets
As
of December 31, 2018 and September 30, 2018
|
|
31-Dec-18
|
|
|
30-Sep-18
|
|
|
|
Unaudited
|
|
|
Audited
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
27,225
|
|
|
$
|
68,320
|
|
Accounts Receivable - net of allowance for bad debt
|
|
|
302,178
|
|
|
|
217,318
|
|
Other Receivable - Related Parties
|
|
|
1,962
|
|
|
|
790
|
|
Prepaid Expenses
|
|
|
12,232
|
|
|
|
48,931
|
|
Inventory
|
|
|
33,235
|
|
|
|
33,698
|
|
Total Current Assets
|
|
|
376,832
|
|
|
|
369,057
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Other Receivable
|
|
|
159
|
|
|
|
159
|
|
Investment in Autogenesis - at cost
|
|
|
1,000
|
|
|
|
1,000
|
|
Investment in Baoxin - at cost
|
|
|
300,000
|
|
|
|
300,000
|
|
Security Deposit
|
|
|
13,540
|
|
|
|
13,540
|
|
Patents and Patents Development - net of accumulated amortization
|
|
|
342,585
|
|
|
|
337,962
|
|
Fixed Assets - net of accumulated depreciation
|
|
|
263,664
|
|
|
|
244,707
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,297,780
|
|
|
$
|
1,266,425
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable & Accrued Expenses
|
|
$
|
330,411
|
|
|
$
|
307,214
|
|
Legal & Accounting Payable
|
|
|
66,035
|
|
|
|
65,561
|
|
Consultants Payable
|
|
|
194,167
|
|
|
|
131,667
|
|
Bridge Notes Payable
|
|
|
226,500
|
|
|
|
226,500
|
|
Convertible Notes Payable
|
|
|
323,500
|
|
|
|
323,500
|
|
Equipment Lease Payable
|
|
|
32,099
|
|
|
|
31,001
|
|
Deferred Revenues
|
|
|
16,667
|
|
|
|
26,667
|
|
Total
Current Liabilities
|
|
|
1,189,379
|
|
|
|
1,112,110
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
Convertible Note Payable - Net of Debt Discount
|
|
|
37,500
|
|
|
|
25,000
|
|
Equipment Lease Payable
|
|
|
53,941
|
|
|
|
62,386
|
|
Accrued Executive Salaries
|
|
|
720,186
|
|
|
|
660,186
|
|
Payable to Related Party (ACS Global Inc.)
|
|
|
204,110
|
|
|
|
107,189
|
|
Total
Liabilities
|
|
|
2,205,116
|
|
|
|
1,966,871
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit:
|
|
|
|
|
|
|
|
|
Preferred Stock - $.0001 par value, 50,000,000 shares authorized, 0
shares issued and outstanding at December 31, 2018 and September 30, 2018
|
|
|
0
|
|
|
|
0
|
|
Common Stock - $.001 par value, 300,000,000 shares
authorized, 48,347,249 shares issued and outstanding at December 31, 2018 and 48,196,210 issued and outstanding at September
30, 2018
|
|
|
48,348
|
|
|
|
48,197
|
|
Additional Paid in Capital
|
|
|
13,475,423
|
|
|
|
13,388,034
|
|
Accumulated Deficit
|
|
|
(14,431,107
|
)
|
|
|
(14,136,677
|
)
|
Total
Shareholders’ Deficit
|
|
|
(907,336
|
)
|
|
|
(700,446
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities & Shareholders’ Deficit
|
|
$
|
1,297,780
|
|
|
$
|
1,266,425
|
|
See the notes
to the financial statements.
American
CryoStem Corporation
Consolidated
Statements of Operations
For the
Quarters Ended December 31, 2018 and 2017
Unaudited
|
|
3 Months
|
|
|
3 Months
|
|
|
|
31-Dec-18
|
|
|
31-Dec-17
|
|
Revenues
|
|
|
|
|
|
|
|
|
Tissue Processing & Storage
|
|
$
|
4,777
|
|
|
$
|
412,599
|
|
Licensing Fees & Royalties
|
|
|
110,614
|
|
|
|
126,667
|
|
Total Revenues
|
|
|
115,391
|
|
|
|
539,266
|
|
Less Cost of Revenues
|
|
|
(4,963
|
)
|
|
|
(83,374
|
)
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
110,428
|
|
|
|
455,892
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Laboratory Expense
|
|
|
146,323
|
|
|
|
150,595
|
|
Sales & Marketing
|
|
|
3,978
|
|
|
|
22,887
|
|
Professional Fees
|
|
|
1,873
|
|
|
|
27,226
|
|
Stock Compensation Expense
|
|
|
30,121
|
|
|
|
549,588
|
|
General & Administrative
|
|
|
189,493
|
|
|
|
154,011
|
|
Total Operating Expenses
|
|
|
371,788
|
|
|
|
904,307
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Operations
|
|
|
(261,360
|
)
|
|
|
(448,415
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses):
|
|
|
|
|
|
|
|
|
Loss on Settlement of Legal Bill
|
|
|
—
|
|
|
|
(76,437
|
)
|
Foreign Taxes
|
|
|
(4,117
|
)
|
|
|
—
|
|
Interest Expense
|
|
|
(16,453
|
)
|
|
|
(29,541
|
)
|
Interest Expense (beneficial conversion feature-debenture)
|
|
|
(12,500
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Loss before Provision for Income Taxes
|
|
|
(294,430
|
)
|
|
|
(554,393
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(294,430
|
)
|
|
$
|
(554,393
|
)
|
|
|
|
|
|
|
|
|
|
Basic & Fully Diluted Net Income (Loss) per Common Share:
|
|
($
|
0.01
|
)
|
|
($
|
0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average of Common Shares Outstanding - Basic & fully diluted
|
|
|
48,224,018
|
|
|
|
43,757,135
|
|
See the notes
to the financial statements.
