PART I
Item 1.
Business
Company
Overview
History
We were 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 our common stock, par value $0.001 per share, 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 including, but not limited to, the appointment of
our present officers and directors as well as the resignation by the former chief executive officer and sole director. Our fiscal
year ends September 30 of each calendar year.
Upon the closing
of the Asset Purchase: (i) ACS Global became our majority shareholder, (ii) John Arnone was appointed as our chief executive officer
and president and Anthony Dudzinski was appointed as our chief operating officer, treasurer and secretary, and (iii) John Arnone
and Anthony Dudzinski were appointed to our board of directors, with Mr. Arnone being appointed as Chairman of the Board. Mr.
Dudzinski is also a director and the president and treasurer of ACS Global and Mr. Arnone is a director and secretary of ACS Global.
Our Business
About American
CryoStem Corporation
American CryoStem
Corporation; (CRYO) founded in 2008, has evolved to become a biotechnology pioneer, standardizing adipose tissue derived technologies
(Adult Stem Cells) for the fields of Regenerative and Personalized Medicine. The Company operates a state-of-art, FDA-registered
laboratory in Monmouth Junction, New Jersey and licensed laboratories in Hong Kong, China and Thailand which operate on our proprietary
platform, dedicated to the collection, processing, bio-banking of adipose tissue (fat) and culturing and differentiation of adipose
derived stem cells (ADSCs) for current or future use in regenerative medicine. CRYO maintains a strategic portfolio of intellectual
property (IP) that surrounds our technology which supports a growing pipeline of stem cell applications and biologic products.
We are leveraging our platform and a developed product portfolio to create a domestic and global footprint of licensed laboratory
affiliates, physicians networks, patients and research organizations who purchase tissue collection, processing and storage consumables
from our Company. Our laboratory stem cell products foundation are characterized adult human Mesenchymal Stem Cell (MSC’s)
derived from adipose tissue that work in conjunction with our patented (non-animal) medium lines. The Company’s R&D
efforts are focused on university and private collaborations to discover, develop and commercialize ADSC and laboratory products
combined with synergistic technologies to create regenerative medicine applications and new intellectual property.
The Company
believes the reproducibility of scientific studies has become a substantial issue in life science research from drug discovery
and development through trials as researchers throughout the world continue to use different protocols for processes associated
with sample preparation, cryopreservation and cold chain management. We believe the scientific community is becoming more aware
of factors that affect sample integrity and experimental variability. By standardizing handling, storage, and transportation protocols
we can substantially improve the quality and reproducibility of adipose tissue and cell collection, processing, storage and retrieval
which will help to accelerate the transition from lab research to therapy development and market launch. To this end, we have
licensed affiliates operating on our cellular collection-processing and storage platform in Thailand, Hong Kong, and China.
Significant
to our efforts to advance our technology and business methods, the Company filed its first Investigational New Drug
Application (IND) with the US Food and Drug Administration (FDA) for our ATCELL cellular therapy product. The IND filing is
titled “ATCell™ Expanded Autologous Adipose Derived Mesenchymal Stem Cells deployed via Intravenous Infusion
for the Treatment of Post Concussion Syndrome (PCS) in Retired Athletes and Military Personnel” File number 19089
was approved by the FDA on September 17, 2020. In advance of the filing the Company built and validated a new cGMP clean room
processing and manufacturing area at our facility in Monmouth Junction, New Jersey, implemented and validated new Standard
Operating Procedures and installed a new Quality Management System.
Our proprietary,
patented 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 stem cell therapies. Currently, we believe there are numerous therapeutic
and orthopedic applications for adipose tissue and adult stem cell treatments 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 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.
CELLECT®
Collection, Transportation, and Storage System – An unbreakable “chain of custody” solution for
physicians to collect and deliver tissue samples utilizing proprietary and patent pending methods and materials. The CELLECT®
service is monitored in real-time and assures the highest cell viability upon laboratory receipt. The CELLECT®
system incorporates our ACSelerate–TR™ transport medium into all collection bags which supports the
health of the tissue during transport. The CELLECT® kit is an integral part of our ATGRAFT™ and
ATCELL™ technology to be used by all licensees of our technologies. The CELLECT® service is included
in our granted patent “Business Method for Collection, Processing, Cryogenic Storage and Distribution of a Biologic Sample
Material” US Patent Number 10,014,079, issued July 3, 2018.
American CryoStem
is the first tissue bank to globally incorporate through its CELLECT® service the International Blood Banking
identification, 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 laboratory facility. The Company will promote this standard in all laboratories that
license or utilize our technology.
ATGRAFT™
Adipose Tissue Storage Service –An adipose tissue (fat) collection, processing and storage solution allowing physicians
to provide their patients with multiple tissue products and cell storage options. The ATGRAFT™ service,
through one liposuction procedure allows individuals to prepare for multiple future cosmetic or regenerative procedures by using
their own stored adipose tissue as natural biocompatible filler, or the components for multiple cellular therapy application 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”™,
for use in Regenerative Medicine applications. The ATGRAFT™ service is included in our granted patent
“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 Company’s
charges standardized fees for ATGRAFT™ tissue processing and minimum annual storage fees depending on
the volume of tissue processed. These processing and storage fees may be paid by the collecting/treating physician or the consumer.
The Company earns additional fees upon sample retrieval, for the thawing, packaging and shipment of the stored samples to the
physician, clinic or “point-of-care” for immediate use upon receipt. Additionally, physicians may request that any
stored ATGRAFT™ tissue sample of 25ml or greater be reprocessed utilizing the Company’s ATCELL™
and Autokine-CM™ processing to create therapy or cosmetic products, on-demand.
The Company
believes the ATGRAFT™ service creates patient retention and significant revenue opportunities for the
participating physician. The ATGRAFT™ service lowers physician overall costs related to tissue transfer
services and multiple therapy applications by eliminating the cost of additional liposuction(s) 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 for research purposes 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 may be custom created for patients desiring to store their cells for their own future use in Regenerative Medicine
procedures. The Company charges its customers a fee to reprocess previously stored ATGRAFT™ (pure
fat) samples and for newly collected client tissue samples to be processed into cellular samples. Customer samples are processed
utilizing 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, 2016.
The Company’s
ATCELL™ cell lines are processed and cultured in our patented ACSelerate™ cell
culture media. All CRYO processed samples; tissue, cells, and research materials made available for therapies, tissue transfer
or sale to research institutions are tested for sterility, disease, lifespan, and population doubling rate (PDL). Additionally,
we believe ATCELL™ cells are suited for any type of cellular therapy or regenerative medicine research.
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 sought
after by private researchers and universities for use in pre-clinical trial studies and in-vitro research due to our processing
methodology, donor sample data, the ability to create multiple cell types that have identical genetic profiles, and achieving
repeatable results. We believe the 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 the ability to focus on application
development and avoid bench to commercialization delays. The Company is prepared to distribute research samples of its ATCELL™
cell products to users of its ACSelerate™ cell culture media for application development.
The Company
received approval of its first Investigational New Drug Application (IND) with the US Food and Drug Administration (FDA) for the
ATCELL cellular therapy product. The IND filing is titled “ATCell™ Expanded Autologous Adipose Derived Mesenchymal
Stem Cells deployed via Intravenous Infusion for the Treatment of Post Concussion Syndrome (PCS) in Retired Athletes and Military
Personnel”, File number 19089, on September 17, 2020.
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 of the Company’s ACSelerate™
cell culture media lines are available in animal serum free, which may be suitable for human and therapeutic uses or
available in a low serum version for application development and research purposes. The patented ACSelerate™
cell culture media line(s) 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 grade and FBS (research) grade. This patent covers both non-GMP
research grades and GMP grades suitable for cell culture of adipose-derived stem cells. 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 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.
The Company
supports its marketing efforts by making ATCELL™ samples available for research purposes and for
internal product development through our research programs. We believe these cell lines may be 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 these materials for these research and development collaborators, partners and other third parties extends the Company’s
ability to become a primary source of grade materials and services necessary to support approved applications and treatments.
The
Company has created several versions of its ACSelerate™ cell culture media including:
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ACSelerate-MAX™
-xeno serum free cell culture media,
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ACSelerate-SFM™
- animal serum free cell culture media,
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ACSelerate-LSM™
- low FBS (0.05%) cell culture media,
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ACSelerate-CY™-
for differentiation of ATCELL™ into chondrocytes (ATCELL-CY™),
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ACSelerate-OB™-
for differentiation of ATCELL™ into osteoblasts (ATCELL-OB™)
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ACSelerate-AD™
- for differentiation of ATCELL™ into adipocytes (ATCELL-AD™)
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ACSelerate-MY™-
for differentiation of ATCELL™ into myocytes (ATCELL-MY™)
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ACSelerate-CP™-
non-DMSO (Dimethyl Sulfoxide) cellular cryopreservation media
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ACSelerate-TR™-
sterile transportation medium designed to maintain the viability of the tissue during
the shipment of adipose tissue to our processing facility.
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The Company
continues to optimize additional versions of ACSelerate™ media through further research that may be necessary
for use in future applications. Many of these applications may not be currently approved by the US Food and Drug Administration.
On December 31, 2014 the Company filed a patent application for an advanced medium formulation titled Human Albumin Serum for
Cell Culture Medium for Growth of Human Adipose Stromal Cells. (US Serial No. 62/098799) representing the most recent results
of this ongoing optimization program. On December 31, 2015, the Company converted the provisional patent application to an international
PCT filing (PCT/US/68350) under the title Human Serum for Cell Culture for Growth of Human Adipose Stromal Cells. To date the
patent has also been filed in the following additional countries: China and Hong Kong, India, Mexico, Brazil, the European Union,
US, Japan, Thailand, Brazil, Russia, Australia, New Zealand, Canada, and Saudi Arabia.
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. Every product
is genetically unique to the patient and custom blended, deriving its key ingredients from the individual client’s own adipose
derived 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
(SOP’s) 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 to promote ATGRAFT™ and ATCELL™
products.
CRYO’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 cellular therapies
and regenerative medicine applications. The Company has received numerous 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 and Personalized 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, China, and Thailand.
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 the global market for stem
cells 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.
(https://www.transparencymarketresearch.com/pressrelease/stem-cells-market.htm)
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, additional minimum annual payments, and consumable product
sales revenue. The non-exclusive agreement expired in June of 2020.
China
On July
12, 2018, the Company announced the national launch of CRYO’s ATGRAFT™ 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™
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. Mr. Arnone resigned as a
board Member of Baoxin in 2019. Mr. Dudzinski continues to serve the Company’s interests as a board member of Baoxin.
During
Fiscal 2020 due to the effects and government regulations Baoxin suspended operations from February 2020 to October 2020. We have
been informed by the Company Chairman and CEO that they and recently completed their new facility located in Shenzhen, China.
CRYO management is working with Baoxin during this time to assist them in bringing their new facility online for processing tissue
in 2021.
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 calls 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. The HIT license has been extended per the terms
of Schedule B of the Term Sheet, dated June 30, 2014, for an additional 3 year period to June 30, 2023.
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 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.
The Company
has been assisting CRYOVIVA with the development of their branding and marketing campaign for Thailand and providing technical
assistance and support for their import of consumables purchased from the Company. CRYOVIVA has scheduled the launch of its marketing
campaign for the first quarter of 2020. Unfortunately, due to the global impact from COVID-19, CRYOVIVA suspended their tissue
banking operation for most of fiscal 2020 (February to November). We are currently assisting them with the restart of their operations
and initiation of their marketing program for calendar 2021.
Product
Development
Our strategic
approach to product development is to design, develop and launch new products and services that utilize our core processing technology,
existing products and services, i.e. the use of the CELLECT® collection materials by contracted companies to collect
fresh tissue for their product. Management believes that allowing other biotech companies to utilize portions of our platform
will provide the Company with additional 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 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.
The Company
filed its first Investigational New Drug Application (IND) with the US Food and Drug Administration (FDA) for the ATCELL cellular
therapy product. The IND filing is titled “ATCell™ Expanded Autologous Adipose Derived Mesenchymal Stem Cells deployed
via Intravenous Infusion for the Treatment of Post Concussion Syndrome (PCS) in Retired Athletes and Military Personnel”,
File number 19089, which was approved by the FDA on September 17, 2020. The Company intends to invite additional developers of
cellular therapies to initiate additional arms of the clinical study focused on the use of ATCELL for use in systemic inflammatory
response relief for patient suffering from systemic diseases. A number of these additional study targets have been identified
and ongoing discussions support the Company’s belief that additional investigations can be developed and rapidly added upon
completion of the new study protocol and outcome assessment methodologies. The Company is currently developing additional studies
for Duchenne Muscular Dystrophy with RACEMD, osteoarthritis and post COVID-19 complications with an expectation that these additional
studies will be filed in fiscal 2021.
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.
The Company is in ongoing discussion with PeproTech related to increasing the visibility and sales of the medium and the optimization
of additional medium products focused on the differentiation of adult stem cells that are synergistic to the cell culture medium.
