Forward-looking Statements
We and our representatives may from time to time make written or oral statements
that are "forward-looking," including statements contained in this quarterly
report and other filings with the Securities and Exchange Commission (the
"SEC"), reports to our stockholders and news releases. All statements that
express expectations, estimates, forecasts or projections are forward-looking
statements. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as
"expect," "anticipate," "intend," "plan," "believe," "seek," "estimate,"
"project," "forecast," "may," "should," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in or suggested by such forward-looking statements. We undertake no obligation
to update or revise any of the forward-looking statements after the date of this
quarterly report to conform forward-looking statements to actual results.
Important factors on which such statements are based on assumptions concerning
uncertainties, including but not limited to, uncertainties associated with the
following:
· Inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement our business plans;
· Our failure to earn revenues or profits;
· Inadequate capital to continue business;
· Volatility or decline of our stock price;
· Potential fluctuation in quarterly results;
· Rapid and significant changes in markets;
· Litigation with or legal claims and allegations by outside parties; and
· Insufficient revenues to cover operating costs.
The following discussion should be read in conjunction with the financial
statements and the notes thereto which are included in this quarterly report.
This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ substantially from
those anticipated in any forward-looking statements included in this discussion
as a result of various factors.
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Background
American CryoStem Corporation was incorporated in the state of Nevada on March
13, 2009. On April 20, 2011, we acquired, through our wholly owned subsidiary
American CryoStem Acquisition Corporation, substantially all of the assets from,
and assumed substantially all of the liabilities of, ACS Global, Inc. ("ACS") in
exchange for our issuance of 21,000,000 shares of Common Stock to ACS (the
"Asset Purchase"). We filed a Current Report on Form 8-K with the Securities and
Exchange Commission (SEC) on April 27, 2011 disclosing the Asset Purchase and
certain related matters.
Overview
American CryoStem Corporation is a biotechnology pioneer in the field of
Regenerative and Personalized Medicine and operates a state-of-the-art,
FDA-registered, laboratory dedicated to standardized processing, bio-banking and
development of cellular tools and applications, using autologous adipose (fat)
tissue and adipose derived stem cells ("ADSCs"). The Company has built a strong,
strategic portfolio of intellectual property, patent applications, and
proprietary operating processes that form its core standardized cellular
platform which we believe supports and promotes a growing pipeline of biologic
products and processes, services and international licensing opportunities. Our
FDA registered laboratory for human tissue processing, cryo-storage and cell
culture and differentiation media development is located in Monmouth Junction,
New Jersey.
The Company believes the reproducibility of scientific studies has become a
substantial issue in life science research from drug discovery and development
through clinical trials as researchers throughout the world continue to use
different protocols for processes associated with sample preparation,
cryopreservation and cold chain management. We believe by standardizing
handling, storage, and transportation protocols we can substantially improve the
quality and reproducibility of preclinical and clinical data to help accelerate
the transition from lab research to product development and market launch. To
this end, we have licensed affiliates operating on our cellular
collection-processing and storage platform in Tokyo, Japan, 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 accepted for review by the FDA on October 22, 2019. 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 NJ, implemented and
validated new Standard Operating Procedures and installed a new Quality
Management System.
Our proprietary, patent pending processing platform allows for the collection,
preparation and cryo-preservation of adipose tissue without manipulation,
bio-generation or the addition of animal-derived products or other chemical
materials which require removal from the tissue sample upon retrieval or prior
to use. Management believes this core process makes each tissue sample suitable
for use in cosmetic grafting procedures or for further processing to adult stem
cells for other types of stem cell therapies. Currently, we believe there are
numerous therapeutic and orthopedic applications for adipose tissue and adult
stem cell treatments identified or in use globally.
Products and Services
American CryoStem is focused on multiple high margin business lines capable of
generating sustainable, recurring revenue streams from each of our developed
products and services. The Company incorporates its proprietary and patented or
patent pending laboratory products, such as our ACSelerate™ cell culture media,
into our processing product production and contract manufacturing services.
Additionally, the Company requires licensees of our tissue and cell processing
technologies to purchase the consumable products required in the collection,
processing and storage of tissue/stem cells as part of the licensing agreement
including our CELLECT® Collection, Transportation, and Storage System and
ACSelerate™ Cell Culture Media Products.
To date, we have generated minimal revenue; however, subject to, among other
factors, obtaining the requisite financing, management believes that we are well
positioned to utilize our developed products and services as the foundation for
domestic and international distribution through licensees of our technologies
and a host of Regenerative Medicine application uses and future therapy
products. In the US we operate an FDA registered facility that generates revenue
from; the processing and storage of adipose tissue (ATGRAFT™), the processing of
adipose tissue into its cellular components for future use (ATCELL™) and the
production and sale of our tissue collection boxes (CELLECT®), and patented
media products (ACSelerate™).
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Our branded product and service offerings include:
CELLECT® Validated Collection, Transportation, and Storage System - An
unbreakable "chain of custody" clinical solution for physicians or researchers
to collect and deliver tissue samples utilizing proprietary and patent pending
methods and materials. The CELLECT® service is monitored in real-time and
assures the highest cell viability upon laboratory receipt. The CELLECT® system
incorporates our proprietary ACSelerate-TR™ transport medium into all collection
bags which supports the health of the tissue during transport. The CELLECT® kit
is an integral part of our validated ATGRAFT™ and ATCELL™ technology platform to
be used by licensees of our platform technologies. 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 and labeling and
product identification coding system. The coding was developed in conjunction
with the American Association of Blood Banks (AABB), the American Red Cross and
the International Society of Blood Transfusion (ISBT). These groups form the
International Council for Commonality in Blood Banking Automation (ICCBBA) and
developed the ISBT 128 Standard for machine readable labeling. This labeling
system is an acceptable machine readable labeling standard, product description,
and bar coding system for FDA Center for Biologics Evaluation and Research under
21 CFR 606.12(c) 13. American CryoStem conforms to this standard in its
laboratory facility and all cellular and tissue products produced at the
facility carry our W3750 ICCBBA facility identifier allowing any hospital,
clinic, laboratory and regulator worldwide to identify the origin and obtain
additional information on any sample produced at an American CryoStem facility.
The Company promotes this standard in all laboratories that license or utilize
our technology.