American
CryoStem Corporation
Consolidated
Statements of Cash Flows
For the
Quarters Ended December 31, 2018 and 2017
Unaudited
|
|
3 Months
|
|
|
3 Months
|
|
|
|
31-Dec-18
|
|
|
31-Dec-17
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(294,430
|
)
|
|
$
|
(554,393
|
)
|
Adjustments
to reconcile net loss items not requiring the use of cash:
|
|
|
|
|
|
|
|
|
Bad Debt Expense
|
|
|
5,388
|
|
|
|
—
|
|
Loss on Settlement of Legal Bill
|
|
|
—
|
|
|
|
76,437
|
|
Stock Compensation Expense
|
|
|
30,121
|
|
|
|
549,588
|
|
Interest Expense- Beneficial Conversion Feature
|
|
|
12,500
|
|
|
|
—
|
|
Depreciation & Amortization Expense
|
|
|
7,671
|
|
|
|
8,504
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in operating assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(90,248
|
)
|
|
|
(248,019
|
)
|
Other Receivable - Related Parties
|
|
|
(1,172
|
)
|
|
|
|
|
Prepaid expense
|
|
|
36,699
|
|
|
|
23,333
|
|
Inventory
|
|
|
463
|
|
|
|
(3,365
|
)
|
Increase (decrease) in operating liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
|
168,590
|
|
|
|
18,370
|
|
Deferred Revenue
|
|
|
(10,000
|
)
|
|
|
174,336
|
|
Net cash provided (used) by operations
|
|
|
(134,418
|
)
|
|
|
44,791
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Investment in Baoxin
|
|
|
—
|
|
|
|
(300,000
|
)
|
Purchase of lab equipment & furniture
|
|
|
(25,679
|
)
|
|
|
(27,470
|
)
|
Patents development
|
|
|
(5,572
|
)
|
|
|
(10,975
|
)
|
Net cash used by investing activities
|
|
|
(31,251
|
)
|
|
|
(338,445
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
35,000
|
|
|
|
—
|
|
Paid down capital lease
|
|
|
(7,347
|
)
|
|
|
—
|
|
Options exercised
|
|
|
—
|
|
|
|
25,000
|
|
Payable to related party
|
|
|
96,921
|
|
|
|
(1,124
|
)
|
Net cash provided by financing activities
|
|
|
124,574
|
|
|
|
23,876
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(41,095
|
)
|
|
|
(269,778
|
)
|
|
|
|
|
|
|
|
|
|
Cash balance at beginning of the period
|
|
|
68,320
|
|
|
|
410,342
|
|
|
|
|
|
|
|
|
|
|
Cash balance at end of the period
|
|
$
|
27,225
|
|
|
$
|
140,564
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
3,212
|
|
|
$
|
—
|
|
Income taxes paid during the period
|
|
$
|
—
|
|
|
$
|
—
|
|
See
the notes to the financial statements.
See
Note 14 for non-cash transactions.
American
CryoStem Corporation
Consolidated
Statement of Changes in Shareholders’ Deficit
For the Quarters
Ended December 31, 2018 and 2017
Unaudited
|
|
Common
|
|
|
Par
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at September 30, 2017
|
|
|
43,409,580
|
|
|
$
|
43,410
|
|
|
$
|
11,581,197
|
|
|
$
|
(12,646,165
|
)
|
|
$
|
(1,021,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes exercised
|
|
|
1,241,667
|
|
|
|
1,242
|
|
|
|
223,758
|
|
|
|
|
|
|
|
225,000
|
|
Options exercised
|
|
|
600,000
|
|
|
|
600
|
|
|
|
24,400
|
|
|
|
|
|
|
|
25,000
|
|
Shares issued to pay interest due
|
|
|
23,705
|
|
|
|
24
|
|
|
|
19,268
|
|
|
|
|
|
|
|
19,292
|
|
Shares issued to pay legal bill
|
|
|
219,290
|
|
|
|
219
|
|
|
|
186,177
|
|
|
|
|
|
|
|
186,396
|
|
Issuance of options
|
|
|
|
|
|
|
|
|
|
|
549,023
|
|
|
|
|
|
|
|
549,023
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(554,393
|
)
|
|
|
(554,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
45,494,242
|
|
|
$
|
45,495
|
|
|
$
|
12,583,823
|
|
|
$
|
(13,200,558
|
)
|
|
$
|
(571,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
|
48,196,210
|
|
|
$
|
48,197
|
|
|
$
|
13,388,034
|
|
|
$
|
(14,136,677
|
)
|
|
$
|
(700,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
116,667
|
|
|
|
117
|
|
|
|
34,883
|
|
|
|
|
|
|
|
35,000
|
|
Shares issued to pay interest due
|
|
|
34,372
|
|
|
|
34
|
|
|
|
22,385
|
|
|
|
|
|
|
|
22,419
|
|
Stock Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
30,121
|
|
|
|
|
|
|
|
30,121
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294,430
|
)
|
|
|
(294,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
48,347,249
|
|
|
$
|
48,348
|
|
|
$
|
13,475,423
|
|
|
$
|
(14,431,107
|
)
|
|
$
|
(907,336
|
)
|
See the notes to the financial statements.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
NOTE 1. Organization of
the Company and Significant 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 the name of the Company was changed to American CryoStem Corporation.