BioLife
Customer and Physician Acquisition
In
February 2015, the Company entered into a binding asset purchase agreement with BioLife Cell Bank Dallas, LLC and BioLife
Cell Bank Management, LLC (collectively “BioLife”), to purchase all of BioLife’s current adipose tissue,
stem cell storage clients samples, and physician network. The transaction was concluded in March of 2015. Transfer of the
adipose tissue samples was completed on April 24, 2015. The Company initiated annual storage fee billing to the acquired
storage clients in June of 2015. Management believes that, with the acquisition of BioLife, the Company became one of the
largest commercial adipose storage facilities in the United States. Additionally the Company acquired the physician customer
list of approximately 60 cosmetic and plastic surgeons, and began marketing its services to all physician users of the
BioLife services.
Cells
on Ice:
In August
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 to study future use in Regenerative Medicine. COI is a physician network
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 under the COI brand for 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 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 existing protocols 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. The company believes that COI has initiated several IRB approved studies. This initial
work will become the basis for Investigational New Drug and Investigational Device Exemption filings with the FDA. In January
2018 the Company ceased shipping all ATCELL products in response to a warning letter issued to the Company by the FDA. (See
Regulatory Information below).
Additional
Collaborations
The Company
recognizes the benefits of collaborations with industry and university partners and continues to seek these relationships. These
relationships are generally covered by Confidential Non-Disclosure Agreements and include Material Transfer Agreements (MTA) under
which the Company will supply ATCELL™ and/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 efforts or relationships will ultimately result in new technology for future commercialization.
Regulatory
Information
On January
3, 2018, the Company received a warning letter from the U.S. FDA concerning its contract manufacturing services at its
Monmouth Junction, New Jersey facility. The FDA informed the Company that the Agency has determined that its autologous
adipose derived cell product, ATCELL™ is a drug under current FDA regulations and guidance. In response to the letter
the Company ceased shipment of its ATCELL product within the United States and is currently in discussions with the FDA
concerning the filing of an Investigational New Drug (IND). Since the Company’s initial response to the Warning letter
it has spent considerable time and effort to comply with the concerns and observations highlighted in the letter.
Specifically the Company designed and filed it first Investigation New Drug Application with FDA which was accepted for
review on October 22, 2019. Additionally, the Company has implemented, qualified and validated as appropriate its completely
redesigned its manufacturing SOPs and Quality Management program and new clean manufacturing space in its facility in
Monmouth Junction, New Jersey. The Company filed its final responses to FDA regarding the Warning Letter which we expect to file in
early January of 2020. Based upon the Company’s IND approval, the final dispensation of the Warning Letter has been
placed on hold by the FDA Office of Regulatory Affairs (ORA) pending completion of the study and the filing by the Company of
the formal Biologics License Application.
In its ongoing
efforts to address the concerns contained in the Warning Letter, the Company expanded its existing facilities and undertook a
complete remediation of its laboratory operations in expectation of the (IND) filing with the FDA for the use of autologous adipose
derived cells for the relief of inflammation associated with certain conditions resulting from trauma. The Company also leased
additional space and, certified and validated a new Clean Room designed specifically for cellular expansion, medium filling and
tissue processing. In addition, the Company retained consultants to assist its personnel in the review and re-validation of its
operating procedures, equipment and processing methods as well as designing new procedures for upgraded and newly acquired laboratory
operating and testing equipment. The Company has completed the IND application process and necessary documentation and received
approval on September 17, 2020.
The Company’s
New Jersey laboratory facility is registered with the FDA (FEI 3008307548) as a processing and storage facility for Human Cells,
Tissues and Cellular and Tissue Based Products (HCT/Ps) since 2010. In 2013, we registered the facility with the State of New
York (CP169TP136) and the State of California (CNC80948) the only states in the U.S. requiring registration. We have discussed
our operations with the State of New Jersey Health Department and Department of Environmental Protection (DEP) to ascertain any
special regulations to which we may be subject. Based upon these discussions, and our use of a registered medical waste disposal
company, we do not at this time have any special registrations or regulations for compliance with the State of New Jersey.
Our SOPs are
the key to properly operating our tissue processing facility. In 2018 the Company hired a cGMP consultant to assist it with the
update of all SOP’s, data collection forms, Quality Control Program and laboratory operations to conform with cGMP in response
to the observations made by FDA. To ensure delivery of the highest quality services, we incorporate these SOPs, which are designed
to provide a basis for accreditation by the American Association of Blood Banks (AABB), the American Association of Tissue Banks
(AATB) and the Foundation for the Accreditation of Cellular Therapy (FACT-JACIE).
We have consistently
endeavored to ensure that our processes, methodologies and procedures remain among the highest standards in the global tissue
collection, processing and storage market. To this end, we have equipped ourselves with state-of-the-art quality processing and
testing equipment, which we believe helps to ensure that every sample collected and processed is sterile (free from adventitious
agents), viable and capable of significant cellular growth and expansion.
Quality Management
The Company’s
quality management program attempts to ensure that during processing and testing of each adipose tissue, or cellular sample, the
appropriate quality management tests and processing methodologies are performed and the data is collected, recorded and reviewed
by the laboratory management team. In 2018, the Company hired a Quality Control consultant to assist the Company in updating its
Quality Control Program, laboratory processes, Sops, data collection, and laboratory, product and materials validation programs.
The new system was completed, qualified and validated in 2019 and has been implemented in the new clean processing facility the
Company qualified in 2019.
Chain
of Custody Control
Central to the
individual sample testing is an unbroken chain of custody and tracking. Sample tracking begins with the creation of each collection
box. All samples, processing, quality management, batch, and storage documents and records, are coded with this unique number.
All records and testing samples are cross referenced and verified as required by the standard operating procedures.
Testing
Design and Standard Operating Procedures (SOPs)
Testing methods
are standardized and operate under a complete set of SOPs and Quality Management (QM) processes. All SOPs are designed to be in
compliance with the US Food and Drug Administration’s regulations and guidance for aseptic processing. Strict QM is enforced
to avoid and/or record any process deviations. In 2018 in response to the Letter received by the Company from the FDA, the Company
undertook a major reorganization and upgrade of all of its methods, SOPs, processes and facility to upgrade its facility from
a registered tissue bank to a Biologic Drug Manufacturer. This update was completed concurrently with the validation and qualification
of the Company’s new quality management system that was completed, validated and qualified in 2019.
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. 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
|
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 plan to obtain additional registered
trademarks for our future products, slogans and themes to be used in our marketing initiatives,
including, for example, 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
and www.acslaboratories.com.
Market
Size and Opportunities
By leveraging
and capitalizing on our proprietary Adipose Tissue Processing Platform, our Company is working to address multiple high growth,
multi-billion dollar market opportunities prevailing within the Regenerative Medicine, Cosmeceuticals, Medical Tourism and Cell
Culture Media markets. The Company regularly reviews independent market research to gauge the market size 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 $5.8 bn in 2016. Vision gain forecasts this market to
increase to $14.5 bn 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.
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 program is 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 both print 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
direct marketing programs focused on reaching plastic and cosmetic surgeons to join our network of providers that offer our services
to their patients. 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.
Development of Regional
U.S. Markets
Cells
on Ice - In August 2015 the Company entered into a contract manufacturing Agreement with Cells On Ice, LLC. (COI)
located in Los Angeles, California to process and store adipose tissue and adipose derived cellular samples. COI is a network
of physicians interested in the safety and use of adipose tissue and adipose derived cellular samples in regenerative
therapies and cellular medicine. The Company agreed to supply its CELLECT™ collection boxes and provide its
ATGRAFT™ and ATCELL™ services under the COI brand for the collection, processing and
storage of tissue samples at its NJ facility. Under the agreement, COI paid the Company for the collection, processing and
storage of each sample generated by COI network physicians. The Company incorporated its existing protocols 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. In January 2018 the company ceased shipping its ATCELL™ product to Cells on
Ice.
Physician
Network - The Company continues to develop regional relationships to leverage its new products and services through existing
cosmetic surgery and regenerative medicine practices. The Company continues to develop and expand its network of physicians seeking
to adopt its products and services, initially focusing on surgeons performing liposuction, tissue transfer and regenerative procedures
involving the use of adipose tissue. The Company intends to continue expanding its efforts to medical professionals interested
in tissue storage and Regenerative Medicine applications utilizing ASDCs and 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.
Baoxin
Asia Pacific Biotechnology (Shenzhen) Co. Ltd. On July 12, 2018, the Company announced
the national launch of CRYO’s ATGRAFT™ 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™ 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. During 2019 Mr. Arnone resigned from the board of Baoxin.
Health
Information Technology Company, LTD (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 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 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. The HIT license has been extended per the terms of Schedule B of the Term Sheet, dated
June 30, 2014, for an additional 3 year period to June 30, 2023.
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.
CRYOVIVA
(Thailand), Ltd. - On April 5, 2018, the Company announced further expansion of its global laboratory and cellular technology
footprint by entering into an agreement 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.
CellSource
Tokyo, Japan - In the second quarter of 2015 the Company entered into negotiations with CellSource, LLC in Tokyo, Japan
for the licensing of its ATGRAFT™ products and services and on June 2, 2015 the Company and Cell Source entered
into an initial term sheet licensing the ATGRAFT™ technology to CellSource for Japan. The non- exclusive agreement
expired in June of 2020.
Scientific
and Medical Advisory Board
We continue
to actively recruit and enlist the services of highly qualified peer leaders through our Scientific and Medical Advisory Board
to assist us in our industry speaking engagements and education platform. This education platform is designed to focus on physicians,
and industry needs and demands as they relate to current and future treatments utilizing our adipose tissue platform and adult
stem cell technologies. Additionally, certain members of our advisory board provide assistance and input to management on the
oversight of our research relationships, laboratory development and quality management systems. As of September 30, 2020, the
following are currently members of our Scientific and Medical Advisory Board:
Dayong
Gao, Ph.D. - Dr. Gao is a world-renowned Professor of Mechanical Engineering and Biomedical Engineering at the University
of Washington in Seattle. He has been actively engaged in cryopreservation research for more than 20 years, with specific emphasis
on fundamental and applied cryobiology, which is the investigation of mechanisms in cryo-injury and cryo-protection with respect
to living biological systems at low temperatures; with the development of optimal methods and technologies for the cryopreservation;
and with the banking of living cells and tissues for biomedical applications. Dr. Gao has published 175 research papers in prestigious
scientific/biomedical journals, with over 250 papers/abstracts in conference proceedings. He has obtained 16 patents, and authored
two scientific books and numerous chapters in 17 scientific books. He currently serves on the Editorial Board, as Editor-in-Chief,
of six scientific journals, and is the Editor of the Cryopreservation Engineering section of Biopreservation and Biobanking.
His research in cryobiology and cryopreservation has been funded by the National Institutes of Health, the American Cancer Society,
the Bill and Melinda Gates Foundation, the American Heart Association, the Whitaker Foundation, the Washington Research Foundation
and the Kentucky Science Foundation, among others. Dr. Gao graduated with B.Sc. degree from the University of Science and Technology
in China, and received a Ph.D. in Mechanical Engineering from Concordia University, Montreal, Canada.
Dr. Fredric
A. Stern, F.A.C.S. - Dr. Stern is the founder and Medical Director of the Stern Center for Aesthetic Surgery in Bellevue,
Washington. Following his education at Columbia University Medical School, Dr. Stern earned his Board Certification in Ophthalmology
at the University of Washington, and underwent extensive additional training in oculofacial plastic and laser surgery. In 1987,
he joined Virginia Mason Medical Center in Seattle, serving as Director of the Oculoplastic Surgery Division for ten years. While
at Virginia Mason, Dr. Stern performed an extensive number of cosmetic laser procedures. He is honored to have been chosen as
one of a select group of instructors of the Botox Cosmetic® National Education Faculty, as well as the Radiesse™
Medical Education Faculty. Dr. Stern is also an instructor for the Sciton™Laser. In 2011,
he was voted the Best Plastic Surgeon in Western Washington by KING 5 (NBC affiliate) TV’s viewing audience. Dr.
Stern is a Fellow of the American College of Surgeons, the American Academy of Facial Plastic and Reconstructive Surgeons, the
American Academy of Cosmetic Surgery, and the American Society of Liposuction Surgery, as well as a member of the International
Society of Hair Restoration Surgery. In addition, over the past several years, he has appeared on Northwest Afternoon,
Evening Magazine, as well as KOMO, KIRO and Q13 news, discussing and demonstrating the latest techniques
in facial and eyelid laser cosmetic surgery, Botox® and laser-assisted liposuction. He is also an accomplished
winemaker & published novelist. Dr. Stern’s latest novel is a medical thriller titled, The Sigma Project.
Burt D.
Ensley, Ph.D. - Dr. Ensley is the Chief Executive Officer and Chairman of Protein Genomics, Inc. He previously served
as Chief Executive Officer of Phytotech, Inc. and President of NuCycle Therapy, Inc. prior to their sale. In addition, Dr. Ensley
headed the Specialty Chemicals Group at Amgen, Inc. for nearly a decade. He holds a PhD in Microbiology from University of Georgia;
is a Fellow of the American Academy of Microbiology; served on the BIO Directorate Board of the National Science Foundation; and
is the Board Co-Chair of the University of Arizona’s BIO5 Institute. Dr. Ensley holds 19 issued U.S. patents.
Roy D.