ATGRAFT™ Adipose Tissue Storage Service - A clinical fat storage solution
allowing physicians to provide their patients with multiple tissue and cell
storage options. The ATGRAFT™ service, through one liposuction procedure allows
individuals to prepare for future cosmetic or regenerative procedures by storing
multiple samples of their own adipose tissue to be returned in the future as a
natural biocompatible filler, or the sample may be further processed to create
cellular therapy applications without the trauma of further liposuctions.
ATGRAFT™ procedures may include breast reconstruction, layered augmentation,
buttocks enhancement or volume corrections of the hands, feet, face and neck
areas that experience significant adipose tissue (fat) volume reduction as we
age. ATGRAFT™ is processed and stored utilizing our standards so that any stored
fat tissue sample may be retrieved in the future and re-processed to create stem
cells "ATCELL™"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 charges standardized fees for ATGRAFT™ tissue processing and a
minimum annual storage fee depending on the volume of tissue stored. These
processing and storage fees may be paid to the Company by the
collecting/treating physician or the consumer. The Company earns additional
fees, for the thawing, packaging and shipment of the stored samples back to the
physician or clinic for immediate use upon receipt. Additionally, physicians or
patients may request that any stored ATGRAFT™ tissue sample of 25ml or greater
be reprocessed utilizing the Company's ATCELL™ and Autokine-CM™ processing. The
Company charges fees for the reprocessing of a 25ml stored ATGRAFT™ sample and
may charge additional fee's if expansion of the newly created ATCELL™ sample is
also requested.
The Company believes the ATGRAFT™service may create significant revenue
opportunities and patient retention for the participating physician. The
ATGRAFT™ service lowers physician/patient overall costs by eliminating
additional liposuction procedures for each scheduled fat transfer or therapy
procedure. Physician cost savings may include: materials, supplies, equipment,
and the expenses of utilizing a surgical center, hospital operating room or an
in-office aseptic procedure room. The ATGRAFT™ service is designed to operate
under the minimally manipulated regulations contained in both 21 CFR 1271.10 and
PHS 361.
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ATCELL™ Adipose Derived Stem Cells (ADSCs) -Processed and characterized adipose
derived regenerative cells (ADRCs) created using the Company's proprietary
Standard Operating Procedures (SOPs) and ACSelerate™ patented cell culture
media. ATCELL™ is the Company's trademarked name for its ADRCs and
differentiated cell products and processing methodology. The Company maintains
multiple master and differentiated cell lines and labels them according to their
characterization. (i.e. ATCELL™ (adipose derived stem cells) ATCELL-SVF™
(stromal vascular fraction), ATCELL-CH™ (differentiated chondrocytes), etc. Cell
lines are custom created for patients desiring to store their cells for their
own use in future Regenerative Medicine procedures. The Company charges its
customers fees to process a previously stored ATGRAFT™ sample and for newly
collected client tissue samples to be processed. Customer samples submitted for
processing must utilize the CELLECT® collection system and ACSelerate™ mediums
to conform to our internal SOPs and quality control standards.
Additionally, the Company believes it will earn additional fees based upon the
proposed storage configuration of the final ATCELL™ sample, and for future
product creation by culturing additional samples in the ACSelerate™ cell culture
and differentiation media. Cell culturing and differentiation can be performed
upon receipt of the raw tissue sample or at any time on a previously processed
and cryopreserved ATGRAFT™ or ATCELL™sample. ATCELL™ has shown that it is
ideally suited for expansion and differentiation into additional cell types
utilizing the ACSelerate™ line of culture and differentiation mediums. The
ATCELL™processing, products and services are incorporated into our granted
patent "Systems and Methods for the Digestion of Adipose Tissue Samples Obtained
from a Client for Cryopreservation" US 10,154,664 issued December 18, 2018, and
"Business Method for Collection, Processing, Cryogenic Storage and Distribution
of a Biologic Sample Material" US Patent Number 10,014,079, issued July 3, 2018.
The ACSelerate Medium products are incorporated into our granted patents "Cell
Culture Media, Kits and Methods of Use", US Patent No. 7,989,205 issued August
2, 2011 with additional claims granted in US Patent No. 9,487,755 granted
November 8, 2016.
The Company's ATCELL™cell lines are processed and cultured in our patented
ACSelerate™ cell culture media. All tissue, cells, and research materials made
available for sale to research institutions are tested for sterility, disease,
lifespan, and population doubling rate (PDL). Cell morphology is confirmed by
(i) flow cytometry and (ii) differentiation analysis using
ACSelerate™differentiation media. Each ATCELL™ line can be further cultured and
differentiated allowing the Company to provide genetically matched cell types.
We believe this research methodology may provide opportunities for the Company's
ATCELL™ and ACSelerate™ products to become the building blocks of final
developed commercial applications.
The Company intends to support its cell therapy application research,
development and collaborative efforts by making ATCELL™ and ATGRAFT™samples
available for research and product development purposes through joint ventures,
and university and commercial collaborations. These adipose tissue and cell line
samples, we believe will be highly sought after by private researchers and
universities for use in pre-clinical trial studies and in-vitro research due to
our clinical processing methodology, donor sample data and the ability to create
multiple cell types that have identical genetic profiles. We believe the
clinical processing methods, data collection and testing of our ATCELL™ and the
ability to make multiple cell types from the same donor line allows research
teams to focus on application development and avoid bench to commercialization
delays. The Company also is prepared to research samples of its ATCELL™ cell
products to users of its ACSelerate™cell culture media for application
development.
The Company filed its first Investigational New Drug Application (IND) with the
US Food and Drug Administration (FDA) for the ATCELL cellular therapy product
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
accepted for review by the FDA on October 22, 2019. The Company has received
initial comments from the FDA regarding this application and is in the process
of preparing responses. The Company will update the IND application upon
completion of the responses for review by the FDA.
ACSelerate™ Cell Culture Media Products - Manufactured patented cell culture
media products for growing human stromal cells (including all cells found in
human skin, fat and other connective tissue). Certain ACSelerate™ cell culture
media lines are available in animal serum free, which is suitable for human
clinical and therapeutic uses or a low serum version for application development
and research purposes. The patented ACSelerate™ cell culture media line was
specifically developed to address increasing industry demand for animal
serum-free cell culture products and for the acceleration of products from the
laboratory to the patient.