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 Company
closed its first licensing agreement in 2014 and intends to pursue additional licensing partners in the future.
The accompanying
consolidated financial statements include the accounts of American CryoStem Corporation and its wholly owned subsidiaries.
The Company’s subsidiaries are APAC CryoStem Limited, a Hong Kong company and APAC CryoStem (Shenzhen) Ltd. which were established
to support its licensing agreement and operations, and collect the licensing fees in Hong Kong and China. Currently Mr. Arnone
and Mr. Dudzinski serve as management and directors of both companies. All significant intercompany accounts and transactions
have been eliminated in the consolidation. Management believes all amounts have been adjusted properly.
Accounting policies refer to specific
accounting principles and the methods of applying those principles to present fairly 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 Statement Disclosures for the quarter ended December 31, 2018 are condensed and all necessary adjustments
have been made. These Financial Statements should be read in conjunction with the Company’s Form 10-K for the year ended September
30, 2018.
Use of Estimates
-
The preparation of the 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.
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. Occasionally, the Company maintains cash balances at financial institutions that exceed federally
insured limits.
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’s cryogenic storage tank. Product Sales
revenues are recognized when the product has shipped. 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 and Consulting Fees are recognized
when earned and collection is reasonably 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.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
NOTE 1. Organization of the
Company and Significant Accounting Policies (continued)
The Company has adopted ASC
606, which requires the company to disclose sufficient information to enable users of the financial statements to understand the
nature, amount, timing and uncertainly of revenue and cash flows arising from contracts with customers. There has been no material
effect on income, net income and per share amounts. There are no restated amounts or adjustments. The Company has adopted a retrospective
approach to adopting these standards. These standards have been implemented by management and there are no outstanding issues
to be addressed.
Reclassification –
Some of the Balance Sheet items for September 30, 2018 and the Statement of Operations for the three months ended December
31, 2017 have been reclassified. None of these reclassifications affect the presentation of the Company’s financial position
or results of operations.
Advertising
–
Advertising Cost are reported as they are incurred. Advertising Costs were $200 for the quarter ended December 31, 2018 and $2,961
for the quarter ended December 31, 2017, which is in Sales and Marketing Expenses within the Consolidated Statements of Operations.
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 Allowance
for Doubtful Accounts was $5,387 at December 31, 2018 and $0 at September 30, 2018.
Inventory
- Inventory
is valued at lower of cost or market using the first in, first out method. Inventory consists of the disposables and materials
used to create production kits, for processing of adipose tissue and cellular samples, the manufacture of Medias used to prepare
the samples and cryoprotectant for the storage of the samples.
Inventory was composed of Raw
Materials and Finished Goods, which was valued at $33,235 at December 31, 2018 and $33,698 at September 30, 2018.
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
Equipment & Furniture
|
7
years
|
Lab
Software
|
5
years
|
Leasehold
Improvements
|
15
years
|
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 December 31, 2018 and
September 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 2014 to 2017 are subject to IRS and State of New Jersey audit.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
NOTE 1. Organization of
the Company and Significant Accounting Policies (continued)
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 fiscal year 2020 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 Company has adopted this pronouncement
and the accounting change does not have a material effect on our financial statements.
The
Company has adopted ASC 606, which requires the company to disclose sufficient information to enable users of the financial statements
to understand the nature, amount, timing and uncertainly of revenue and cash flows arising from contracts with customers. There
has been no material effect on income, net income and per share amounts. There are no restated amounts or adjustments. The Company
has adopted a retrospective approach to adopting these standards. These standards have been implemented by management and there
are no outstanding issues to be addressed.
In
February 2018 the FASB Issued ASU No. 2018-02
Income Statement – Reporting Comprehensive Income (Topic 220)
Concerning
the Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow
a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the
Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act
and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate
to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the
effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this
Update also require certain disclosures about stranded tax effects. The amendments in this Update are effective for all entities
for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has reviewed the
ASU and does not expect the accounting change to have a material effect on our 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 raises substantial doubt about the Company’s ability to continue as a going concern. Management has made
this assessment for the period one year from date of the issuance of these financial statements. Management’s plans with
regard to this matter are to continue to fund its operations through fundraising activities in fiscal 2019 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.
The Company had 11,631,500
and 13,841,500 shares of Common Stock issuable upon exercise of all outstanding stock options and warrants for the quarters ended
December 31, 2018 and 2017, respectively; and, 1,680,237 and 3,261,548 shares issuable on the conversion of outstanding Convertible
Notes for quarters ended December 31, 2018 and 2017, respectively.