Mittman, MD, PA. - Dr. Mittman currently serves as a senior partner of Seaview Orthopedic and Medical Associates (SOMA)
located in Ocean, New Jersey. He has assembled a team of highly qualified board certified, fellowship trained physicians to practice
at SOMA specializing in general orthopedics, as well as surgery of the Spine, Hand/Wrist, Knee/Shoulder, Total Joints, Foot and
Ankle, Sports Medicine, Pain Management and Osteoporosis. SOMA currently operates six locations committed to providing quality
care in Monmouth and Ocean Counties. After earning a Bachelor of Arts degree at John Hopkins University, Dr. Mittman earned his
Medical Degree at the Albert Einstein College of Medicine in New York and completed orthopedic training in 1978 at Montefiore
Hospital in New York. He is a member of the New Jersey Orthopedic Society, Orthopedic Surgeons of New Jersey, Monmouth County
Medical Society and the American College of Sports Medicine.
Dr. Vincent
Giampapa, MD F.A.C.S - Dr. Giampapa is the founder /director of the Regenerative Medicine Institute located in
Costa Rica, the Plastic Surgery Center International and The Giampapa Institute for Anti-Aging Medical Therapy located in Montclair,
NJ. Dr. Giampapa’s research focuses on stem cell technologies and their applications to improve the cellular aging process
in order to enhance health span and quality of life. As a result of his research, Dr. Giampapa has been awarded medical and intellectual
property patents with the United States Patent and Trademark Office for developments involving unique cell culture delivery techniques,
new drug delivery systems, stem cell reprogramming, DNA repair, and telomerase maintenance. He is a co-founder of The Academy
of Anti-Aging Medicine (A4M), comprised of over 26,000 members representing over 110 nations, the first president of the Board
of Anti-Aging Medicine and the founder of healthycell®, an advanced cell health nutritional supplement and StemBank™,
a blood derived stem cell extraction and storage company. Dr. Giampapa will have an active role assisting the Company with the
development of its “From laboratory to clinic/physician’s office” services and applications platform.
Dr. Rand
McClain - Dr. McClain earned his medical degree at Western University and completed his internship at the University of
Southern California’s Keck School of Medicine Residency Program (U.S.C. California Hospital). Dr. McClain has dedicated
over 35 years of his personal and professional life studying nutrition, exercise, herbs and supplements and is also a Master of
Acupuncture and Traditional Chinese Medicine. Dr. McClain has participated in professional and elite amateur sport as an individual
participant and as well as a member of two U.S. teams and continues to participate competitively. His work is published in peer-reviewed
and popular journals and he enjoys sharing and participating in the beneficial changes he helps create in people’s lives.
Dr. McClain has worked with some of the best and original innovators in Sports, Regenerative Medicine (“Anti-Aging”),
Cosmetic and Family Medicine. He also practices as part of the Regenerative Medicine Institute an organization dedicated to advancing
cellular treatments, procedures and research in the use of all available avenues to slow or reverse physiological and cosmetic
effects of aging. Dr. McClain currently serves as Chief Medical Officer of Live Cell Research, a company dedicated to the discovery
and development of products designed to enhance health and quality of life through epigenomic manipulation. Dr. McClain is also
a Medical Advisory Board member of American Cryostem Corporation a publicly traded company operating laboratories dedicated to
the collection, processing, bio-banking, culturing and differentiation of autologous adipose tissue (fat) and adipose derived
stem cells (ADSCs). Dr. McClain is a Board Member of Z.E.N. Foods, a gourmet food delivery and nutrition service company that
provides individually designed meal programs in conjunction with health providers and its own registered dietician. Dr. McClain
is also proud to be a member of the National Veteran Foundation’s Advisory Board. Dr. McClain has also joined the investigative
team of the Company’s recently approved clinical study to assist the team with the review of prospective candidates and
for the review of study data.
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 website is www.americancryostem.com. We also lease and operate a tissue processing laboratory at
Princeton Corporate Plaza in Monmouth Junction, New Jersey. Our laboratory website address is www.acslaboratories.com.
Employees
Currently,
we have six(6) employees and continue to use consultants on an as needed basis. As we grow, we will need to attract an
unknown number of additional qualified employees, however we could be unsuccessful in attracting and retaining the persons
needed.
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.
Item
1A. Risk Factors
To date we have
generated only minimal operating revenues. Our recurring losses from operations and negative cash flows from operations raise
substantial doubt about our ability to continue as a going concern and as a result, our independent registered public accounting
firm included an explanatory paragraph in its report on our financial statements for the fiscal year ended September 30, 2020
with respect to this uncertainty which is included in the 2020 10-K. Substantial doubt about our ability to continue as a going
concern may create negative reactions to the price of our Common Stock and we may have a more difficult time obtaining financing.
We expect to
incur increased operating expenses for the foreseeable future. The amount of net losses and the time required for us to reach
and sustain profitability are uncertain. The likelihood of our success must be considered in light of the problems, expenses,
difficulties, and delays frequently encountered in connection with a development stage business, including, but not limited to,
uncertainty as to development and the time required for our planned services to become available in the marketplace. There can
be no assurance that we will ever generate sufficient revenues or achieve profitability at all or on any substantial basis. These
matters raise substantial doubt about our ability to continue as a going concern. If we cease or curtail our development activities,
it is highly likely that you would lose your entire investment in our Company.
We will require
substantial additional capital to pursue our business plan.
We have incurred
negative cash flows since inception from our developmental activities, and at this time as well as for the foreseeable future
will finance (until we can generate sufficient revenues, if ever, to cover expenses) our activities and overhead expenses from
any revenues we generate and through the issue and sale of debt and/or equity securities. The recoverability of the costs incurred
by us to date is highly uncertain and is dependent upon, among other items, achieving commercial production and sales of our services,
of which no assurances can be given. Our prospects must be considered in light of the risks, expenses and difficulties which are
frequently encountered by companies in the development stage in the emerging Regenerative Medicine industry that we hope to commence
operations in.
We have financed
our development activities and expenses since inception through the sale of our debt and equity securities. Our capital requirements
will depend on many factors, including, among other things, the cost of developing our business and marketing activities, the
efficacy and effectiveness of our proposed services, costs (whether or not foreseen), the length of time required to collect accounts
receivable we may in the future generate, competing technological and market developments and acceptance. Changes in our proposed
business or business plan could materially increase our capital requirements. We cannot assure you that our proposed plans will
not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than currently
anticipated.
Even if we obtain
funding, we still will need to obtain substantial additional financing to, among other things, fund the future development of
any services we attempt to undertake and for general working capital purposes. Any additional equity financing, if available,
may be dilutive to stockholders and any such additional equity securities may have rights, preferences or privileges that are
senior to those of the holders of shares of our Common Stock. Debt financing, if available, will require payment of interest and
may involve our granting security interests on our assets and restrictive covenants that could impose limitations on our operating
flexibility.
Our ability
to obtain needed financing may be impaired by such factors as the capital markets, our capital structure, our development stage,
the lack of an active market for shares of our Common Stock, and our lack of profitability, all of which would impact the availability
or cost of future financings. We cannot assure prospective investors that we will be able to obtain requisite financing in a timely
fashion or at all and, if obtained, on acceptable terms. Our inability to obtain needed financing on acceptable terms would have
a material adverse effect on the implementation of our proposed business plan.
Statements
concerning our future plans and operations are dependent on our ability to secure adequate funding and the absence of unexpected
delays or adverse developments. We may not be able to secure required funding.
The statements
concerning future events or developments or our future activities, such as current or planned research and development activities,
anticipated products and services, anticipated commercial introduction of products and services, and other statements concerning
our future operations and activities, are forward-looking statements that in each instance assume that we are able to obtain sufficient
funding in the near term and thereafter to support such activities and continue our operations and planned activities in a timely
manner. There can be no assurance that this will be the case. Also, such statements assume that there are no significant unexpected
developments or events that delay or prevent such activities from occurring. Failure to timely obtain sufficient funding, or unexpected
development or events, could delay the occurrence of such events or prevent the events described in any such statements from occurring
which could adversely affect our business, financial condition and results of operations.
We have significant
payment obligations under certain Notes due through 2021. Any non-payment of the Notes when due in the absence of an extension
of the maturity date would constitute event of default under the Notes, and our financial condition may be adversely affected.
As of
September 30, 2020, the Company had issued and outstanding: $226,500 aggregate principal amount of Bridge Notes, which
matured, between January through July 2015 and bear interest at the rate of 8% per annum; $83,500 aggregate principal amount
of Convertible Notes which matured in September 2014, convertible into shares of Common Stock and the rate of one (1) share
of Common Stock for each $0.35 of principal amount and/or interest so converted; $45,000 of 8% convertible notes which
matured in September of 2016, convertible into shares of Common Stock and the rate of one (1) share of Common Stock for each
$0.30 of principal amount and/or interest so converted; $150,000 of 5% convertible notes which mature in Fiscal 2021,
convertible into shares of Common Stock at the rate of one (1) share of Common Stock for each $0.33 of principal amount
and/or interest so converted; $155,000 of 8% convertible notes which matured on January 31, 2018, convertible into shares of
Common Stock at the rate of one (1) share of Common Stock for each $0.20 of principal amount and/or interest so converted;
$40,000 of 8% convertible notes which matured in January 31, 2018 convertible into shares of Common Stock and the rate of one
(1) share of Common Stock for each $0.15 of principal amount and/or interest so converted; and $100,000 aggregate principal
amount of Convertible Notes which matured in Fiscal 2020, convertible into shares of Common Stock and the rate of one (1)
share of Common Stock for each $0.40 of principal amount and/or interest so converted. No assurances can be given that the
Company will have sufficient funds to repay the principal and/or interest on such Bridge Notes when due or on the Convertible
Notes; such Convertible Notes are converted into Common Stock prior to maturity. In such event, we might be subject to, among
other things, non-payment claims of the Note holders, and our financial condition may be adversely affected.
Our limited
operating history may make it difficult to evaluate our business and our future viability.
We are in the
relatively early stage of operations and have only a limited operating history on which to base an evaluation of our business
and prospects. Even if we successfully obtain additional funding, we are subject to the risks associated with development stage
companies with a limited operating history, including: the need for additional financing; the uncertainty of research and development
efforts; successful commercialization of our products and services; market and customer acceptance of our products and services;
unexpected issues with federal or state regulatory authorities; competition from larger organizations; dependence on key personnel;
uncertain patent or other intellectual property protection; fluctuations in expenses; and dependence on corporate partners and
collaborators. Any failure to successfully address these risks and uncertainties could seriously harm our business and prospects.
We may not succeed given the technological, marketing, strategic and competitive challenges we will face. The likelihood of our
success must be considered in light of the expenses, difficulties, complications, problems and delays frequently encountered in
connection with the growth of a new business, the continuing development of new drug technology, and the competitive and regulatory
environment in which we operate or may choose to operate in the future.
Many of our
products, services and technologies are in early stages of development.
Processing and
cryogenic storage of adipose tissue and stem cells, and application development is in the early stages of development, and there
can be no assurance that our business will be successful. Further, potential products based upon individuals’ stem cells
will require extensive additional research and development before any commercial introduction. There can be no assurance that
any future research and development will result in viable products or meet efficacy or regulatory standards.
Cell therapy
is a developing field and a significant market for our services has yet to emerge in the US.
Cell therapy
and regenerative medicine is a developing field, which we believe few cell therapy products or services approved for and/or commercial
use. We are wholly dependent on the acceptance of cell therapy (and specifically stem cells) to develop into a large and profitable
industry. We hope to develop services related to the collection, processing, storage of stem cells and application development.
We believe the market for stem cell and tissue-based therapies is in its infancy, substantially research oriented and financially
speculative and has yet to achieve substantial commercial success. Stem cell products and services may in general be susceptible
to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic
efficacy, lack of acceptance by physicians, hospital and consumers, or other characteristics that may prevent or limit their approval
or commercial use. Management believes that the demand for tissue processing and stem cell processing and the number of people
who may use cell or tissue-based therapies is difficult, if not impossible, to forecast. Our success is dependent on, among other
items, the establishment of a market for our proposed services and our ability to capture a share of this market.
Our proposed
services may not attain commercial acceptance absent endorsement by physicians.
Our proposed
services will compete against individual adipose tissue and cellular samples derived from alternate sources, such as bone marrow,
umbilical cord blood and perhaps embryos. We believe that physicians and hospitals are historically slow to adopt new technologies
like ours, whatever the merits, when older technologies continue to be supported by established providers. Overcoming such inertia
often requires very significant marketing expenditures or definitive product performance and/or pricing superiority. Management
currently believes physicians’ and hospitals’ inertia and skepticism to be a significant barrier as we attempt to
gain market penetration with our proposed services. Failure to achieve market acceptance of our proposed services would have a
material adverse effect on our future prospects.
If we should
in the future become required to obtain regulatory approval to market and sell our proposed services we will not be able to generate
any revenues until such approval is received.
The medical
industry is subject to stringent regulation by a wide range of authorities. We are required to have licenses in certain states
to market and support our services as well as annual registration with the FDA as a tissue bank. While we believe that, given
our proposed business, we are not presently required to obtain additional state and federal regulatory approval to market our
services we cannot predict whether regulatory clearance will be required in the future and, if so, whether such clearance will
at such time be obtained, whether for the stem cells and/or any other services that we are developing or may attempt to develop.