21
The Company entered into a licensing and manufacturing agreement with PeproTech
(April 4, 2016) a life sciences company formed in 1988. PeproTech is the trusted
source for the development and manufacturing of high quality cytokine products
for the life-science and cell therapy markets. PeproTech has grown into a
global enterprise with state-of-the-art manufacturing facilities in the US, and
offices around the world. With over 2,000 products PeproTech has developed and
refined innovative protocols to ensure quality, reliability and consistency. The
licensed medium is marketed under both PeproTech's PeproGrow and the Company's
ACSelerate MAX brands.
On August 2, 2011, the Company was issued US patent number 7,989,205 for "Cell
Culture Media, Kits and Methods of Use." The granted claims include media
variations for cellular differentiation of ADSCs into osteoblasts (bone),
chondrocytes (cartilage), adipocytes (fat), neural cells, and smooth muscles
cells in both HSA medium (clinical) grade and FBS (research) grade. This patent
covers both research grades and grades the Company believes suitable for cell
culture of adipose-derived stem cells intended for use in humans. Additionally,
on November 8, 2016 the Company was granted additional claims from the
continuation U.S. Serial No. 13/194,900 issued as a new Patent Serial No.
9,487,755. Prior to the issuance the Company filed a continuation in part (CIP)
containing additional claims related to our ongoing media development.
The use of FBS and other animal products in clinical cellular therapy
application development and manufacture raises concerns and generates debates
within the scientific and regulatory community relating to potential
human/animal cross-contamination. These same concerns may lead to additional
expensive and expansive testing and documentation requirements with the FDA
during the application and approval process for new cellular therapies
manufactured with or containing animal or animal derived products. FDA concerns
are evidenced in their Guidance's and Guidelines regarding cellular therapy
involving human cells, tissues and products (HCT/Ps) published and maintained by
the FDA. Management believes that eliminating or greatly reducing FBS in
cellular manufacturing, applications and products can eliminate or ease these
scientific and regulatory concerns and may prove to be a winning strategy for
cellular therapy application developers seeking FDA approval.
The Company has created several versions of its ACSelerate™ cell culture media
including:
· ACSelerate-MAX™ - xeno serum free cell culture media,
· ACSelerate-SFM™ - animal serum free cell culture media,
· ACSelerate-LSM™ - low FBS (0.05%) cell culture media,
· ACSelerate-CY™- for differentiation of ATCELL™ into chondrocytes (ATCELL-CY™),
· ACSelerate-OB™- for differentiation of ATCELL™ into osteoblasts (ATCELL-OB™)
· ACSelerate-AD™ - for differentiation of ATCELL™ into adipocytes (ATCELL-AD™)
· ACSelerate-MY™- for differentiation of ATCELL™ into myocytes (ATCELL-MY™)
· ACSelerate-CP™- non-DMSO (Dimethyl Sulfoxide) cellular cryopreservation media
· ACSelerate- TR™ - sterile transportation medium designed to maintain the
viability of the tissue during the shipment of adipose tissue to our processing
facility.
The Company continues to optimize additional versions of ACSelerate™ media
through further research and testing to develop medium versions for
differentiation of ATCELL™ ADSCs into neural, lung and other specific cell types
that may be necessary for use in future clinical applications. On December 31,
2014 the Company filed a patent application for an advanced medium formulation
titled Human Albumin Serum for Cell Culture Medium for Clinical Growth of Human
Adipose Stromal Cells. (US Serial No. 62/098799).On December 31, 2015, the
Company converted the provisional application to an international PCT filing
(PCT/US/68350) under the title Human Serum for Cell Culture for Clinical Growth
of Human Adipose Stromal Cells. 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.
22
Contract Manufacturing, Autokine-CM® Anti-Aging, Autologous Skin Care Product
Line - Under agreement with Personal Cell Sciences Corp. (PCS), we manufacture
the key ingredient Autokine-CM® (autologous adipose derived stem cell
conditioned medium) for PCS' U-Autologous™ anti-aging topical formulation. Each
product is genetically unique to the individual and custom blended, deriving its
key ingredients from the individual client's own stem cells. The Company
provides its CELLECT® Tissue Collection service to collect the required tissue
to manufacture the U-Autologous™ product and processes it under the same
Standard Operating Procedures that it developed for the ATGRAFT™ and ATCELL™cell
processing services utilizing ACSelerate™ cell culture media. The Company
receives collection, processing and long-term storage fees and earns a royalty
on all U-Autologous product sales. The utilization of the Company's core
services in its contract manufacturing relationships provides opportunities for
the Company for its ATGRAFT™ and ATCELL™ products.
Our Company's contract manufacturing services can be extended to develop custom
and/or white label products and services for both local and global cosmetic and
regenerative medicine companies, physicians, wellness clinics and medical spas.
The Company intends to expand its relationships and contract manufacturing
regionally through its physician networks and globally through its International
Licensing Program.
International Licensing Program - The Company believes that many jurisdictions
outside the US currently permit use of cellular therapies and regenerative
medicine applications. The Company has received international inquiries
concerning the sale or licensing of our SOPs, products and services in the
Regenerative Medicine and Medical Tourism Markets. The Company believes that the
inquiries to date are a result of the global boom in Medical Tourism,
Regenerative Medicine and the slow pace of approval of cellular therapies and
regenerative medicine applications in the US. To address the Company's sales,
marketing and branding opportunities globally, the Company has created its
international licensing program. To date we have licensed our technologies in
Hong Kong, Shenzhen, China, Bangkok Thailand and, Tokyo, Japan.
The Company believes it can take advantage of the significant growth of the
global cellular therapy market through its international licensing and marketing
efforts. A recently published study by Transparency Market Research predicts 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)
China
On July 12, 2018 the Company announced the national launch of CRYO's
ATGRAFTTM 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 ATGRAFTTM 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 approximately
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.
Hong Kong
On June 30, 2014 the Company granted Health Information Technology Company, LTD
("HIT") exclusive rights to utilize the Company's Standard Operating Procedures
(SOP's) to market the Company's ATGRAFT™ tissue storage service for Hong Kong.