Net Loss per share for the following
quarters is computed below:
|
|
3 months
|
|
|
3 months
|
|
|
|
Dec 31, 2018
|
|
|
Dec 31, 2017
|
|
Net Loss
|
|
$
|
(294,430
|
)
|
|
$
|
(554,393
|
)
|
Weighted average shares outstanding, basic and diluted
|
|
|
48,224,018
|
|
|
|
43,757,135
|
|
Basic & fully diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
NOTE 4. Fixed Assets
The fixed assets accounts of
the Company are comprised as follows:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Laboratory Equipment
|
|
$
|
416,879
|
|
|
$
|
416,879
|
|
Laboratory Leasehold Improvements
|
|
|
110,286
|
|
|
|
84,608
|
|
Laboratory Furniture
|
|
|
1,841
|
|
|
|
1,841
|
|
Office Equipment
|
|
|
23,988
|
|
|
|
23,988
|
|
Office Leasehold Improvements
|
|
|
2,650
|
|
|
|
2,650
|
|
Office Furniture
|
|
|
1,812
|
|
|
|
1,812
|
|
Accumulated Depreciation
|
|
|
(293,793
|
)
|
|
|
(287,071
|
)
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment
|
|
$
|
263,663
|
|
|
$
|
244,707
|
|
Depreciation
expense for quarters ended December 31, 2018 and December 31, 2017 was $6,722 and $5,963 respectively.
Note
5. Patent & Patents Filings
The patent
and patents development are recorded at cost and are being amortized on a straight line basis over a period of seventeen years.
The company capitalizes Legal and Administrative Fees incurred in the process of filing for its patents. The Company has only
been amortizing the patents issued. Accumulated Amortization as of December 31, 2018 and September 30, 2018 was $18,014 and $17,065,
respectively. Amortization Expense for the quarters ended December 31, 2018 and 2017 was $949 and $2,521, respectively.
Patents
still in the application process have not been amortized. The unamortized costs of patents in the application process are $296,598
for the quarter ended December 31, 2018 and $291,027 for Fiscal 2017.
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 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 addition 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:
A business
method for Collection, Cryogenic Storage and Distribution of a Biologic Sample Material US Serial No 13/702,304 filed June 6,
2011 with a priority date of June 6, 2010.
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.
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.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
Note
5. Patent & Patents Filings
(continued)
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 as of December 31, 2018:
Debt
|
|
Carrying Value
|
|
|
|
Maturity
|
|
|
Rate
|
|
Bridge Notes
|
|
$
|
226,500
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 40 cents
|
|
$
|
100,000
|
|
|
|
Fiscal 2020
|
|
|
|
8.00
|
%
|
Convertible Notes @ 35 cents
|
|
$
|
83,500
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 30 cents
|
|
$
|
45,000
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 20 cents
|
|
$
|
155,000
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 15 cents
|
|
$
|
40,000
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Capital Lease
|
|
$
|
86,040
|
|
|
|
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 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.
On April 6, 2018, the Company
issued a debenture and received proceeds of $100,000. The debenture matures in March 2020 and has an exercise price of $.40 with
interest at 8%. The entire Carrying Value of $100,000 is due in March 2020.
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 Quarter Ended December 31, 2018 was
$12,500. The note is discounted due to the Beneficial Conversion Feature in the amount of $62,500 as of December 31, 2018 and
$75,000 as of September 30, 2018.
Note
7. Common Stock Issuances
During fiscal 2018, the Company
issued 3,072,976 shares for Convertible Notes exercised at a value of $540,500. The share prices for these conversions were determined
from the convertible note agreements.
During fiscal 2018, the Company
issued 1,145,000 shares for Options exercised at a value of $165,500. The share prices for these option exercises were determined
from the option grants.
During fiscal 2018, the Company
issued 80,000 shares to consultants for services rendered valued at $64,050. The share prices were determined by the market price
on the date the shares were issued.
During fiscal 2018, the Company
issued 118,461 shares to pay interest due to holders of the bridge notes and convertible notes. The value of the interest paid
was $62,232. The share prices were determined by the aggregate market price for the week in which the shares were issued.
During fiscal 2018, the Company
issued 219,290 shares to pay an outstanding legal bill. The shares issued were valued at $186,396. The share prices were determined
by the market price on the date the shares were issued.
During fiscal 2018, the Company
issued 35,013 shares to build a “clean room” at the laboratory. The shares issued were valued at $33,262. The share
prices were determined by the market price on the date the shares were issued.
During fiscal 2018, the Company
issued 115,890 for nine months of rent from May 2018 through January 2019. The shares issued were valued at $110,096. The share
prices were determined by the market price on the date the shares were issued.
During the quarter ended December
31, 2018, the Company issued 116,667 shares and received proceeds of $35,000. The share price was .30 per share.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
Note
7. Common Stock Issuances (continued)
During
the quarter ended December 31, 2018, the Company issued 34,372 shares to pay interest due to holders of the bridge notes and convertible
notes. The value of the interest paid was $22,419. The share prices were determined by the aggregate market price for the
week in which the shares were issued.
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. The intrinsic value of the shares underlying
the options is zero.