Should such regulatory approval in the future be required, our services may be suspended or may not be able to be marketed and
sold in the United States until we have completed the regulatory clearance process as and if implemented by the FDA. Satisfaction
of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product or service
and would require the expenditure of substantial resources.
If regulatory
clearance of a service we propose to provide is granted, this clearance may be limited to those particular states and conditions
for which the service is demonstrated to be safe and effective, which would limit our ability to generate revenue.
We cannot ensure
that any service developed by us will meet all of the applicable regulatory requirements needed to receive marketing clearance.
Failure to obtain regulatory approval will prevent commercialization of our services where such clearance is necessary. There
can be no assurance we will obtain regulatory approval of our proposed services that may require it.
Our facilities
may require compliance with PHS and FDA regulations and there is no assurance we are in and/or in the future will be in compliance
with these protocols or that the PHS or FDA may find deficiencies upon inspection of our facility.
The Company
believes that its processing methodologies, and its Monmouth Junction, New Jersey laboratory facilities to be in compliance with
all current applicable regulations and guidelines as defined by the United States Public Health Service Act (“PHS”
or the “PHS Act”) and the Food and Drug Administration (“FDA”) regulations
and guidance as they relate to the operation of a tissue processing and storage facility.
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. In response to the letter the Company ceased shipment of
its ATCELL product within the United States. Since receiving the Warning Letter from the FDA the Company undertook a complete
reorganization and remediation of its laboratory facility and operations and an expansion of its existing facility. The Company
believes that its effort, new clean room laboratory facility, SOP and Quality Management system upgrades, and filing the IND application
(No. 19089) on October 22, 2019 and approved by FDA on September 17, 2020, will satisfy the FDA’s concerns; no assurance
can be given that we are in fact in compliance and/or in the future will be in compliance with these regulations or that upon
inspection by PHS and/or FDA that we will not be required to amend our procedures or limit our operations based upon the finding
of the inspection. Based upon discussions with the FDA Office of Regulatory Affairs (ORA), the disposition of the warning letter
is deferred, per current FDA policy, until the completion of the clinical studies and the submission of a Biologics License Application
filing by the Company.
As and if
we evolve from a company primarily involved in the research and development of our technology into one that is also involved in
the commercialization of our technology, we may have difficulty managing our growth and expanding our operations.
As and if our
business grows, we will in all likelihood need to add employees and enhance our management, systems and procedures. We may need
to successfully integrate our internal operations with the operations of various third party service providers to produce and
market commercially viable products. We may also need to manage additional relationships with various collaborative partners,
suppliers and other organizations. Expanding our business may place a significant burden on our management and operations. We
may not be able to implement improvements to our management information and control systems in an efficient and timely manner
and we may discover deficiencies in our existing systems and controls. Our failure to effectively respond to such changes may
make it difficult for us to manage our growth and expand our operations.
We currently
are wholly dependent on John Arnone and Anthony Dudzinski; Conflicts of Interest.
We
currently are wholly dependent on John Arnone and Anthony Dudzinski, our only executive officers and directors. Our future
performance will depend on the continued services of such persons and our ability to retain such persons and to hire
additional qualified persons. The loss of either of Mr. Arnone or Mr. Dudzinski, or both, would materially and adversely
affect our proposed business. There are no assurances they will continue to do so. The employment agreements among other
terms permit each of Mr. Arnone and Mr. Dudzinski to conduct other business activities outside of their employment with us.
Each such employment agreement has been extended to 2023. We have not obtained any “key-man” life insurance
policies nor do we presently plan to obtain or maintain any such policies on Mr. Arnone, Mr. Dudzinski or any other of our
employees.
Mr. Arnone
and Mr. Dudzinski collectively beneficially own in excess of 50.1% of our issued and outstanding voting stock and as a result
have the ability to directly and/or indirectly make all decisions for us.
Mr. Arnone owns
the majority of the issued and outstanding voting stock of Personal Cell Sciences Corporation, a Florida corporation (“PCS”).
PCS is in the cosmetic business and has entered into a contract manufacturing and royalty agreement with us to manufacture conditioned
medium. We also receive a royalty of 10% of the gross sales of any autologous products sold by PCS containing the conditioned
medium that we manufacture. Mr. Arnone is also the CEO of Regenerative BioTherapy Corp. Regenerative BioTherapy Corp, a Florida
corporation which entered into a licensing Agreement with the Company in September of 2014. The licensing agreement Permits Regenerative
BioTherapy the use of the Company’s Standard Operating Procedures, Quality Management and General Operations procedures
and process for the Company’s product lines and IP; to construct and operate a laboratory and treatment facility in the
Caribbean. We may in the future seek to expand our business relationship with, and/or acquire PCS and/or Regenerative BioTherapy
Corp. Management cannot assure you that any such business relationship or acquisition, if consummated, would be on terms favorable
to us.
We may be
unable to protect our intellectual property from infringement by third parties, and third parties may claim that we are infringing
on their intellectual property, either of which could materially and adversely affect us.
We intend to
rely on patent protection, trade secrets, technical know-how and continuing technological innovation to protect our intellectual
property, and we expect to require any employees, consultants and advisors that we may hire or engage in the future to execute
confidentiality and assignment of inventions agreements in connection with their employment, consulting or advisory relationships.
There can be no assurance, however, that these agreements will not be breached or that we will have adequate remedies for any
such breach.
Despite our
efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or may develop
intellectual property competitive with ours. Our competitors may independently develop similar technology or otherwise duplicate
our proposed processes or services. As a result, we may have to litigate to enforce and protect our intellectual property rights
to determine their scope, validity or enforceability. Intellectual property litigation is particularly expensive, time-consuming,
diverts the attention of management and technical personnel and could result in substantial cost and uncertainty regarding our
future viability. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection
would limit our ability to produce and/or market our services in the future and would likely have an adverse effect on any revenues
we may in the future be able to generate by the sale or license of such intellectual property.
We may be subject
to costly litigation in the event our future services or technology infringe upon another party’s proprietary rights. Third
parties may have, or may eventually be issued, patents that would be infringed by our technology. Any of these third parties could
make a claim of infringement against us with respect to our technology. We may also be subject to claims by third parties for
breach of copyright, trademark or license usage rights. Any such claims and any resulting litigation could subject us to significant
liability for damages or injunctions precluding us from utilizing our technology or services or marketing or selling any products
or services under the same. An adverse determination in any litigation of this type could require us to design around a third
party’s patent, license alternative technology from another party or otherwise result in limitations in our ability to use
the intellectual property subject to such claims.
Risks Related
to Our Common Stock
We are authorized
to issue 300,000,000 shares of Common Stock and 50,000,000 shares of “blank check” preferred stock, the issuance of
which could, among other things, reduce the proportionate ownership interests of current shareholders.
We are authorized
to issue 300,000,000 shares of Common Stock and 50,000,000 shares of “blank check” preferred stock. As of September
30, 2020, there were 59,570,666 shares of Common Stock issued, (excluding 6,736,500 shares issuable upon exercise of all issued
and outstanding stock options and warrants, and 2,134,784 shares issuable on the conversion of all outstanding Convertible Notes).
No shares of preferred stock were issued and outstanding as of September 30, 2020. Our board of directors has the ability, without
seeking shareholder approval, to issue additional shares of Common Stock and/or to designate, establish the terms and conditions
of, and issue shares of preferred stock for such consideration, if any, as the board of directors may determine. Any such shares
of preferred stock could have dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting
power or other rights of the holders of shares of Common Stock. In the event of such issuance, the preferred stock could, among
other items, be used as a method of discouraging, delaying or preventing a change in control of our Company, which could have
the effect of discouraging bids for our Company and thereby prevent security-holders from receiving the maximum value for their
shares of our Common Stock.
Our Common
Stock is currently traded on the OTC pink sheets and is subject to additional trading restrictions as a “penny stock,”
which could adversely affect the liquidity and price of such stock. If our Common Stock remains subject to the SEC’s penny
stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities
may be adversely affected.
Our Common Stock
currently trades on the OTC pink sheets. The OTC pink sheets may be viewed by investors as a less desirable, and less liquid,
marketplace. As a result, an investors may find it more difficult to purchase, dispose of or obtain accurate quotations as to
the value of our Common Stock.
Because our
Common Stock is not listed on any national securities exchange, such shares will also be subject to the regulations regarding
trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise
exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations. The following
is a list of the general restrictions on the sale of penny stocks:
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Before the sale of penny
stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny
stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser’s
financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser a
written statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement.
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A broker-dealer must obtain
from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser
becomes an “established customer.”
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The Exchange Act requires
that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a “risk disclosure
document” that contains, among other things, a description of the penny stock market and how it functions and the risks
associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.
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A dealer that sells penny
stock must send to the purchaser, within 10 days after the end of each calendar month, a written account statement including prescribed
information relating to the security.
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These requirements
can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing
to undertake these compliance activities. As a result of our Common Stock not being listed on a national securities exchange and
the rules and restrictions regarding penny stock transactions, an investor’s ability to sell to a third party and our ability
to raise additional capital may be limited. We make no guarantee that market-makers will make a market in our Common Stock, or
that any market for our Common Stock will continue.
Our two (2)
principal stockholders control us, and your interests as a stockholder may conflict with the interests of those persons.
Based on the
number of outstanding shares of our Common Stock held by our stockholders as of September 30, 2020, our two (2) directors/executive
officers and their respective affiliates beneficially owned in excess of 50.1% of our outstanding shares of Common Stock. As a
result, those stockholders have the ability to control, among other items, the outcome of all matters submitted to our stockholders
for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets.
The interests of these persons may not always coincide with our interests or the interests of our other stockholders. This concentration
of ownership could harm the market price of our Common Stock by (i) delaying, deferring or preventing a change in corporate control,
(ii) impeding a merger, consolidation, takeover or other business combination involving us, and/or (iii) discouraging a potential
acquirer from attempting to obtain acquire us. The control held over us by such 2 persons may adversely affect the trading price
of our Common Stock due to investor’s awareness of conflicts of interest.
Our stockholders
may experience significant dilution as a result of any additional financing using our securities.
We will need
to raise significant additional capital in order to maintain and continue our operations. To the extent that we raise additional
funds by issuing equity securities or securities convertible into or exercisable for equity securities, our stockholders may experience
significant dilution and we may issue securities with better terms than those offered hereby.
We have not
paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock for the foreseeable future.
Any return on investment may be limited to the value of our Common Stock.
No cash dividends
have been paid on our Common Stock, and we do not expect to pay cash dividends on our Common Stock in the foreseeable future.
Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as
our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return
on a stockholder’s investment will only occur if our stock price appreciates.
A sale of
a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline and may impair our ability
to raise capital in the future.
Our Common Stock
is currently traded on the OTC pink sheets, and there have been and may continue to be periods when it could be considered “thinly-traded,”
meaning that the number of persons interested in purchasing our Common Stock at or near bid prices at any given time may be relatively
small or non-existent. Finance transactions resulting in a large amount of newly issued shares that become readily tradable or
other events that cause stockholders to sell shares, could place downward pressure on the trading price of our stock. In addition,
the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of Common Stock to sell
the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders
sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our Common Stock
in the public market, the market price of our Common Stock could decline. Sales of a substantial number of shares of our Common
Stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we
deem reasonable or appropriate.
The Company
may not have complied with various state securities laws in connection with prior issuances/sales of its securities.
Since April
2011, the date of the closing of the Asset Purchase, through September 30, 2020, the Company sold approximately $5,288,127 gross
amount of its equity and debt securities. In connection with such sales, the Company may have violated various state securities
laws. If the Company was determined by a court, FINRA or regulatory body with the required jurisdiction to have violated such
laws, any such violation could result in the Company being required to offer rescission rights to each such prior purchase from
the Company to rescind such purchases and pay to the prior purchaser an amount of funds equal to the purchase price paid by such
prior investors plus interest from the date of any such purchase. No assurances can be given the Company will, if it is required
to offer such purchasers rescission right, have sufficient funds to pay the prior purchasers the amount required. In addition,
if the Company violated one or more securities laws of a state in connection with prior offers and/or sales of its securities,
each such state could bring an enforcement, regulatory and/or other legal action against the Company which, among other things,
could result in the Company having to pay substantial fines, not being able to sell securities in such states in the future and/or
having a determination made by any such states against the Company that the Company failed to comply with such states’ securities
laws, which could result in the Company, among other untoward effects including those set forth above, not being able to have
its Common Stock be eligible for continued quotation on the OTC pink sheets and/or other trading markets and/or mediums that the
Common Stock is then trading and/or eligible for quotation on and/or in the future seeks to be quoted or traded on.
As a “thinly-traded”
stock, large sales can place downward pressure on our stock price.
Our stock experiences
periods when it could be considered “thinly traded.” Financing transactions resulting in a large number of newly issued
shares that become readily tradable, or other events that cause current shareholders to sell shares, could place further downward
pressure on the trading price of our stock. In addition, the lack of a robust resale market may require a shareholder who desires
to sell a large number of shares to sell the shares in increments over time to mitigate any adverse impact of the sales on the
market price of our stock.
Shares eligible
for future sale may adversely affect the market for our Common Stock.