The Agreement called for upfront fees, royalties and the purchase by HIT of
certain consumables manufactured by the Company. The Company and HIT reached
further agreement to extend their relationship on a non-exclusive basis to
include HIT's cord blood laboratory located in Shenzhen, Guangdong Province, one
of China's most successful Special Economic Zones. The HIT agreement includes,
initial upfront fees and royalty payments for predetermined gross revenue
volumes. HIT will also purchase CRYO ACSelerate™ storage media, CELLECT™
collection and transportation kits as well as other American CryoStem products
necessary for clinical adipose tissue processing and storage at the Shenzhen
facility. The final master licensing agreement is for a period of 5 years with
renewal options and was executed between the parties on September 24, 2014, the
Agreement automatically renewed on September 24, 2019.
23
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 and
the Company believes that it will see an increase in the sale of consumables and
licensing fees from CRYOVIVA in fiscal 2020. The scheduled launch of CRYOVIVA's
marketing plan has been delayed because of the recent COVID 19 response and
lockdown in Thailand and the US, based upon recent communication with the
management team of CRYOVIVA, the Company believes that the Marketing program
will commence in the second quarter of 2020 ending June 30, 2020.
Japan
In June 2015, The Company entered into a licensing agreement with CellSource,
LTD. ("CellSource") located in Shibuya, Tokyo Japan for the licensing of our
AGRAFT™ tissue processing and storage technology and the purchase of our
CELLECT® collection products which include our ACSelerate-TR™ transport medium.
The Company also assisted CellSource in upgrading its facility in Japan and
provided training in the ATGRAFT™ processing and recordkeeping procedures.
CellSource began marketing the new services initially within its existing
network of clinics throughout Japan and began purchasing its CELLECT™and
ACSelerate-CP™ cryoprotectant from the Company in the third quarter of 2015.
Upon execution of the Agreement the Company received an upfront payment and will
receive additional minimum annual payments, and consumable product sales revenue
- in future years. The non-exclusive agreement expires in June of 2020 and may
be renewed for an additional term upon expiration.
Product Development
Our strategic approach to product development is to design, develop and launch
new products and services that utilize our existing products and services, i.e.
the use of the CELLECT® collection materials in providing ATGRAFT™ tissue
storage services. Management believes that this approach will provide the
Company with opportunities to produce near term cash flow, strong recurring
revenue streams, strong international licensing partners and complementary
scientific data. We focus on developing products, services and applications that
require tissue collection and processing as the initial requirement to produce
cellular therapies and products. These products and services may include adipose
tissue and stem cell sample processing and storage as a form of personal
"bio-insurance", adipose tissue (fat) storage for cosmetic fat engraftment
procedures, and the creation and production of topical applications and
ingredients used by other companies in the wound care and cosmetic industries as
well as cellular applications and bio-materials development.
We focus our efforts on expanding our product and services pipelines based upon
our intellectual property portfolio, collaborative development relationships,
product sales and distribution, and international licensing and partnering
opportunities. Our current activities include supporting collaborations by
providing our products and services (ACSelerate™ and ATCELL™) with the
expectation that our products and services become the basis for new adipose
tissue and stem cell based Regenerative Medicine and cellular therapy
applications.
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". The
Company made the original filing in August of 2019 to the FDA Electronic Common
Technical Document system (eCTD) for technical review. Following this review,
the Company made several amendments and received additional technical comments
from FDA's technical group. The Company completed all technical changes to the
filing in October 2019 and was assigned File number 19089, for the filing
accepted for review by the FDA on October 22, 2019. The Company received further
comments from the FDA in a clinical hold letter dated December 19, 2019. The
letter requested additional information, clarification of certain aspects of the
filed documents, amendment to the screening and treatment protocols, and the
implementation of additional testing during the production and release of the
final samples. These additional testing requirements necessitated amendments to
the processing and release protocols and validation of the new test methods
which will be completed in the Company's fiscal third quarter. The Company
expects to file the completed response in the third fiscal quarter.
24
The Company upon Phase 1 approval by FDA 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.
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. In connection with these
discussions, the Company is negotiating an amendment to its original agreement
for the expansion its collaborative efforts to finalize development of its
differentiation mediums. The proposed amendment calls for the use of the
Company's facility by PeproTech employees for the development efforts which
require the use of the Company's cell processing facility and research samples
of ATCELL throughout the testing and development. This project was scheduled for
initiation in February of 2020 but has been delayed by the recent COVID 1
pandemic. The Company expects that the development effort may be initiated
during the current fiscal quarter ending June 30, 2020.
Cells on Ice:
In August of 2015 the Company entered into an Agreement with Cells On Ice, Inc.
(COI) located in Los Angeles, California to process and cryopreserve adipose
tissue and adipose derived cellular samples for future use in Regenerative
Medicine. COI is a network of physicians interested in the development and use
of adipose tissue and adipose derived cellular samples in regenerative therapies
and cellular medicine. The Company agreed to distribute its CELLECT® collection
boxes and provide its ATGRAFT™ and ATCELL™ processing services for the
collection, processing and storage of tissue samples at its NJ facility. Under
the agreement, COI paid the Company for the processing and storage of each
sample generated by COI network physicians. COI planned to seek regulatory
approval for use of the stored samples in clinical studies utilizing adipose
tissue processed into Stromal Vascular Fraction (SVF) and ultimately expanded
adipose derived mesenchymal adult stem cells. The Company incorporated its
existing Standard Operating Procedures (SOPs), processing protocols and patented
products into COI's studies and may provide processing and other data to COI in
support of their ongoing efforts to develop and obtain regulatory approval of
its cellular therapies. 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. 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 informed the Company
through the letter that the FDA has determined that its autologous adipose
derived cell product ATCELL™ is a drug under current FDA regulations and
guidance and requested that the Company file an Investigational New Drug (IND)
application. In response to the letter the Company ceased shipment of its
ATCELL™ product within the United States and entered into discussions with the
FDA concerning the filing of an 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, N.J, The Company has
completed its final responses to FDA regarding the Warning Letter which was
delivered to FDA OTAT in January 2020. The FDA has acknowledged the receipt of
our response and have indicated that upon resumption of the production of ATCELL
for our clinical study that an audit of our new manufacturing facility and
processes will be performed.
Additional Collaborations
The Company is in the early stages of developing collaborations with additional
industry and university partners. These developing relationships in their
earliest stages are covered by Confidential Disclosure Agreements and those that
are more advanced also include Material Transfer Agreements under which the
Company supplies either ATCELL™ or ACSelerate™ medium products for evaluation,
testing, and the development of new cellular therapy applications.