The Company
normally issues options to its key personnel and consultants at the end of each fiscal year or as may be included in retainer
or employment agreements. The Company prepares an option agreement for each option grant that includes the date of the grant,
the vesting schedule, the expiration date and other terms of the granted options. The Company’s option plan calls
for the immediate expiration and cancellation of the granted options in the event of the termination of employment or the contract
associated with the original option grant except for certain circumstances including retirement or disability. The Company’s
method for exercising options is to require delivery of the executed option agreement with the payment of the option price to
the Company by the option holder. Upon receipt and confirmation of payment of the exercise price by Company management, the Company
prepares board minutes and issues instructions to the Company’s transfer agent to issue the requisite number of shares underlying
the option exercise. Using the Black-Sholes valuation method the company issued options and recorded compensation
of $30,121 and $549,023 for the quarters ended December 31, 2018 and 2017, respectively and there is $70,281 of unrecognized expense
due to unvested options as of December 31, 2018.
|
|
Amount
|
|
|
Exercise
Price Range
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term (Yrs)
|
|
Outstanding at September 30, 2017
|
|
|
14,776,500
|
|
|
$
|
0.05 - $0.40
|
|
|
$
|
0.25
|
|
|
|
2.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
500,000
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,145,000
|
)
|
|
$
|
0.01 - $0.40
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,825,000
|
)
|
|
$
|
0.15
- $0.40
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
12,306,500
|
|
|
$
|
0.05
- $0.40
|
|
|
$
|
0.26
|
|
|
|
2.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
12,306,500
|
|
|
$
|
0.05
- $0.40
|
|
|
$
|
0.26
|
|
|
|
2.10
|
|
Exercisable at December 31, 2018
|
|
|
11,631,500
|
|
|
$
|
0.05 - $0.40
|
|
|
$
|
0.25
|
|
|
|
2.02
|
|
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
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 Company
valued its investments in Baoxin and Autogenisis along with the Bridge Notes and Convertible Notes at cost for the quarter ended
December 31, 2018 and Fiscal 2018. Stock Options were valued using level 3 hierarchy.
NOTE 10. Commitments & Contingencies
The Company was committed to
a non-cancelable lease for 1,628 square feet lab space in South Brunswick, New Jersey for a rent of $5,343 per month.
On May 1, 2018, the Company
expanded its laboratory facilities by leasing an additional 722 square feet for a Clean Room. For the nine months from May 1,
2018 to January 2019, the rent increased to $7,732 per month. The Company paid for 50% of the rent for the nine month period by
issuing shares of common stock to the landlord.
Minimum lease payments under
this lease are as follows:
Fiscal 2019
|
|
$
|
3,865
|
|
Total minimum lease payments
|
|
$
|
3,865
|
|
These remaining
lease payments are due in cash.
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 payments for
this lease are as follows:
Fiscal 2019
|
|
$
|
23,850
|
|
Fiscal 2020
|
|
|
31,800
|
|
Fiscal 2021
|
|
|
18,550
|
|
Total minimum lease payments
|
|
$
|
82,150
|
|
Rent Expense
was $56,244 for the quarter ended December 31, 2018 and $23,979 for the quarter ended December 31, 2017.
The Company entered into a
capital lease for lab equipment in 2018. The minimum lease payments due on the capital lease are as follows.
Fiscal 2019
|
|
|
31,676
|
|
Fiscal 2020
|
|
|
42,235
|
|
Fiscal 2021
|
|
|
28,157
|
|
Total minimum lease payments
|
|
$
|
102,069
|
|
Less amounts representing interest
|
|
|
(16,029
|
)
|
Present value of net minimum lease payments
|
|
$
|
86,040
|
|
The Company is not party to any litigation against it and is not aware of any litigation contemplated against it as of December
31, 2018.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
December 31,
2018
Unaudited
NOTE 11. Concentration of Credit
The Company received approximately
86% of its revenues in for the quarter ended December 31, 2018 from one client, Baoxin. The Company also had accounts receivable
from Baoxin of $300,000 for the quarter ended December 31, 2018.
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 Ltd., a Chinese company that is involved in tissue storage
and processing in Baoxin, China. Baoxin is not a publically traded corporation and the investment is carried at cost at
December 31, 2018. The Company annually reviews its investments for impairment and has determined that no impairment of its investment
is necessary for the quarter ended December 31, 2018.
Baoxin will develop, own and operate
multiple laboratory/treatment/training facilities in China using the American CryoStem’s intellectual property. American
CryoStem has received an upfront fee of $300,000 USD and a 5 year minimum annual guarantee of $500,000 USD per year from Baoxin.
Additionally, as part of the transaction American CryoStem 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 GMO 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
The Company was indebted to a company
that is majority owned by the Company’s two officers/directors in the amount of $204,110 for the quarter ended December
31, 2018 and $107,189 for Fiscal 2018. The advances are unsecured, and carry no interest rate and are collectible at the discretion
of the company’s two officers/directors. The officers/directors do not anticipate collecting this in the next twelve months.
The Company has accrued salaries for Mr. Arnone and Mr. Dudzinski and we do not foresee paying the accrued amounts until the Company
has adequate funds to do so.