As of September
30, 2020, we had 6,736,500 of Common Stock issuable upon exercise of all outstanding stock options and warrants, and, 2,134,784
shares issuable on the conversion of outstanding Convertible Notes. If and when these securities are exercised or converted into
shares of our Common Stock, the number of our shares of Common Stock outstanding will increase. Such increase in our outstanding
shares, and any sales of such shares into the public market, could have a material adverse effect on the market for our Common
Stock and the market price of our Common Stock.
In addition,
from time to time, certain of our shareholders may be eligible to sell all or some of their shares of Common Stock by means of
ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain
limitations. In general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated shareholders (or shareholders
whose shares are aggregated) may, under certain circumstances, sell within any three month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock and (ii) non-affiliated shareholders may sell
without such limitations, provided we are current in our public reporting obligations. Rule 144 also permits the sale of securities
by non-affiliates that have satisfied a one year holding period without any limitation or restriction. Any substantial sale of
our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price
of our securities.
Item
1B. Unresolved Staff Comments
Not applicable.
Item
2. Description of Property
We
currently rent office space at 1 Meridian Road, Eatontown, New Jersey 07724 for our corporate offices, and we rent laboratory
space in Monmouth Junction, New Jersey. During 2018, the Company constructed a new Clean Room designed specifically for
cellular expansion, medium filling and tissue processing at the Laboratory in Monmouth Junction.
Item 3. Legal Proceedings
We are currently
not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened
against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item
4. Mine Safety Disclosures
Not applicable.
PART III
Item
10. Directors, Executive Officers, and Corporate Governance
The following
table and biographical summaries set forth information, including principal occupation and business experience, about our directors
and executive officers at September 30, 2020:
Name
|
|
Age
|
|
Position
|
|
Officer
and/or
Director Since
|
|
|
|
|
|
|
|
John Arnone
|
|
63
|
|
Chairman and Chief
Executive Officer
|
|
2011
|
Anthony F. Dudzinski
|
|
58
|
|
Chief Operating Officer
and Director
|
|
2011
|
John Arnone
– Chairman and Chief Executive Officer
Mr. Arnone has
been the Chairman of American CryoStem since 2008 and Chief Executive Officer since 2011. Mr. Arnone is also Chairman and CEO
of Personal Cell Sciences, Inc., a private Company that markets the U-Autologous line of skin care products. Prior to his involvement
in the life sciences/biotechnology industries, he spent 25 years in the investment banking/financial services industry as an investment
banker and a proactive investor. Over a 25 year period and holding six NASD licenses, Mr. Arnone founded, managed and operated
two general securities broker-dealers based in New York specializing in strategic planning, corporate structure, financial planning
and new business development. Over the years, he has provided advisory and business management services as a founder, officer,
director and/or shareholder to both mid-level and development stage private and public companies. Mr. Arnone also co-founded and
operated a global entertainment distribution corporation with 120 employees, and under his guidance the Company was voted medium
wholesaler of the year in the music industry (1997, 1998 and 2000) by the National Association of Recording Merchants. Mr. Arnone
is a co-founder and Director of DigiTrax Entertainment Inc. an Artificial Intelligence based Music Company located in Knoxville,
Tennessee. Mr. Arnone holds a degree in Business Administration and a Bachelors of Art in Economics from Kean University in New
Jersey.
Anthony F.
Dudzinski − Chief Operating Officer and Director
Mr. Dudzinski
is a founder of American CryoStem as well as its Chief Operating Officer. He is primarily focused on building and maintaining
the Company’s operational and laboratory infrastructure and their compliance with current regulations. Mr. Dudzinski has
been in the life sciences and biotechnology sector for more than eight years and has more than 25 years of experience in areas
of senior management with a variety of public and private companies. Beginning in the securities industry with a focus on regulatory
compliance and operations, he combined this experience with the biotechnology industry while building new investment vehicles
focused on life sciences and biotechnology companies in 2004. Mr. Dudzinski’s past positions include Chief Executive Officer,
President, Chief Operating Officer and Director of small and medium-sized organizations, including a publicly traded company with
approximately 300 employees. He was also the President and Chief Operating Officer of a privately operated, registered broker-dealer
with more than 175 sales associates. In addition to this experience, he was a founder and Chief Executive Officer of a number
of publicly available exchange traded funds; and the Founder, Chairman and Chief Operating Officer of a target date fund complex
and a registered investment company.
Compliance
with Section 16(A) of the Exchange Act
Section 16(a)
of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of
a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial
ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations
of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely
on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the
fiscal year ended September 30, 2020, were timely.
Code of Ethics
We
have not adopted a Code of Ethics.
Item
11. Executive Compensation
The following
table sets forth compensation information for services rendered by certain of our executive officers in all capacities during
the last two completed fiscal years. The following information includes the dollar value of base salaries and certain other compensation,
if any, whether paid or deferred.
Summary Compensation
Table
Name and Position(s)
|
|
Year
|
|
|
Salary($)
|
|
|
Accrued
Salary($)
|
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
Option
Awards1
|
|
|
Total
Compensation
|
|
John S. Arnone
|
|
|
2020
|
|
|
$
|
13,000
|
|
|
$
|
120,000
|
|
|
|
N/A
|
|
|
N/A
|
|
$
|
180,000
|
|
|
$
|
313,000
|
|
President and CEO
|
|
|
2019
|
|
|
$
|
5,000
|
|
|
$
|
120,000
|
|
|
|
N/A
|
|
|
N/A
|
|
$
|
0
|
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony F. Dudzinski
|
|
|
2019
|
|
|
$
|
13,000
|
|
|
$
|
120,000
|
|
|
|
N/A
|
|
|
N/A
|
|
$
|
180,000
|
|
|
$
|
313,000
|
|
Chief Operating Officer
|
|
|
2018
|
|
|
$
|
5,000
|
|
|
$
|
120,000
|
|
|
|
N/A
|
|
|
N/A
|
|
$
|
0
|
|
|
$
|
125,000
|
|
1This
column represents the aggregate grant-date fair value of the awards computed in accordance with FASB ASC Topic 718. These
amounts represent the accounting value for these awards and do not necessarily correspond to the actual value that may be
realized by the named executive officer. The assumptions used in the calculation of these amounts for the fiscal year ended
September 30, 2020 are described in the Notes to our financial statements included in this Annual Report.
We do not anticipate
increasing the annual salaries paid to our officers until we have adequate funds to do so.
Compensation
of Directors
We do
not compensate any of our directors for their services as directors other than stock for their time. However, we do reimburse
our directors for expenses incurred in attending board meetings and issue stock for their time. During Fiscals 2020 and 2019, no
stock was issued or expenses reimbursed.
Item 12. Security Ownership
of Certain Beneficial Owners and Management
The following
table sets forth certain information regarding the beneficial ownership of our Common Stock by: (i) each person who, to our knowledge,
beneficially owns 5% or more of our Common Stock and (ii) each of our directors and officers. Unless otherwise indicated, each
of the stockholders listed below has sole voting and investment power over its shares of Common Stock beneficially owned.
|
|
Number of
|
|
|
Percent
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
|
of Class1
|
|
Directors and Named Executive Officers 2:
|
|
|
|
|
|
|
|
|
John S. Arnone3
|
|
|
27,380,000
|
|
|
|
45.96
|
%
|
Anthony Dudzinski4
|
|
|
25,780,000
|
|
|
|
43.27
|
%
|
|
|
|
|
|
|
|
|
|
All directors and named executive officers as a group (2 persons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other 5% or Greater Beneficial Owners
|
|
|
|
|
|
|
|
|
ACS Global, Inc.
|
|
|
21,000,000
|
|
|
|
35.25
|
%
|
1Beneficial
ownership is calculated based on 59,570,666 shares of Common Stock issued and outstanding as of September 30, 2020 together with
securities exercisable or convertible into shares of Common Stock within sixty (60) days of the date hereof for each stockholder.
Beneficial ownership is determined in accordance with Rule 13d-3 of the Commission. The number of shares of Common Stock beneficially
owned by a person includes shares of Common Stock issuable upon conversion of securities and subject to options or warrants held
by that person that are currently convertible or exercisable or convertible or exercisable within sixty (60) days of the date
hereof. The shares of Common Stock issuable pursuant to those convertible securities, options or warrants are deemed outstanding
for computing the percentage ownership of the person holding such convertible securities, options or warrants but are not deemed
outstanding for the purposes of computing the percentage ownership of any other person. The above calculations include an adjustment
as required to include all vested options granted to John Arnone and Anthony Dudzinski.
2Unless
otherwise specified, the address for the directors and officers is c/o American CryoStem Corporation at 1 Meridian Road, Eatontown,
New Jersey 07724.
3Mr.
Arnone presently owns 18,250,000 shares of Common Stock of ACS Global and has the right to receive an additional 12,000,000
such shares upon the conversion of Series C Preferred Stock of ACS Global owned by him. As a result, he beneficially owns
37.27% percent of the ACS Global Common Stock. Mr. Arnone is also an officer and a director of ACS Global. Consequently, Mr.
Arnone is a control person of ACS Global and may as such be deemed to “beneficially own” the 21,000,000 shares of
Common Stock owned by ACS Global. Mr. Arnone, however, disclaims beneficial ownership of all such shares. Mr. Arnone also
holds, 3,880,000 shares of the Company’s Common Stock and 3,000,000 options(of which 2,500,000 are vested) to purchase
the Company’s Common Stock,1,000,000
which expire on September 20, 2021, 1,000,000 will expire on July 10,2022 and 1,000,000 will expire on September 15,
2025.
4Mr.
Dudzinski presently owns 6,020,000 shares of ACS Global Common Stock and has the right to receive an additional 12,000,000 such
shares upon the conversion of ACS Global preferred stock owned by him. As a result, he beneficially owns 22.20% percent of the
ACS Global Common Stock. Mr. Dudzinski is also an officer and a director of ACS Global. Consequently, Mr. Dudzinski is a control
person of ACS Global and may as such be deemed to “beneficially own” the 21,000,000 shares of Common Stock owned by
ACS Global. Mr. Dudzinski, however, disclaims beneficial ownership of all such shares. Mr. Dudzinski also holds 2,280,000 shares
of the Company’s Common Stock and 3,000,000 options(of which 2,500,000 are vested) to purchase the Company’s Common
Stock, 1,000,000 which expire on September 20, 2021, 1,000,000 will expire
on July 10,2022 and 1,000,000 will expire on September 16, 2025.
Description
of Securities
We are
authorized to issue 300,000,000 shares of Common Stock, par value $0.001 per share and 50,000,000 shares of preferred stock, par
value $0.0001 per share. As of September 30, 2020, there were 59,570,666 shares of Common Stock and no shares of preferred stock
issued and outstanding.
Outstanding Equity Awards at Fiscal
Year-End
The following
table sets forth information with respect to the outstanding equity awards to our named executive officers during fiscal 2020:
Option Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of securities
underlying unexercised
options (#)
Exercisable
|
|
|
Number of securities
underlying unexercised
options (#)
Unexercisable
|
|
|
Equity incentive plan
awards: Number of
securities underlying
unexercised
options (#)
|
|
|
Option
exercise
price ($)
|
|
|
Option
expiration
date
|
John S. Arnone
|
|
|
1,000,000
|
|
|
|
0
|
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
9/20/2021
|
|
|
|
1,000,000
|
|
|
|
0
|
|
|
|
1,000,000
|
|
|
$
|
0.40
|
|
|
7/10/2022
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
9/15/2025
|
Anthony Dudzinski
|
|
|
1,000,000
|
|
|
|
0
|
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
9/20/2021
|
|
|
|
1,000,000
|
|
|
|
0
|
|
|
|
1,000,000
|
|
|
$
|
0.40
|
|
|
7/10/2022
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
9/15/2025
|
Option Plans
On September
18, 2011, our Board of Directors approved the “American CryoStem Corporation Incentive Stock Option Plan” (the “2011
Plan”). Under the Plan, officers, directors, employees and consultants to the Company may be granted options to purchase
shares of the Company’s common stock, par value $0.001 per share. There are 3,000,000 shares of common stock reserved for
issuance under the Plan. The Plan is administered under the authority of the Stock Option Plan Committee (the “Committee”).
The Company issued 2,910,000 of the Options available under the 2011 Plan in Fiscal 2012. To date, 2,185,000 options from the 2011
Plan have been exercised, 725,000 have expired, and a total of 0 remain outstanding.
On May 1, 2013,
our Board of Directors approved the 2013 American CryoStem Corporation Incentive Stock Option Plan (the “2013 Plan)”.
Under the Plan, officers, directors, employees and consultants to the Company may be granted options to purchase shares of the
Company’s common stock, par value $0.001 per share. There are 5,000,000 shares of common stock reserved for issuance under
the Plan. The Plan is administered under the authority of the Stock Option Plan Committee (the “Committee”). During
2013, the Company granted a total of 3,740,000 at a weighted average price of $0.18 to certain employees, advisory board members
and consultants. To date, 2,175,000 Options issued under the plan have been exercised, 1,565,000 have expired, and 0 remain outstanding.