The Company has entered into Non-Disclosure and Material Transfer Agreements
with a number of potential collaborators. No assurance can be given that these
relationships will progress to full collaborative agreements or ultimately
result in new technology for future commercialization.
25
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 ACS cell culture media US Patent No. 7,989,205
Methods of Use
line Issued August 2, 2011
Covers 12 types of
Medium
Cell culture media, Kits, and ACS cell culture media US Patent No. 9,487,755
Methods of Use
line Issued November 8, 2016
Additional claim Granted Continuation of US
for all 12 medium types Patent No. 7,989,205
Cell culture media, Kits, and ACS cell culture media US Patent Application
Methods of Use
line No. 15/344,805
Continuation of Granted Continuation of US
Patent covering Patent No. 7,989,205
additional improvements
Human serum for cell culture A cell culture medium PCT/US15/68350
medium for growth of human for growth of human 30 month National Phase
adipose stromal cells adipose stromal cells entry date of June 31,
for human and 2017, additional
therapeutic applications International Filings
for China, India, the
European Union, Saudi
Arabia, Israel, Brazil,
Mexico, Australia and
New Zealand.
A Business Method for Company Core Tissue US Serial No 13/194,900
Collection, Cryogenic Storage Collection Processing Filed June 6, 2010
and Distribution of a and Storage Methodology Patent Application
Biological Sample Material Covers CELLECT Kit, Published
Transport and December 5, 2013 Claims
Cryopreservation Medium Granted US Patent No.
for ATGRAFT and ATCELL 10,014,079. Continuation
Products filed upon issuance.
A Business Method for Company Core Tissue Developed Improvement
Collection, Cryogenic Storage Collection Processing established; Divisional,
and Distribution of a and Storage Methodology Continuation-In-Part
Biological Sample Material Continuation covering claiming priority to US
Improvements Serial No. 13/194,900
imminent (PCT
Application filing
planned)
Systems and Methods for the Adipose Tissue Digestion U.S. Serial No.
Digestion of Adipose Tissue Laboratory Processing 13/646,647
Samples Obtained From a Client Methods
filed October 6, 2011,
For Cryopreservation Claims Granted US Patent
No.10,154,664 December
18,2018. Continuation
filed upon issuance.
Systems and Methods for the Adipose Tissue Digestion Developed Improvement
Digestion of Adipose Tissue Laboratory Processing established; Divisional,
Samples Obtained From a Client Methods
Continuation-In-Part
For Cryopreservation claiming priority to US
Serial No. 13/646,900
imminent (PCT
Application filing
planned)
Compositions and Methods for Company Adipose Tissue U.S. Serial No.
collecting, Washing, Storage Platform for 14/406,203 National
Cryoprocessing, Recovering and Cosmetic Procedures Phase entry date of
Return of Lipoaspirate to Covers the core December 5, 2014 based
Physicians for Autologous processing adipose on PCT/US2013/044621
Adipose Transfer Procedures" tissue for ATGRAFT
adipose tissue dermal European Union
filler product Application No.
EPI3800847.9
China Application No.
2013800391988
Compositions and Methods for Company Adipose Tissue Developed Improvement
"Collecting, Washing, Storage Platform for established; Divisional,
Cryoprocessing, Recovering and Cosmetic Procedures Continuation-In-Part
Return of Lipoaspirate to Covers additional claims claiming priority to US
Physicians for Autologous related to ATGRAFT Serial No. 14/406,203
Adipose Transfer Procedures" process not included in imminent (PCT
original application Application filing
planned)
26
Additionally, the Company has in-licensed the following IP:
Patent Title Use of Patent Application Number
Cosmetic compositions including Protein Genomics and USPTO #5,726,040
tropoelastin isomorphs American CryoStem
(Autogenesis)
(wound healing) collaboration
Cosmetic compositions Protein Genomics and USPTO #6,451,326
American CryoStem
(wound healing) (Autogenesis)
collaboration
Recombinant hair treatment Protein Genomics and USPTO #6,572,845
compositions American CryoStem
(Autogenesis)
(wound healing) collaboration
Wound healing compositions and Protein Genomics and USPTO: #6,808,707
methods using tropoelastin and American CryoStem
lysyl oxidase
(Autogenesis)
collaboration
(wound healing)
Business methods, processes and Personal Cell Sciences USPTO application #61/588,841
systems for collection, and American CryoStem
cryogenic storage and collaboration
distribution of cosmetic
formulations from an obtained
stem cell based a biological
(PCS)
Trademarks
In addition to patents, the Company has registered the following trademarks with
the U.S. Patent and Trademark Office: American CryoStem®, CELLECT® and ATGRAFT™.
We utilize additional trademarks for our products, slogans and themes to be used
in our marketing initiatives, including, for example, ACSelerate - MAX SFM™
ACSelerate-SFM™, ACSelerate- LSM™ and ATCELL™.
The Company has also secured a number of online domain names relevant to its
business, including www.americancryostem.com, www.acslaboratories.com and
ATGRAFT.com.
Marketing and Distribution
The key objective of our marketing strategy is to position American CryoStem in
the market as the "Gold Standard" for adipose tissue collection, cell processing
and cryogenic storage, therapeutic applications, and research/commercial uses of
adipose tissue within the current regulatory framework. The combination of a
traditional sales approach supported by continuous internal and external
marketing programs, are closely coordinated with the expansion of our laboratory
processing capabilities. Our initial marketing efforts intend to disseminate
current and future uses of adipose tissue and adult stem cells which support our
business model, products and services. We intend to continue to employ
advertising and social media sales campaigns. In addition, we plan to continue
to utilize key leaders, and early adopters in the medical community as a
marketing resource to enhance awareness of our proprietary, patented products
and services and to increase the number of surgeons who join our network,
university and private collaboration and consumers who use our products and
services.
We plan to continue marketing programs focused on reaching plastic and cosmetic
surgeons to join the initial group of providers that began to offer our services
to their patients. 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.
27
Market Size and Opportunities
By leveraging and capitalizing on our proprietary Adipose Tissue Processing
Platform, we are working to address multiple high growth, multi-billion dollar
market opportunities, including those prevailing within the Regenerative
Medicine, Cosmeceuticals, Medical Tourism and Cell Culture Media markets. The
Company regularly reviews independent market research to gauge the market
dynamics of its intended domestic and international markets and to identify
additional areas within these markets where the Company's cell culture medium,
laboratory products, and tissue and cellular processing services, can be
marketed, sold and/or licensed.