Note
14. Non-Cash Transactions
During the quarter
ended December 31, 2018, the Company issued shares of common stock to pay interest expense on the convertible notes and bridge
notes in the amount of $22,419.
NOTE 15. Subsequent Events
The Company
has made a review of material subsequent events from December 31, 2018 through the date of issuance of this report. There are
no subsequent events to report as of the issuance of this report.
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;
|
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|
|
|
·
|
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;
|
|
|
|
|
·
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Litigation
with or legal claims and allegations by outside parties; and
|
|
|
|
|
·
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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. Additionally, the Company has been engaged in upgrading its facility from a tissue
bank to a biologic drug manufacturing facility. These upgrades include the addition of new space and a new clean room, retention
of consultants to assist the company with upgrades to our procedures, methods and materials to ensure compliance with FDA regulations.
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 incorporates its proprietary and patented or patent pending laboratory products,
such as our
ACSelerate
™ cell culture media, into our processing product production and contract manufacturing services.
Additionally, the Company requires licensee’s of our tissue and cell processing technologies to purchase the consumable
products required in the collection, processing and storage of tissue/stem cells as part of the licensing agreement including
our
CELLECT
®
Collection, Transportation, and Storage System
and
ACSelerate
™
Cell Culture Media
Products.
To date,
we have generated minimal revenue; however, subject to, among other factors, obtaining the requisite financing, management believes
that we are well positioned to utilize our developed products and services as the foundation for domestic and international distribution
through licensees of our technologies, and a host of Regenerative Medicine application uses and future therapy products. In the
US we operate an FDA registered facility that generates revenue from; the processing and storage of adipose tissue (ATGRAFT),
the processing of adipose tissue into its cellular components for future use (ATCELL) and the production and sale of our CELLECT
®
tissue collection boxes, and patented media products.
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 proprietary 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 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) –
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.
Additionally,
the Company believes it will earn additional fees based upon the proposed storage configuration of the final ATCELL
™
sample, and for future product creation by culturing additional samples in the ACSelerate
™
cell culture and differentiation media. Cell culturing and differentiation can be performed upon receipt of the raw tissue sample
or at any time on a previously processed and cryopreserved ATGRAFT
™
or ATCELL
™
sample. ATCELL
™
has shown that it is ideally suited for expansion and differentiation
into additional cell types utilizing the ACSelerate
™
line of culture and differentiation mediums.
The ATCELL
™
processing, products and services are incorporated into our granted patent “Systems
and Methods for the Digestion of Adipose Tissue Samples Obtained from a Client for Cryopreservation” US 10,154,664 issued
December 18, 2018, and “Business Method for Collection, Processing, Cryogenic Storage and Distribution of a Biologic Sample
Material” US Patent Number 10,014,079, issued July 3, 2018. The ACSelerate Medium products are incorporated into our granted
patents “Cell Culture Media, Kits and Methods of Use”, US Patent No. 7,989,205 issued August 2, 2011 with additional
claims granted in US Patent No. 9,487,755 granted November 8,20146.
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 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
entered into a licensing and manufacturing agreement with PeproTech (April 4, 2016) 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. PeproTech 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 licensed medium is marketed under both PeproTech’s PeproGrow and the Company’s ACSelerate
MAX brands.
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.
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
China
On
July 12, 2018 the Company announced the national launch of CRYO’s ATGRAFT
TM
tissue collection, processing and
storage technology by Baoxin Asia Pacific Biotechnology (Shenzhen) Co. Ltd. (“Baoxin”) in China. The Company’s
management team traveled throughout south east China with the management and marketing team of Baoxin to present the ATGRAFT
TM
platform
to leading plastic and cosmetic surgery hospitals in Shenzhen, Nanning, Guangzhou, Guangxi and Changsha. Additionally, Mr. Arnone
and Mr. Dudzinski attended the signing of investment documents between Baoxin and Chinese government and Banking officials in
Shenzhen, China as well as the official launch presentation and evening gala hosted by Baoxin in Shenzhen.
The
China launch activities are in support of the Company’s previously announced licensing and supply agreement with Baoxin, under
which Baoxin will pay the Company a minimum annual guarantee against a fixed fee per process and purchase certain necessary consumables
from CRYO required for the collection, processing and storage of the collected adipose tissue. Under the terms of the Agreements
signed in Fiscal 2018, the Company invested in and currently holds five percent (5%) of Baoxin shares. Additionally, Mr. Arnone
and Mr. Dudzinski were elected to serve as Directors of Baoxin during their visit to Shenzhen, China.
Hong
Kong
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
for Hong Kong. The Agreement called for upfront fees, royalties and the purchase by HIT of certain consumables manufactured by
the Company. The Company and HIT 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 kits as well as other American CryoStem products
necessary for clinical adipose tissue processing and storage at the Shenzhen 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.
In
2017 as part of the Company’s transaction with Baoxin, HIT and the Company agreed to transfer certain product and distribution
rights granted to HIT under its 2014 agreement to Baoxin. The Company was paid of fee of US$100,000 in the transaction and was
provided with an initial ownership position in a planned Regenerative Treatment Center to be established by HIT in Hong Kong.