On
September 21, 2014, our Board of Directors approved the 2014 American CryoStem Corporation Incentive Stock Option Plan (the
“2014 Plan”). Under the Plan, officers, directors, employees and consultants to the Company may be granted
options to purchase shares of the Company’s common stock, par value $0.001 per share. There are 4,000,000 shares of
common stock reserved for issuance under the Plan. The Plan is administered under the authority of the Stock Option Plan
Committee (the “Committee”). During 2014, the Company granted a total of 3,495,000 at a weighted average price of
$0.21 to certain employees, advisory board members and consultants. To date, 350,000 Options issued under the plan have been
exercised, 3,145,000 have expired, and 0 remain outstanding.
On
September 20, 2015, our Board of Directors approved the 2015 American CryoStem Corporation Incentive Stock Option Plan (the
“2015 Plan”). Under the Plan, officers, directors, employees and consultants to the Company may be granted
options to purchase shares of the Company’s common stock, par value $0.001 per share. There are 4,000,000 shares of
common stock reserved for issuance under the Plan. The Plan is administered under the authority of the Stock Option Plan
Committee (the “Committee”). During 2015, the Company granted a total of 3,550,000 at a weighted average price of
$0.21 to certain employees, advisory board members and consultants. To date, 2,450,000 Options issued under the plan have been
exercised, 1,025,000 have expired, 75,000 have been forfeited and 0 remain outstanding.
On September
20, 2016, our Board of Directors approved the 2016 American CryoStem Corporation Incentive Stock Option Plan (the “2016 Plan”).
Under the Plan, officers, directors, employees and consultants to the Company may be granted options to purchase shares of the
Company’s common stock, par value $0.001 per share. There are 4,000,000 shares of common stock reserved for issuance under
the Plan. The Plan is administered under the authority of the Stock Option Plan Committee (the “Committee”). During
2016, the Company granted a total of 3,050,000 at a weighted average price of $0.21 to certain employees, advisory board members
and consultants. To date, no 100,000 Options issued under the plan have been exercised, 0 have expired, 150,000 have been forfeited
and 2,800,000 remain outstanding.
On July 10,
2017, our Board of Directors approved the 2017 American CryoStem Corporation Incentive Stock Option Plan (the “2017
Plan”). Under the Plan, officers, directors, employees and consultants to the Company may be granted options to
purchase shares of the Company’s common stock, par value $0.001 per share. There are 4,000,000 shares of common stock
reserved for issuance under the Plan. The Plan is administered under the authority of the Stock Option Plan Committee (the
“Committee”). During 2017, the Company granted a total of 2,770,000 at a weighted average price of $0.40 to
certain employees, advisory board members and consultants. To date 20,000 Options issued under the plan have been exercised,
0 have expired, 100,000 have been forfeited and 2,650,000 remain outstanding.
On September
15, 2020, our Board of Directors approved the 2020 American CryoStem Corporation Incentive Stock Option Plan (the “2017 Plan”).
Under the Plan, officers, directors, employees and consultants to the Company may be granted options to purchase shares of the
Company’s common stock, par value $0.001 per share. There are 4,000,000 shares of common stock reserved for issuance under
the Plan. The Plan is administered under the authority of the Stock Option Plan Committee (the “Committee”). During
2020, the Company granted a total of 2,500,000 at a weighted average price of $0.20 to certain employees, advisory board members
and consultants. To date no Options issued under the plan have been exercised, 0 have expired, 0 have been forfeited and 2,500,000
remain outstanding.
Our current
Board of Directors serves as the Committee. The Plan further provides for the Committee to set the terms of any Options granted
at the time of the grant and terminates ten years for its effective date and is subject to final shareholder approval.
On September
18, 2011, our Board of Directors approved the Annual Bonus Performance Plan for Executive Officers. To promote the success of
our Company by providing to participating executives bonus incentives that qualify as performance-based compensation within the
meaning of Section 162(m) of the Internal Revenue Code of 1986 as amended. The plan provides for the granting of up to an aggregate
amount of bonuses awarded to all Participants of up to 10% of our income before taxes. The plan shall be administered by a Committee
currently consisting of our Board of Directors. No bonuses have been granted under this plan during fiscal 2020.
Item 13. Certain Relationships
and Related Transactions
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. (formerly known as American CryoStem Corporation)
a Nevada corporation (“ACS Global”), in exchange for 21,000,000 shares of our Common Stock. At the time of the acquisition,
John Arnone, our Chairman of the Board, CEO and President was a director and the secretary of ACS Global and Anthony Dudzinski,
one of our directors and our Chief Operating Officer, Treasurer and Secretary was a director, president and secretary of ACS Global.
In addition, Mr. Arnone owns 18,250,000 shares of Common Stock of ACS Global and has the right to receive an additional 12,000,000
such shares upon the conversion of Series C Preferred Stock of ACS Global owned by him and Mr. Dudzinski owns 6,020,000 shares
of ACS Global Common Stock and has the right to receive an additional 12,000,000 such shares upon the conversion of ACS Global
preferred stock owned by him. As a result, assuming the conversion of such preferred stock, Mr. Arnone and Mr. Dudzinski would
have been deemed to be the beneficial owners of approximately 37.27% and 22.20% of the Common Stock of ACS Global, respectively.
Further, Mr. Arnone and Mr. Dudzinski, as control persons of ACS Global may be deemed to beneficially own the 21,000,000 shares
of our Common Stock issued to ACS Global in the acquisition. Each of Mr. Arnone and Mr. Dudzinski disclaim such beneficial ownership.
On September
15, 2020, the Company reached an Agreement with ACS Global, Inc. to issue to ACS Global, Inc., 1,000,000 restricted common shares
as payment of $100,000 of the outstanding loan and on October 1, 2020 the Company executed a note with ACS Global for a principal
amount of $99,125.00 representing the outstanding balance (following the September payment) due to ACS Global, Inc. The Note matures
on October 1, 2023 and carries an interest rate of 10% per annum which may be paid in cash or stock. The note may be prepaid at
any time by the Company.
On September
15, 2020, the Company reached an agreement with Mr. Arnone and Mr. Dudzinski to reduce its indebtedness to them of $200,000 each
in exchange for the exercise of certain options held by them resulting in the issuance of 1,000,000 restricted common shares each
to Mr. Arnone and to Mr. Dudzinski.
Mr. Arnone remains
a Director and Secretary of ACS Global and Mr. Dudzinski remains as a Director, President and Treasurer of ACS Global. Mr. Arnone
is also the Chairman and CEO of Personal Cell Sciences, Inc.
Director
Independence
Using the definition
of “independent” using the rules of The NASDAQ Stock Market, we have determined that neither John Arnone nor Anthony
Dudzinski is independent.
Item 14. Principal Accountant
Fees and Services
The Company’s
Board of Directors and management annually reviews its audit needs and the qualifications of its current auditor. During fiscal
2019, the Company reviewed the services, qualification and retainer agreement of its current Auditor, Fruci & Associates II,
PLLC and approved Fruci & Associates II, PLLC) retention for the Fiscal 2020 audit and for review of its quarterly filing
requirements for Fiscal 2020.
Audit Fees
The
aggregate fees billed by Fruci & Associates II, PLLC, for professional services rendered for the audit of our annual
financial statements for the fiscal year ended September 30, 2020 were $24,000 and $22,500 for the fiscal year ended
September 30, 2019. Fruci & Associates II, PLLC billed the Company a total of $17,500 in Fiscal 2020 for the review of
the Company’s quarterly reports, and $13,175 in Fiscal 2019 for the review of the Company’s quarterly
reports.
Audit-Related
Fees
There were no
other fees billed by Fruci & Associates II, PLLC for professional services rendered, other than as stated under the captions
Audit Fees.
Tax Fees
There were no
other fees billed Fruci & Associates II, PLLC for professional services rendered, other than as stated under the captions
Audit Fees.
All Other
Fees
There
were no other fees billed by Fruci & Associates II, PLLC for professional services rendered, other than as stated under
the captions Audit Fees, Audit-Related Fees, and Tax Fees.
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
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.
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.
Accounting for Investments
- The Company accounts for investments based upon the type and nature of the investment and the availability of current information
to determine its value. Investments in marketable securities in which there is a trading market will be valued at market value
on the nearest trading date relative to the Company’s financial reporting requirements. Investments which there is no trading
market from which to obtain recent pricing and trading data for valuation purposes will be valued based upon management’s
review of available financial information, disclosures related to the investment and recent valuations related to the investment’s
fundraising efforts.
Research and Development
- Research and development expenses include both external and internal expenses. External expenses primarily include costs
of intellectual property development, clinical trial development, fees paid for third party testing services, clinical supply
and manufacturing expenses, regulatory filing fees, consulting and professional fees as well as other general costs related to
the execution of research and development activities. Internal expenses primarily include compensation of employees engaged in
research and development activities. Research and development expenses are expensed as incurred. Manufacturing costs are generally
expensed as incurred.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 1. Organization of
the Company and Significant Accounting Policies (continued)
Revenue Recognition -
Effective October 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), using the modified
retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting
standards in effect for the periods presented. This standard applies to all contracts with customers, except for contracts that
are within the scope of other standards, such as leases, insurance, certain collaboration arrangements and financial instruments.
ASC 606 also impacts certain other areas, such as the accounting for costs to obtain or fulfill a contract. The standard also
requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The adoption of ASC 606 did not have an impact on the amount of reported revenues. See Note 3 “Revenue Recognition”
for additional information.
Advertising -
Advertising Costs are expensed as they are incurred. Advertising Costs were $0 for Fiscal 2020 and $998 for Fiscal 2019, 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 $337,515 at September 30, 2020 and $10,865 at September 30, 2019.
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 $20,401 at September 30, 2020 and $25,855 at September 30, 2019.
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 September 30, 2020 and
September 30, 2019, 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 2019 are subject to IRS and State of New Jersey audit.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 1. Organization of
the Company and Significant Accounting Policies (continued)
Recently
Issued Accounting Pronouncements
In June
2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses. The new guidance provides better representation
about expected credit losses on financial instruments. This Update requires the use of a methodology that reflects expected losses
and requires consideration of a broader range of reasonable and supportive information to inform credit loss estimates. This ASU
is effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The company is studying the
impact of adopting the ASU in fiscal year 2024, and what effect it could have. The Company believes the accounting change would
not have a material effect on the financial statements.
In February 2016, the FASB
issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 which requires lessees to recognize lease assets and lease liabilities
on the balance sheet for all leases with terms longer than 12 months; and requires expanded disclosures about leasing arrangements.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted. ASU 2016-02 and additional ASUs are now codified as Accounting Standards Codification
Standard (“ASC”) 842 - Leases (“ASC 842”). The Company adopted ASC 842 on October 1, 2019 and used
the modified retrospective transition approach and did not restate its comparative periods. As of the date of implementation on
October 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a Finance Lease Right-of-Use-Asset and an
Operating Lease Right-of-use-Asset and corresponding Lease Liability Obligations on the Company’s consolidated balance sheets.
The Company elected to not recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.
As the Right of use asset and
the corresponding Lease Liability obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on
the Company’s accumulated deficit. Since the Equipment Asset related to the Capital Lease and the Finance Lease Asset established
had different values, the Company recorded a cumulative effect modification on October 31, 2019 by a reducing equity (increasing
the accumulated deficit) by $41,804.
In November
2018, the FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606. This new ASU applies to
companies that have collaborative arrangements, or agreements that involve two parties that actively participate in a joint operating
activity. We believe our contract with Baoxin falls under the collaborative arrangements guidance in (ASC 808). ASU 2018-18 is
effective for public companies for years beginning after December 15, 2019. The Company plans to implement ASU 2018-18 in Fiscal
2021 and is currently assessing the impact on its contracts.
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 this report. Management’s plans with regard to this
matter are to continue to fund its operations through fundraising activities in fiscal 2021 for future operations and business
expansion.
NOTE
3. Revenue Recognition
Under ASC 606, we recognize revenue
when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to
receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within
the scope of ASC 606, we perform the following five steps:
a. Identify the
contract(s) with a customer;
b. Identify the
performance obligations in the contract;
c. Determine
the transaction price;
d. Allocate the
transaction price to the performance obligations in the contract; and
e. Recognize
revenue when (or as) the performance obligations are satisfied.
We
only apply the five step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange
for the goods or services we transfer to the customer. At contract inception, if the contract is determined to be within the scope
of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and
assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that
is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE
3. Revenue Recognition (continued)
Our major sources of revenue during
the reporting periods were 1. Tissue Collection, Processing and Storage revenue from various customers; 2. Annual Storage Fees
for our ATGRAFT and ATCELL products, from customers who have had stored in our laboratory facility, along with former Bio-Life
and Cytori storage customers purchased by American CryoStem; 3. Licensing and other fees from Baoxin, Cell Source, CryoViva, Pepro-Tech
and Personal Cell Sciences; and 4. Products sales revenues from Baoxin and CryoViva.