Global Stem Cells Market
A report from Transparency Market Research (TMR) forecasts that the global stem
cells market is expected to register a healthy CAGR of 13.8% during the period
from 2017 to 2025 to become worth US$270.5 bn by 2025. Depending upon geography,
the key segments of the global stem cells market are North America, Latin
America, Europe, Asia Pacific, and the Middle East and Africa. At present, North
America dominates the market because of the substantial investments in the
field, impressive economic growth, rising instances of target chronic diseases,
and technological progress. As per the TMR report, the market in North America
will likely retain its dominant share in the near future to become worth
US$167.33 bn by 2025.
A report published by Markets and Markets Research in 2017 titled "Cell
Expansion Market by Product (Reagent, Media, Flow Cytometer, Centrifuge,
Bioreactor), Cell Type (Human, Animal), Application (Regenerative Medicine &
Stem Cell Research, Cancer), End user (Research Institute, Cell Bank) - Global
Forecasts to 2021". The report states: The global cell expansion market is
expected to reach USD 18.76 Billion by 2021 from USD 8.34 Billion in 2016 at a
CAGR of 17.6%. Geographically, the cell expansion market is dominated by North
America, followed by Europe, Asia, and the Rest of the World (RoW). Growth in
the North American segment is primarily driven by increasing incidence of
chronic diseases in the North American countries. According to the American
Medical Association and the American Medical Group Association, more than 50% of
Americans suffered from one or more chronic diseases in 2012; the number of
Americans suffering from chronic diseases was around 133 million in 2005 and
this figure is expected to reach around 157 million by 2020. With this
significant growth in the number of patients suffering from chronic diseases,
the market for cell expansion is expected to grow in this region in the coming
years.
Regenerative Medicine Market
The Global Translational Regenerative Medicine market is expected to grow
significantly over the forecast period. The Global Translational Regenerative
Medicine market was valued at $5.8bn in 2016. Visiongain forecasts this market
to increase to $14.5bn in 2021. The market is estimated to grow at a CAGR of
19.9% in the first half of the forecast period and 17.7% from 2016 to 2027.
Cell Culture Market
Cell Culture Market Global Forecast to 2023, according to "markets and markets"
the cell culture market is expected to reach USD $26.28 Billion by 2023 from USD
$15.32 Billion in 2018, at a CAGR of 11.4%. Growth in this market is driven by
the growing number of regulatory approvals for cell culture-based vaccines,
increasing demand for monoclonal antibodies (mAbs), funding for cell-based
research, growing preference for single-use technologies, and the launch of
advanced cell culture products.
Development of Regional U.S. Markets
Cells on Ice
In August of 2015 the Company entered into an Agreement with Cells On Ice, Inc.
(COI) located in Los Angeles, California to process adipose tissue and adipose
derived cellular samples for future use in Regenerative Medicine. COI is a
network of physicians interested in the development and use of adipose tissue
and adipose derived cellular samples in regenerative therapies and cellular
medicine. The Company agreed to distribute its CELLECT® collection boxes and
provide its ATGRAFT™and ATCELL™ processing services for the collection,
processing and storage of tissue samples at its NJ facility. Under the
agreement, COI paid the Company for the processing and storage of each sample
generated by COI network physicians. COI planned to seek regulatory approval for
use of the stored samples in clinical studies and trials utilizing adipose
tissue processed into Stromal Vascular Fraction (SVF) and ultimately expanded
adipose derived mesenchymal adult stem cells. The Company Incorporated its
Standard Operating Procedures (SOPs), processing protocols and products into
COI's studies and providing processing and other data to COI in support of their
ongoing efforts to develop and obtain regulatory approval of its cellular
therapies. In January 2018 the Company ceased shipping its ATCELL™ product to
Cells on Ice.
28
Physician Network
The Company continues to develop relationships to leverage our products and
services through existing cosmetic surgery and regenerative medicine practices
The Company continues its efforts to develop and expand its network of
individual physicians and surgeons seeking to adopt the Company's products and
services focusing on surgeons performing liposuction, tissue transfer and
regenerative procedures involving the use of adipose tissue. The Company intends
to expand its efforts to medical professionals interested in Regenerative
Medicine applications utilizing ADSCs to establish itself as a primary source of
collection, processing and preparation of cellular therapies as they are
developed and approved for patient use by the FDA.
Development of International Markets
International Licensing Program - Globally, many jurisdictions outside the US
permit the use of adipose tissue based cellular therapies and regenerative
medicine applications. The Company has received numerous inquiries concerning
the sale or licensing of our products and services in these jurisdictions. The
Company believes that the inquiries to date are a result of the global boom in
Medical Tourism and the slow pace of approval of cellular therapies and
regenerative medicine applications in the US. To address these inquiries and to
expand the Company's sales, marketing and branding opportunities the Company has
designed and is offering an International Licensing Program.
The program is designed to permit the licensing of the Company's products and
services to organizations that meet the Company's financial and technical
criteria. The licensing program allows for a variety of business relationship
including franchising, partnering and joint venturing. Marketing efforts to date
have been to clinics, physician and hospitals in foreign jurisdictions capable
of rapidly building or committing the appropriate facilities and personnel to
create the required laboratory facilities to operate the CELLECT®, ATGRAFT™ and
ATCELL™ services in their local market. Strategically, the Company's
international licensees will maintain the branding of the Company's services
along the lines of the "Intel Inside" branding program.
Qualified Licensees can quickly take advantage of the rapidly expanding
opportunity to collect, process, store and culture individual regenerative cell
samples for their clients with the comfort and confidence that they are
providing services that have been developed to conform to US FDA standards. Core
to the relationship is the developed proprietary and patent pending processing
and laboratory operational methodologies contained in our Standard Operating
Procedures, Training, and Continuous Quality Management, Testing Program, and
Laboratory Operations manuals.
Licensing programs may be initiated through a letter of intent (LOI) agreement
between the Company and the prospective licensee. This LOI agreement is designed
for due diligence and facility qualifications purposes. The Company may receive
an initial fee under the agreement which may or may not be credited toward
future royalty payments. Following evaluation of the prospective licensee the
Company will enter into a final Agreement which outlines all upfront fees,
minimum royalties and consumable purchase obligations of the Licensee.