Thailand
On
April 5, 2018 the Company announced further expansion of its global laboratory and cellular technology footprint by entering into
an agreement dated March 23, 2018 to license its ATGRAFT™ and ATCELL adipose tissue (fat) processing and storage technologies
with Cryoviva (Thailand) Ltd., 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 has 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 generally, call 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.
Japan
In
June 2015, The Company entered into a licensing 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 the ATGRAFT
™
processing and recordkeeping
procedures. CellSource began marketing the new services initially within its existing network of clinics throughout Japan and
began purchasing its CELLECT
™
and ACSelerate-CP
™
cryoprotectant from the Company in the third
quarter of 2015. 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 non-exclusive agreement expires in June of 2020 and may
be renewed for an additional term upon expiration.
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 focus
our efforts on expanding our product 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 collaborations by providing our products and services (ACSelerate
™
and ATCELL
™
)
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.
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 manufactures,
markets and distributes 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 plans to leverage its current global sales relationships which reach a majority
of all research laboratories worldwide to maximize distribution of the optimized media while the Company will concentrate its
sales efforts on its collaborative and international licensing partners. Additionally, the Company and PeproTech are discussing
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.
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. The Company filed
a preliminary IND brief with the FDA in April of 2018 and requested a Pre-IND meeting with the FDA which was held by on June 1,
2018. The Company received additional comments from the FDA late June of 2018 and has incorporated these comments into the pending
Application. 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 2019. The Company continues to implement the necessary facility and operational upgrades necessary to convert
its tissue banking facility into a cGMP drug manufacturing facility. This has included the hiring of new consultants, upgrades
to the existing facility infrastructure, additional leased space and the installation of a new clean room processing area within
the new space. To date the installation, certification and qualification validation of the new clean room and the accompanying
equipment has been completed and training and material validation and qualification have been initiated. The Company believes
that it can complete the remaining qualification, certification, validation, testing, and documentation requirements in the second
calendar quarter of 2019.
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 four issued U.S. patents (No. 7,989,205,
and Serial No. 9,487,755,
Cell Culture Media Kits and Methods of Use,
“Systems and Methods for the Digestion of
Adipose Tissue Samples Obtained from a Client for Cryopreservation” US 10,154,664 issued December 18, 2018, and “Business
Method for Collection, Processing, Cryogenic Storage and Distribution of a Biologic Sample Material” US Patent Number 10,014,079,
issued July 3, 2018
); and has additional pending patent applications which are detailed in the following chart:
Title
|
Technology
|
Patent
/ 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, additional International Filings for China, India, the European Union, Saudi Arabia, Israel, Brazil,
Mexico, Australia and New Zealand.
|
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
Serial No 13/194,900
Filed June 6, 2010
Patent Application Published
December 5, 2013 Claims Granted
US Patent No. 10,014,079. Continuation filed upon issuance.
|
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
|
U.S.
Serial No. 13/646,647 filed October 6, 2011, Claims Granted US Patent No.10,154,664 December 18,2018. Continuation filed
upon issuance.
|
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, Cryoprocessing, 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, Cryoprocessing, 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 the following IP:
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.
Cell
Culture Market
Cell Culture
Market Global Forecast to 2023
, according to “marketsandmarkets” the cell culture market is expected to reach
USD $26.28 Billion by 2023 from USD $15.32 Billion in 2018, at a CAGR of 11.4%. Growth in this market is driven by the growing
number of regulatory approvals for cell culture-based vaccines, increasing demand for monoclonal antibodies (mAbs), funding for
cell-based research, growing preference for single-use technologies, and the launch of advanced cell culture products.
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 entered into an agreement to license its ATGRAFT™ and ATCELL adipose tissue (fat) processing
and storage technologies with 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.
Baoxin
Asia Pacific Biotechnology (Shenzhen) Co., Ltd
On July 12,
2018 The Company announced the national launch of CRYO’s ATGRAFT
TM
tissue collection, processing and storage
technology by Baoxin Asia Pacific Biotechnology (Shenzhen) Co. Ltd. (“Baoxin”) in China. The management team traveled
throughout south east China with the management and marketing team of Baoxin to present the ATGRAFT
TM
platform
to leading plastic and cosmetic surgery hospitals in Shenzhen, Nanning, Guangzhou, Guangxi and Changsha. The China launch activities
are in support of the Company’s previously announced licensing and supply agreement with Baoxin, under which Baoxin will
pay the Company a minimum annual guarantee against a fixed fee per process and purchase certain necessary consumables from CRYO
required for the collection, processing and storage of the collected adipose tissue. Under the terms of the Agreements signed
in Fiscal 2018, the Company invested in and currently holds five percent (5%) of Baoxin shares. Additionally, Mr. Arnone and Mr.
Dudzinski were elected to serve as Directors of Baoxin during their visit to Shenzhen, China.
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 agreement licensing the ATGRAFT
™
technology to CellSource for Japan. The non- exclusive agreement expires in June of 2020 and may be renewed for an additional
term upon expiration.
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.
In 2017
as part of the Company’s transaction with Baoxin, HIT and the Company agreed to transfer certain product and distribution
rights granted to HIT under its 2014 agreement to Baoxin. The Company was paid of fee in the transaction and was provided with
an initial ownership position in a planned Regenerative Treatment Center to be established by HIT in Hong Kong.