The adoption of ASC 606 did not have
an impact on the pattern or timing of recognition of our Tissue Processing, Storage Fees or Product Sales Revenue, since:
|
1.
|
Tissue
Collection, Processing & Storage Revenue is recognized on the date the process is
completed and stored in our facility.
|
|
2.
|
Storage
Fees are charged annually.
|
|
3.
|
Licensing
and other Fees - This is based on the passage of time and as the customer has access
to the license. The Company reviewed and analyzed the contract with Baoxin. Management’s
judgments are:
|
|
a.
|
Baoxin
qualifies as a customer since American CryoStem does not take significant risks or receive
significant gains from the agreement.
|
|
b.
|
The
right to use the license does not have significant standalone functionality because consulting
is required by American CryoStem in order for the customer to be able to use the license.
|
|
c.
|
The
Company has determined as of the date of this report not to make an allowance upon recognition
of the Baoxin revenue based upon review of Baoxin’s most recent audited financial
statements, documentation provided by Baoxin concerning the completion of their new 100,000
sq. ft facility during the pandemic and the ongoing uncertainties regarding the continuing
effects of the COVID-19 pandemic in China.
|
|
4.
|
The
majority of our Product Sales Revenue continues to be recognized when the customer takes
control of the product.
|
Revenue and Allowances
The following table provides information
about Fees and Product Sales Revenue for the years ended September 30, 2020 and 2019.
|
|
Years Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Licensing & Other Fees
|
|
|
|
|
|
|
|
|
Baoxin
|
|
$
|
500,000
|
|
|
$
|
225,000
|
|
Cell Source
|
|
|
23,333
|
|
|
|
43,333
|
|
Personal Cell Sciences
|
|
|
—
|
|
|
|
1,424
|
|
Total
|
|
$
|
523,333
|
|
|
$
|
269,757
|
|
|
|
|
|
|
|
|
|
|
Product Sales
|
|
|
|
|
|
|
|
|
Baoxin
|
|
$
|
11,680
|
|
|
$
|
19,683
|
|
CryoViva
|
|
$
|
10,060
|
|
|
|
5,840
|
|
Science Diagnostics Materials, LTD
|
|
$
|
930
|
|
|
|
—
|
|
Total
|
|
$
|
22,670
|
|
|
$
|
25,523
|
|
Tissue Processing and Storage
was not included in the table since this revenue was provided by customers who were individuals rather than corporate partners.
Performance Obligations
At contract inception, we assess
the goods and services promised in our contracts and identify the performance obligations for each promise to transfer to the
customer goods or to provide the customer with a service that is distinct. To identify the performance obligations, we consider
all of the goods and services promised in the contract regardless of whether they are specifically stated or are implied by customary
business practices. We determined that the following distinct goods or services represent separate performance obligations:
|
·
|
ATGRAFT
and ATCELL Customer Tissue Processing Fees
|
|
·
|
ATGRAFT
and ATCELL Customer Storage Fees
|
|
·
|
Licensing
and other Fees
|
|
·
|
Supply
of our Tissue Collection, Processing and Storage Products to Baoxin and CryoViva
|
American
CryoStem Corporation
Notes
to the Consolidated Financial Statements
September
30, 2020 and 2019
NOTE
3. Revenue Recognition (continued)
We principally sell our products
to end users, who have agreements with us to utilize our processing and storage technology. We provide processing and storage
services to individual customers. We charge various fees for consulting services or licensing of our technologies; which includes
processing and storage agreements, arrangements with biotechnology processing facilities for the provision of our services within
a limited geographic area.
For the customers that purchase
our Tissue Collection, Processing and Storage Products we transfer control at the point in time when the goods are shipped from
our facility, shipping costs are paid by the customer and these costs are not accrued when the related revenue is recognized.
Variable Consideration
Under ASC 606, we are required
to make estimates of the net sales price, including estimates of variable consideration (such as rebates and discounts) and recognize
the estimated amount as revenue when we transfer control of the product or provide the service to our customers. Variable Consideration
must be determined using either an “expected value” or a “most likely amount” method. At the current time
the Company does not offer rebates or discounts on our provision of ATGRAFT and ATCELL customer processing and storage fees; Licensing
and other Fees; and offer Tissue Collection, Processing and Storage products; therefore we have not made any provisions for variable
consideration related to discounts or rebates.
Product Returns
We only offer product returns
in the event a delivered product is found to be defective for which we offer replacement only. The Company has not had any product
returned based upon a defective product claim however return experience may change over time.
NOTE
4. 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 6,736,500 and 8,761,500
shares of Common Stock issuable upon exercise of all outstanding stock options and warrants for Fiscal Years 2020 and 2019, respectively;
and 2,134,784 and 2,134,784 shares issuable on the conversion of outstanding Convertible Notes for Fiscal Years 2020 and 2019,
respectively.
Net Loss per share for the Fiscal
Years is computed below:
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Net Income (Loss)
|
|
$
|
(1,179,285
|
)
|
|
$
|
(1,082,217
|
)
|
Basic & Fully Diluted Net Income (Loss) per Common Share:
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Weighted Average of Common Shares Outstanding - Basic & fully diluted
|
|
|
51,659,523
|
|
|
|
48,915,644
|
|
NOTE
5. Fixed Assets
The fixed assets accounts of
the Company are comprised as follows:
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Laboratory Equipment
|
|
$
|
257,905
|
|
|
$
|
386,579
|
|
Laboratory Leasehold Improvements
|
|
|
110,286
|
|
|
|
110,286
|
|
Laboratory Furniture
|
|
|
1,841
|
|
|
|
1,841
|
|
Office Equipment
|
|
|
27,869
|
|
|
|
23,988
|
|
Office Leasehold Improvements
|
|
|
2,650
|
|
|
|
2,650
|
|
Office Furniture
|
|
|
1,812
|
|
|
|
1,812
|
|
Accumulated Depreciation
|
|
|
(275,772
|
)
|
|
|
(289,078
|
)
|
Net Property and Equipment
|
|
$
|
126,591
|
|
|
$
|
238,078
|
|
Depreciation
expense for Fiscal Years 2020 and 2019 is $11,170 and $26,675 respectively.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE
6. 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. Amortization Expense for Fiscal Year 2020 was $5,663 and $5,327 for Fiscal 2019.
Patents still
in the application process have not been amortized. The unamortized costs of patents in the application process are $297,731 for
Fiscal 2020 and $288,882 for Fiscal 2019. Amortizable Patent Costs were $96,000 at Fiscal Year Ended 2020 and $96,000 at Fiscal
Year Ended 2019. The following is the amortization expense for these patents for the next 5 years:
Fiscal 2021
|
|
$
|
5,647
|
|
Fiscal 2022
|
|
$
|
5,647
|
|
Fiscal 2023
|
|
$
|
5,647
|
|
Fiscal 2024
|
|
$
|
5,647
|
|
Fiscal 2025
|
|
$
|
5,647
|
|
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.
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.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE
7. Debt
The following
table describes the Company’s debt outstanding as of September 30, 2020:
Debt
|
|
Carrying Value
|
|
|
|
Maturity
|
|
|
Rate
|
|
Bridge Notes
|
|
$
|
226,500
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 40 cents
|
|
$
|
100,000
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 35 cents
|
|
$
|
83,500
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible Notes @ 33 cents
|
|
$
|
150,000
|
|
|
|
Fiscal 2021
|
|
|
|
5.00
|
%
|
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
|
%
|
PPP Loan
|
|
$
|
23,407
|
|
|
|
Fiscal 2022
|
|
|
|
1.00
|
%
|
Finance Lease
|
|
$
|
26,722
|
|
|
|
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 matured in March 2020 and has an exercise price of $.40 with
interest at 8%. The entire Carrying Value of $100,000 was 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 Years Ended September 30, 2020 and
2019 were $25,000 and $50,000, respectively.
In April 2019, the Company
issued debentures and received proceeds of $150,000. The debentures mature in 2021 and had an exercise price of $0.33 with interest
at 5%. The entire Carrying Value of $150,000 is due in Fiscal 2021.
As a result of the issue, the
Company recognized interest expense of $61,364 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 Year Ended September 30, 2020 and
2019 was $32,764 and $13,652, respectively.
On October 3, 2019, the Company
issued a debenture and received proceeds of $168,000, with interest at 10%. The Note was convertible at the rate of $0.48 per
share for the initial 180 days; and thereafter at a 30% discount to the average of the three lowest trading prices during the
10 trading days prior to the date of conversion. The entire Carrying Value of $168,000 was due in Fiscal 2020.
The company recorded a debt
discount of $168,000 and a Derivative liability of $260,951 at inception.
The Company used the American
Option Binomial Tree Pricing model to estimate the fair value of the derivative liability as of the date of issuance and at the
dates of conversion of the note to common stock. The entire note along with interest and fees was converted to common stock during
the Fiscal and the derivative liability was reduced to 0 (zero).
NOTE 8. Executive Compensation
The company accrues Executive
Salary for its two Officers at a rate of $10,000 per month for each or $120,000 annually. Management has decided to pay these
salaries in the future as cash flow permits. Management controls the collection of these accrued salaries and does not plan to
demand payment in Fiscal 2021.
NOTE 9. Common Stock Issuances
During fiscal 2019, the Company
issued 950,003 shares and received $280,000. The share prices were determined by agreement with the purchasers, based upon the
current market price less a discount for purchasing restricted securities.
During fiscal 2019, the Company
issued 50,000 shares to a consultant for services rendered valued at $25,000. The share price used was the market value price
per share on the date issued.
During
fiscal 2019, the Company issued 91,706 shares to pay interest due to holders of the bridge notes and convertible notes. The value
of the interest paid was $50,391. The share prices were determined by the aggregate market price for the week in which the shares
were issued.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 9. Common Stock Issuances
(continued)
During fiscal 2019, the Company
issued 100,000 shares to pay an outstanding consulting bill. The shares issued were valued at $27,500. The share prices were determined
by agreement with the consultant based on the value of the services provided.
During fiscal 2020, the Company
issued 2,475,000 shares and received $415,000. A finder’s fee of $14,000 was paid. The share price was determined by agreement
with the purchasers, based upon the current market price less a discount for purchasing restricted securities.
During fiscal 2020, the Company
issued 2,965,659 shares for the conversion of a note along with interest and fees totaling $180,217. The share price was determined
based upon the original note agreement.
During fiscal 2020, the Company
issued 300,000 shares to pay bills of $60,000. The share price was determined by agreement with the creditors, based upon the
current market price.
During fiscal 2020, the Company
issued 1,000,000 shares to pay a portion of its debt $100,000, to its parent company. The share price was determined based upon
the current market price less a discount for accepting restricted securities as payment.
During fiscal 2020, the Company issued
465,000 shares for services of $97,500. The share price was determined by agreement with the service providers, based upon the
current market price.
During fiscal 2020, the Company
issued 150,000 shares in settlement of a contract. The share price was determined by the market price on the date of the settlement.
During fiscal 2020, the Company
issued 2,400,000 shares for stock options exercised for $480,000. The share price was determined based upon the option price for
the plan year for which the options were exercised.
During fiscal 2020, the Company
issued 227,088 shares to pay interest due to holders of the bridge notes and convertible notes. The value of the interest paid
was $57,849. The share prices were determined by the aggregate market price for the week in which the shares were issued.
During fiscal 2020, the Company
issued 200,000 shares as a finder’s fee for capital raised.
NOTE 10. 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 instructs
the 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 $320,042 for Fiscal 2020. The Company did not issue any options
for Fiscal Year 2019. The fair value of the options issued in Fiscal 2020 was calculated using the following assumptions:
Dividend yield
|
|
|
0.00
|
%
|
Risk free interest rate
|
|
|
0.125
|
%
|
Volatility
|
|
|
146.37
|
%
|
Share Price
|
|
$
|
0.20
|
|
Term
|
|
|
5 years
|
|
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 10. Option Issuances
(continued)
The following is a summary
of common stock options outstanding at September 30, 2020:
|
|
Amount
|
|
|
|
Exercise
Price Range
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term
(Years)
|
|
Outstanding at September 30, 2018
|
|
|
12,306,500
|
|
|
|
$0.05 - $0.40
|
|
|
$
|
0.26
|
|
|
|
2.31
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3,220,000
|
)
|
|
|
$0.25 - $0.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(325,000
|
)
|
|
|
$0.20 - $0.40
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
8,761,500
|
|
|
|
$0.05 - $0.40
|
|
|
$
|
0.26
|
|
|
|
1.85
|
|
Granted
|
|
|
2,500,000
|
|
|
|
$0.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,400,000
|
)
|
|
|
$0.20
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(875,000
|
)
|
|
|
$0.20
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
7,986,500
|
|
|
|
$0.05 - $0.40
|
|
|
$
|
0.26
|
|
|
|
2.33
|
|
Vested at September 30, 2020
|
|
|
6,736,500
|
|
|
|
$0.05 - $0.40
|
|
|
|
0.28
|
|
|
|
2.02
|
|
Option Forfeitures are recorded
as they occur. The intrinsic value of the outstanding common stock options is $883,180 and the intrinsic value of the outstanding
vested stock options is $620,680.
NOTE 11. 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 Accounts
Receivable, Bridge Notes and Convertible Notes at cost. Financial instruments’ carrying value approximates fair value. Stock
Options are valued using level 3 of the fair value hierarchy.