Significant to our international development activities is the global expansion
of the American CryoStem branded services and patented products, as well as the
expansion of the Company's services, technology and products as the core
platform to implement cellular therapies and regenerative medicine.
Cryoviva (Thailand) Ltd
On March 23, 2018 the Company into an agreement to license its ATGRAFT™ and
ATCELL™ adipose tissue (fat) processing and storage technologies to Cryoviva
(Thailand) Ltd., ("Cryoviva") a Bangkok, Thailand based Cord Blood processing
and storage facility. Cryoviva, Thailand, currently offers collection,
processing and storage of Cord Blood derived biologics to patients throughout
Thailand and South East Asia.
29
American CryoStem licensed to Cryoviva (Thailand) Ltd., established in 2007, the
rights to utilize the Company's Standard Operating Procedures (SOP's) to create
and market the Company's ATGRAFT™ tissue storage service and ATCELL™ adipose
derived stem cell processing and storage services in Thailand. The financial
terms include the payment of certain training fees and, a percentage of the
gross revenue subject to annual minimum payments generated from our products.
Additionally, the Agreement calls for the purchase of CRYO consumable products
required for ATGRAFT™ and ATCELL™ sample processing including CRYO's ACSelerate™
non-DMSO cryogenic tissue storage media, transportation media, Cellect™ tissue
collection kit, and ACSelerate - Max™ cell culture medium.
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 and
the Company believes that it will see an increase in the sale of consumables and
licensing fees from CRYOVIVA in fiscal 2020. The scheduled launch of CRYOVIVA's
marketing plan has been delayed because of the recent COVID 19 response and
lockdown in Thailand and the US, based upon recent communication with the
management team of CRYOVIVA, the Company believes that the Marketing program
will commence in the second quarter of 2020 ending June 30, 2020.
Baoxin Asia Pacific Biotechnology (Shenzhen) Co., Ltd
On July 12, 2018 The Company announced the national launch of CRYO's
ATGRAFTTM 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 ATGRAFTTM 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.
CellSource, LTD. - Tokyo, Japan
In the second quarter of 2015 the Company entered into negotiations with
CellSource, LLC in Tokyo, Japan for the licensing of its ATGRAFT™ products and
services and on June 2, 2015 the Company and Cell Source entered into an initial
term sheet licensing the ATGRAFT™ technology to CellSource for Japan. The non-
exclusive agreement expires in June of 2020 and may be renewed for an additional
term upon expiration.
Health Information Technology Company, LTD - Hong Kong and Shenzhen, China
On June 30, 2014 the Company granted Health Information Technology Company, LTD
("HIT") exclusive rights to utilize the Company's Standard Operating Procedures
(SOP's) to market the Company's ATGRAFT™ tissue storage service in Hong Kong.
The Agreement calls for upfront fees, royalties and the purchase by HIT of
certain consumables manufactured by the Company. The Company and HIT have
reached further agreement to extend their relationship on a non exclusive basis
to include HIT's cord blood laboratory located in Shenzhen, Guangdong Province,
one of China's most successful Special Economic Zones. The HIT agreement
includes, initial upfront fees and royalty payments for predetermined gross
revenue volumes. HIT will also purchase CRYO ACSelerate™ storage media, CELLECT™
collection and transportation kit as well as other American CryoStem products
necessary for clinical adipose tissue processing and storage at the Shenzhen
cord blood collection facility. The final master licensing agreement is for a
period of 5 years with renewal options and was executed between the parties on
September 24, 2014, the Agreement automatically renewed on September 24, 2019.
30
In 2017 as part of the Company's transaction with Baoxin, HIT and the Company
agreed to transfer certain product and distribution rights granted to HIT under
its 2014 agreement to Baoxin. The Company was paid of fee in the transaction and
was provided with an initial ownership position in a planned Regenerative
Treatment Center to be established by HIT in Hong Kong.
Corporate Information
Our principal executive offices are located at 1 Meridian Road, Eatontown, New
Jersey 07724 and our telephone number is (732) 747-1007 our fax number is
732-747-7782. Our website is www.americancryostem.com We also lease and operate
a tissue processing laboratory in Monmouth Junction, New Jersey at 7 Deer Park
Rd, Monmouth Junction, NJ. 08852. Our laboratory website address is
www.acslaboratories.com.
Available Information
We file electronically with the U.S. Securities and Exchange Commission (SEC)
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public can
obtain materials that we file with the SEC through the SEC's website at
http://www.sec.gov or at the SEC's Public Reference Room at 100 F Street, NE,
Washington, DC 20549. Information on the operation of the Public Reference Room
is available by calling the SEC at 800-SEC-0330.
Going Concern
As of the date of this report, there is substantial doubt regarding our ability
to continue as a going concern as we have not generated sufficient cash flow to
fund our proposed business.
The accompanying consolidated financial statements have been presented in
accordance with generally accepted accounting principles in the U.S., which
assume the continuity of the Company as a going concern. However, the Company
has incurred significant losses since its inception which raises substantial
doubt about the Company's ability to continue as a going concern. Management has
made this assessment for the period one year from date of the issuance of these
financial statements. Management's plans with regard to this matter is to
continue to fund its operations through fundraising activities in fiscal 2020 to
fund future operations and business expansion.
Our plans with regard to these matters encompass the following actions: (i)
obtaining funding from new investors to alleviate our working capital
deficiency, and (ii) implementing a plan to generate sales of our proposed
products. Our continued existence is dependent upon our ability to resolve our
liquidity problems and achieve profitability in our current business operations.
However, the outcome of management's plans cannot be ascertained with any degree
of certainty. Our financial statements do not include any adjustments that might
result from the outcome of these risks and uncertainties.
Results of Operations- Three Months
The Company's revenue for the quarter ended March 31, 2020 increased to $161,340
versus $44,320 in the same period of Fiscal 2019, an increase of 264%. Licensing
Revenue increased to $135,000 compared to $10,810 in Fiscal 2019, an increase of
1,149%.
Operating expenses increased to $501,943 for the quarter ended March 31, 2020,
from $346,963 for the same period in Fiscal 2019 an increase of 44.7%. The main
cause for the increase was the allowance for doubtful accounts creating a large
bad debt expense.