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 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.
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 raises substantial doubt about the Company’s ability to continue as a going concern. Management has made
this assessment for the period one year from date of the issuance of these financial statements. Management’s plans with
regard to this matter is to continue to fund its operations through fundraising activities in fiscal 2019 to fund future operations
and business expansion.
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- Three Months
The
Company’s revenue for the quarter ended December 31, 2018 decreased to $115,391 versus $455,892 in the same period of Fiscal
2018, a decrease of 74.6%, 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 decreased to $110,614 compared
to $126,667 in Fiscal 2018, a decrease of 12.6%.
Administrative
expenses decreased to $371,788 for the quarter ended December 31, 2018, a decrease of 58.8% from the same period for Fiscal
2018. The main cause in the decrease was lower expenses associated with stock compensation expense.
Interest
expense for the quarter ending December 31, 2018 decreased to $28,953 as compared to $29,541 for the same period last year. The
interest expense for December 31, 2018 includes $12,500 for the effects of the beneficial conversion feature associated with debenture
holders converting their debentures.
Net
loss for the first quarter of Fiscal 2019 was $294,430, compared to a loss of $554,393 for the same period of 2018.
Net
loss per share for the quarter ended December 31, 2018 was $0.01, compared to $0.01 for the same quarter last year.
Liquidity
and Capital Resources
As
of December 31, 2018, the Company had a cash balance of $27,225 a decrease of $41,095 since September 30, 2018, our fiscal year
end. Operations used $134,418 of our cash. We used $31,251 in cash for investments including $25,679 for the purchase of lab equipment
and $5,572 in patent development and maintenance. The main sources of cash provided by financing activities including new equity
issuances and an additional loan from ACS Global, Inc. and from licensing fees during the three months ended December 31, 2018.
Our
accounts receivable increased to $302,178 at December 31, 2018 from $217,318 at September 30, 2018 mainly due from Baoxin for
licensing fees. Convertible debt decreased to $347,143 as more of our debenture holders converted to shares.
The Company
will continue to focus on its financing and investment activities but 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. Please see “Cash Requirements” above for our existing plans with respect to raising
the capital we believe will be required. In the event that we are able to obtain the necessary financing to move forward with
our business plan, we expect that our expenses will increase significantly as we attempt to grow our business. Accordingly, the
above estimates for the financing required may not be accurate and must be considered in light these circumstances.
There
was no significant impact on the Company’s operations as a result of inflation for the three months ended December 31, 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. On January 14, 2019 the Company terminated its agreement with Gramatan, LLC. Fees due per the terms
of the agreement are included in administrative expenses in the Company’s financial statements. Management also focuses
its efforts on increasing sales and licensing revenue and reducing expenses.
Commitments
The
Company was committed to a non-cancelable lease for 1,628 square feet lab space in South Brunswick, New Jersey for a rent of $5,343
per month.
On
May 1, 2018, the Company expanded its laboratory facilities by leasing an additional 722 square feet for a Clean Room. For the
nine months from May 1, 2018 to January 2019, the rent increased to $7,732 per month. The Company paid for 50% of the rent for
the nine month period by issuing shares of common stock to the landlord.
Minimum
lease payments under this lease are as follows:
Fiscal 2019
|
|
$
|
3,865
|
|
Total Minimum Lease Payments
|
|
$
|
3,865
|
|
These
remaining lease payments are due in cash.
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 payments for this lease are as follows:
Fiscal 2019
|
|
$
|
23,850
|
|
Fiscal 2020
|
|
|
31,800
|
|
Fiscal 2021
|
|
|
18,550
|
|
Total minimum lease payments
|
|
$
|
82,150
|
|
The
Company entered into a capital lease for lab equipment in 2018. The minimum lease payments due on the capital lease are as follows.
Fiscal 2019
|
|
|
31,676
|
|
Fiscal 2020
|
|
|
42,235
|
|
Fiscal 2021
|
|
|
28,157
|
|
Total minimum lease payments
|
|
$
|
102,069
|
|
Less amounts representing interest
|
|
|
(16,029
|
)
|
Present value of net minimum lease payments
|
|
$
|
86,040
|
|
Depreciation
Expense for the leased equipment for the first three months or Fiscal 2019 was $4,596.
The
Company is not party to any litigation against it and is not aware of any litigation contemplated against it as of December 31,
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 December 31, 2018, the
Company was indebted to a company that is majority owned by the Company’s two chief executive officers for $204,110. 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
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 fiscal year 2020 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
Company has adopted ASC 606, which requires the company to disclose sufficient information to enable users of the financial statements
to understand the nature, amount, timing and uncertainly of revenue and cash flows arising from contracts with customers. There
has been no material effect on income, net income and per share amounts. There are no restated amounts or adjustments. The Company
has adopted a retrospective approach to adopting these standards. These standards have been implemented by management and there
are no outstanding issues to be addressed.
In February
2018 the FASB Issued ASU No. 2018-02
Income Statement – Reporting Comprehensive Income (Topic 220)
Concerning the
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve
the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification
of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax
laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain
disclosures about stranded tax effects. The amendments in this Update are effective for all entities for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. The Company has reviewed the ASU and do not expect the
accounting change to have a material effect on our financial statements.