NOTE 12. Leases
The Company
determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification
criteria of finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments
to present value; however, one of the Company’s leases does not provide a readily determinable implicit rate. Therefore,
the Company must discount lease payments based on an estimate of its incremental borrowing rate which is based on the interest
rate of similar debt outstanding. Effective October 1, 2019, the Company adopted the provision of ASC 842 Leases.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 12. Leases (continued)
Finance
Lease
The Company
leases Equipment at its laboratory from NFS Leasing, Inc. The final lease payment is scheduled for May 1, 2021. When the final
payment is made, the Company will own the equipment. The table below presents the lease related asset and liability recorded on
the Company’s consolidated balance sheets as of September 30, 2020:
|
|
|
Classification on Balance Sheet
|
|
|
September 30, 2020
|
|
Assets
|
|
|
|
|
|
|
Finance Lease Asset
|
|
|
Finance lease right of use asset
|
|
|
$
|
85,817
|
|
Total Finance lease assets
|
|
|
|
|
|
$
|
85,817
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Finance lease liability
|
|
|
Current finance lease liability
|
|
|
$
|
28,157
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
Finance lease liability
|
|
|
Long-Term finance lease liability
|
|
|
|
—
|
|
Total operating lease liability
|
|
|
|
|
|
$
|
28,157
|
|
Lease obligations at September 30, 2020:
|
|
|
|
2021
|
|
|
28,157
|
|
Total Payments
|
|
|
28,157
|
|
Amount representing interest
|
|
|
(1,435
|
)
|
Finance lease obligation, net
|
|
|
26,722
|
|
Finance lease obligation, current portion
|
|
|
(26,722
|
)
|
Finance lease obligation, long-term
|
|
|
0
|
|
The lease expense for the Fiscal
Years 2020 and 2019 was $42,235 and $42,235, which consisted of amortization expenses of $35,673 and $30,992 along with interest
expenses of $6,562 and $11,243. At September 30, 2020, the remaining lease term was 0.67 years (8 months) and the discount rate
was 14.17%.
Operating
Lease
The Company
leases its office facility, in Eatontown, New Jersey, from Eaton Holdings LLC. The lease expires on April 30, 2021 and the Company
can exercise a renewal option for an additional three years. The table below presents the lease related asset and liability recorded
on the Company’s consolidated balance sheets as of September 30, 2020:
|
|
|
Classification on Balance Sheet
|
|
|
September 30, 2020
|
|
Assets
|
|
|
|
|
|
|
Operating Lease Asset
|
|
|
Operating lease right of use asset
|
|
|
$
|
18,064
|
|
Total Operating lease assets
|
|
|
|
|
|
$
|
18,064
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
Current operating lease liability
|
|
|
$
|
18,064
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
Long-Term operating lease liability
|
|
|
|
—
|
|
Total operating lease liability
|
|
|
|
|
|
$
|
18,064
|
|
Lease obligations at September 30, 2020:
|
|
|
|
2021
|
|
|
18,550
|
|
Total Payments
|
|
|
18,550
|
|
Amount representing interest
|
|
|
(486
|
)
|
Operating lease obligation, net
|
|
|
18,064
|
|
Operating lease obligation, current portion
|
|
|
(18,064
|
)
|
Operating lease obligation, long-term
|
|
|
0
|
|
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 12. Leases (continued)
The lease expense for Fiscal
2020 was $31,800, which consisted of amortization expense of $29,394 and interest expense of $2,406. The cash paid under the operating
lease for Fiscal 2020 was $31,800. At September 30, 2020, the remaining lease term was 0.58 years (7 months) and the discount
rate was 8%.
The Company leases a laboratory
facility, in Monmouth Junction, New Jersey, from Princeton Corporate Plaza LLC for $2,389 per month. The lease expired on September
30, 2020 and the Company can has a renewal option for an additional 6 months. Since the lease obligation is less than twelve months,
the Company does not report a lease related asset or liability for this lease. Laboratory Rent paid in Fiscal 2020 was $28,668
and $126,247 in Fiscal 2019.
NOTE 13. Concentration of
Credit
The Company received approximately
92% in Fiscal 2020; and approximately 72% in Fiscal 2019 of its revenue from one client. The Company had accounts receivable from
Baoxin of $825,000 at September 30, 2020 and $328,154 at September 30, 2019.
The Company regularly reviews
all receivables and determines the amount of allowances if any on a quarterly basis. Due to difficulties and uncertainties caused
by COVID and going concern considerations management has decided to make an allowance of $325,000 for the Baoxin receivable, representing
the amount due that is more than one year old.
The Company made this determination
following review of Baoxin’s most recent audited financial statements, receipt of their accounts receivable confirmation,
and the completion of their new facility in Shenzhen.
Since Baoxin has restarted
its revenue-producing operations which includes product purchases from CRYO and the receivable is “collateralized”
by the licenses granted by CRYO; which CRYO could cancel the agreement due to nonpayment, and information from financial statements;
we believe that Baoxin has sufficient assets to cover the amount billed in Fiscal 2020.
The Company’s accounts
receivable from non-US countries was approximately 98% for Fiscal 2020 and 96% for Fiscal 2019. The Company received approximately
98% of its revenues in Fiscal 2020 and 86% of its revenues in Fiscal 2019 from non-US countries.
NOTE 14. 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 is responsible for its own
funding. Autogenesis has no material business operations since its inception. In Fiscal 2019 the Company had written off its investment
in Autogenesis.
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 publicly traded corporation and the investment is carried at cost at September 30, 2020 and 2019. The
Company annually reviews its investments for impairment. After reviewing the status of Baoxin’s Financial Condition, as
stated above in Note 13, the Company has determined that no impairment of its investment is necessary for Fiscal 2020.
The Company reviewed information
provided by Baoxin including its most recent audited financial statements and information regarding the completion of its new
facility in Shenzhen, China and the effects on Baoxin of the COVID-19 pandemic. The Company determined not to make adjustment
downward or upward at the time of this report. The Company will continue to closely monitor the situation as it assists Baoxin
with bringing their new facility online.
Considering the ongoing COVID-19 pandemic and its effects on Baoxin there is no assurance concerning the timing and processing volume or near term utilization
or future processing volumes of the Baoxin’s new facility.
The timing of Baoxin’s
opening of its new facility in light of the pandemic, and its ability to continue to fund itself though investments until it can
return to normal operations will be closely monitored by American CryoStem Management to determine if any further adjustment needs
to be made. The timing of any future adjustments, short or long term cannot be reasonably predicted at this time.
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 $200,000 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 a
5% minority equity in Baoxin (China) and an option to acquire up to a 20% equity ownership interest in its Regenerative Medicine
Center in Hong Kong (HK). The short term goals are to set up two additional GMP grade adipose tissue processing and storage facilities
in Beijing and Shanghai to cover the need of the whole China region, and a proper education facility in China to promote the use
of ATGRAFT as a more natural dermal filler over artificial fillers.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 15. Related Party Transactions
The Company was indebted to
a company that is majority owned by the Company’s two officers in the amount of $99,125 for Fiscal 2020 and $205,355 for
Fiscal 2019. 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 Fiscal 2021.
On October 1, 2020, the Company
executed a note with ACS Global for a principal amount of $99,125 representing the outstanding balance due to ACS Global, Inc.
The Note matures on October 1, 2023 and carries an interest rate of 10% per annum which may be paid in cash or stock. The note
is due and payable in full upon maturity. The note may be prepaid at any time by the Company.
NOTE 16. Income Taxes
Provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
Sept 30, 2020
|
|
|
Sept 30, 2019
|
|
Net loss before provision for income taxes
|
|
$
|
(1,179,285
|
)
|
|
$
|
(1,082,217
|
)
|
Current tax expense:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
0
|
|
|
$
|
0
|
|
State
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
Less deferred tax benefit:
|
|
|
|
|
|
|
|
|
Tax loss carry forwards
|
|
$
|
(9,290,920
|
)
|
|
$
|
(8,111,635
|
)
|
Allowance for recoverability
|
|
|
9,290,920
|
|
|
|
8,111,635
|
|
Provision for income taxes
|
|
$
|
0
|
|
|
$
|
0
|
|
A reconciliation of provision for income taxes at the statutory rate to provision for income taxes at the Company’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
Statutory U.S. federal rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Statutory state and local income tax
|
|
|
10
|
%
|
|
|
10
|
%
|
Less allowance for tax recoverability
|
|
|
-31.0
|
%
|
|
|
-31.0
|
%
|
Effective rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The effective tax rate for the
years ended September 30, 2020 and 2019 required the recording of any impact of the Tax Cuts and Jobs Act (the “Tax Act”),
enacted on December 22, 2017 by the U.S. government. The Tax Act made broad and complex changes to the U.S. tax code that affect
our fiscal years ended September 30, 2020 and 2019, including, but not limited to, (1) reducing the U.S. federal corporate tax
rate and (2) requiring a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries that is payable over
eight years.
Note 17. Non-Cash Transactions
As an addendum to the consolidated
statements of cash flows, the following non-cash transactions occurred in fiscal years 2020 and 2019:
The company issued shares of common
stock for the conversion of a note, including interest and fees in the amount of $180,217 in Fiscal 2020.
The company issued shares of common
stock to pay a portion of its debt to its Parent in the amount of $100,000, in Fiscal 2020.
The company issued shares of common
stock to settle a contract valued at $166,667, in Fiscal 2020.
The company issued shares of common
stock to pay interest of $57,849, in Fiscal 2020.
The
company issued 2,400,000 shares of common stock for options exercised at $0.20 per share, for a total amount of $480,000, in Fiscal
2020.
American CryoStem
Corporation
Notes to the
Consolidated Financial Statements
September
30, 2020 and 2019
NOTE 18. Subsequent Events
The Company has made a review
of material subsequent events from September 30, 2020 through the date of issuance of this report and has determined to include
the following subsequent events:
On
December 3, 2020, the Company entered into a Cooperative Research and Development Agreement (CRADA) with Walter
Reed National Military Medical Center (WRNMMC), the nation’s largest and most renowned joint military medical center serving
the Army, Navy, Air Force and Marines located in Bethesda, Maryland.
A
Cooperative Research and Development Agreement (CRADA) is a written agreement between a government agency and a non-federal
entity that allows the federal government and its non-federal partners to optimize and maximize use of their resources, exchange
technical expertise in a protected fashion, share intellectual property resulting from collaborative effort, and speed commercialization
of federally developed technology. The Company has committed to provide materials including ATCell samples and Umbilical Cord
stem cells, ACSelerate Max Growth and differentiation mediums testing and other processing supplies, processing and testing
methods. The Company’s total in-kind and financial commitments are limited to $120,000 in supplies and expense reimbursement
during the life of the Agreement.
The Company maintains the rights
to commercialize all technology developed under this CRADA Agreement. The technology is centered on creating in vitro (test tube)
assays to standardize and commercialize new treatment protocols; optimizing quality control measures; and developing standardized
protocol potency assays for precise therapy dosing.
Management believes that these
new assays can be commercialized to generate substantial sales and licensing revenues and create value for the Company’s
stakeholders.
Through
the Collaboration entitled “Stem Cells for Regeneration and Medical Innovation, a multi-faceted and multi-staged research
project with WRNMMC Biomedical Laboratories, the Company plans to develop, validate and standardize baseline and assay
metrics to identify mesenchymal stem cell (MSC) characteristics and quantities across various cell biomarkers and exosome expressions
data sets for its ATCell™ product for biologics developers’ use worldwide. The focus of the Collaboration is
to enable the creation of predictive and prescriptive cellular models which will further enhance American CryoStem’s mission
as a premier biologics’ manufacturer and developer and be highly valuable to the medical community, biotech developers,
and the public at large.
WRNMMC
is part of The Military Health System (MHS) which is the enterprise within the United States Department of Defense that
provides health care to active duty, Reserve component and retired U.S. Military personnel and their dependents
The
missions of the MHS are complex and interrelated: To
ensure America’s 1.4 million active duty and 331,000 reserve-component personnel are healthy so they can complete their
national security missions.
|
·
|
To
ensure that all active and reserve medical personnel in uniform are trained and ready
to provide medical care in support of operational forces around the world.
|
|
·
|
To
provide a medical benefit commensurate with the service and sacrifice of more than 9.5
million active duty personnel, military retirees and their families.
|
The
MHS also provides health care, through the TRICARE health plan, to:
|
·
|
active
duty service members and their families,
|
|
·
|
retired
service members and their families,
|
|
·
|
Reserve
component members and their families,
|
|
·
|
surviving
family members,
|
|
·
|
Medal
of Honor recipients and their families
|
|
·
|
some
former spouses, and
|
|
·
|
Others
identified as eligible in the Defense Enrollment Eligibility Reporting System.
|
The
MHS has a $50+ billion budget and serves approximately 9.5 million beneficiaries. The MHS employs more than 144,217 in 51 hospitals, 424 clinics,
248 dental clinics and 251 veterinary facilities across the nation and around the world, as well as in contingency and combat-theater
operations worldwide.
The
Company’s long term research is focused on further developing standardized cellular processing models to support FDA, IND
treatment protocol approvals by further identifying, and validating certain mechanisms and characteristics of mesenchymal stem
cells related to regulating modulation of immune response(s) and promoting tissue regeneration and stability (homeostasis) for
the treatment of traumatic injuries, inflammation, auto-immune diseases, and brain and organ damage associated with viruses such
as SARS-CoV-2 (COVID-19), including, the expanding group of people dealing with the chronic and debilitating symptoms of what
is commonly termed “Long Haul COVID” or “Long COVID.”