Interest expense for the quarter ending March 31, 2020 increased to $42,034 as
compared to $28,751 for the same period last year. The interest expense for the
quarter ended March 31, 2020 and March 31, 2019 includes an additional $20,691
and $12,500 respectively for the effects of the beneficial conversion feature
associated with debenture holders.
31
Net loss for the second quarter of Fiscal 2020 was $147,227 compared to a net
loss of $352,103 for the second quarter of Fiscal 2019, a decrease of 58.18%.
The loss for the second quarter of Fiscal 2020 includes a reduction of $132,019
of derivative liability associated with an outstanding convertible note. Then
net loss for the six month period ended March 31, 2020 was$419,087 versus$646,
533 for the same period of 2019, a decrease of 39.17% attributable mainly to the
reduction of derivative liability in the second quarter. See Note 7 Debt: to the
financial statements.
Material variances for the six month period ended March 31, 2020 are
attributable to the same circumstances as the three month period ended March 31,
2020.
Liquidity and Capital Resources
As of March 31, 2020, the Company had a cash balance of $11,217, a decrease of
$12,583 since September 30, 2019. We used $324,277 of our cash for operations
and $7,930 for investing activities. The main sources of cash provided by
financing activities included new equity and note issuances of $343,000.
Accounts Receivable decreased to $253,295 at March 31, 2020 from $330,154 at
September 30, 2019 mainly due to an increase in receivables from Baoxin for
licensing fees along with a $325,000 increase in the allowance for doubtful
accounts. Due to the current economic and health conditions in China, including
increased tariffs and the Corona virus, the Company is closely monitoring the
impact of these circumstances.
Convertible debt increased to $626,170 an increase of $125,382 since September
30, 2019. This increase was due to the issuance of a new convertible note of
$168,000 less the effects of amortizing the beneficial conversion feature of
these notes. See Note 7: Debt to the financial statements.
The Company will continue to focus on its financing and investment activities,
but should we be unable to raise sufficient funds, we will be required to
curtail our operating plans or cease them entirely. We cannot assure you that we
will generate the necessary funding to operate or develop our business. Please
see "Cash Requirements" above for our existing plans with respect to raising the
capital we believe will be required. In the event that we are able to obtain the
necessary financing to move forward with our business plan, we expect that our
expenses will increase significantly as we attempt to grow our business.
Accordingly, the above estimates for the financing required may not be accurate
and must be considered in light these circumstances.
There was no significant impact on the Company's operations as a result of
inflation for the three months ended March 31, 2020.
Cash Requirements
We will require additional capital to fund marketing, operational expansion,
processing staff training, as well as for working capital. We are attempting to
raise sufficient funds that would enable us to satisfy our cash requirements for
a period of the next 12 to 24 months. In order to finance further market
development with the associated expansion of operational capabilities for the
time period, we will need to raise additional working capital. However, we
cannot assure you we can attract sufficient capital to enable us to fully fund
our anticipated cash requirements during this period. In addition, we cannot
assure you that the requisite financing, whether over the short or long term,
will be raised within the necessary time frame or on terms acceptable to us, if
at all. Should we be unable to raise sufficient funds we may be required to
curtail our operating plans if not cease them entirely. As a result, we cannot
assure you that we will be able to operate profitably on a consistent basis, or
at all, in the future.
In order to move our Company through its next critical growth phase of
development and commercialization and to ensure we are in position to support
our research collaborations and market penetration strategies, Management
continues to seek new investment into the Company from existing and new
investors with particular emphasis on identifying the best deal structure to
attract and retain meaningful capital sponsorship from both the retail and
institutional investing communities, while limiting dilution to our current
shareholders. On January 14, 2019 the Company terminated its agreement with
Gramatan, LLC and recorded a payable of $166,667 in accounts payable. Fees due
per the terms of the agreement are included in general and administrative
expense in 2019. This expense was written off in the period ended March 31, 2020
and the resulting gain was recognized in other income in the financial
statements. Management also focuses its efforts on increasing sales and
licensing revenue and reducing expenses.
32
Effects of COVID 19
The main effects of the COVID 19 pandemic on the Company's US domestic physician
network and with its international partners. China and Thailand have been in
lockdown during the quarter and have only recently begun re-opening in early
May. This has hindered our attempts to resolve our outstanding receivable from
Baoxin. Considering this, we have elected to increase our provision for doubtful
accounts by $325,000 with regard to their outstanding balance. Cryoviva in
Thailand was in the midst of implementing a new marketing program in January
2020 which has been delayed. Based upon our discussions in early May with
Cryoviva we expect them to restart the marketing campaign in the near future.
Commitments
Effective October 1, 2019, the Company adopted the provision of ASC 842 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.
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. See Note 11: Leases in the financial statements.
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. See Note 11: Leases in the
financial Statements.
The Company leases a laboratory facility, in Monmouth Junction, New Jersey, from
Princeton Corporate Plaza LLC. The lease expired on March 31, 2020 and the
Company can exercise a renewal option for an additional 6 months, the Company
has exercised its renewal option to extend the lease to September 30, 2020. The
rent is $2,389 per month. Total rent paid for the laboratory facility for the
three months ended March 31, 2020 was $7,167.
Since the lease obligation is less than twelve months, the Company does not
report a lease related asset or liability for this lease.
The Company was not party to any litigation against it and is not aware of any
litigation contemplated against it as of March 31, 2020. See also Legal
Proceedings below.
We anticipate that any further capital commitments that may be incurred will be
financed principally through the issuance of our securities. However, we cannot
assure you that additional financing will be available to us on a timely basis,
on acceptable terms, or at all.
Related Party Transactions
At March 31, 2020, the Company was indebted to a company that is majority owned
by the Company's two chief executive officers for $204,354. The advances are due
on demand, are unsecured, and carry no interest rate and the advances are not
expected to be collected within the next year.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
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Critical Accounting Policies
We prepare financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP"), which requires us to make estimates and
assumptions that affect the amounts reported in our combined and consolidated
financial statements and related notes. See Note 1 and Note 3 to the Financial
Statements for more information.
Basis of Presentation
Our financial statements are presented on the accrual basis of accounting in
accordance with generally accepted accounting principles in the United State of
America, whereby revenues are recognized in the period earned and expenses when
incurred.
Management's Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Long-Lived Assets
We review and evaluate our long-lived assets for impairment whenever events or
changes in circumstances indicate that their net book value may not be
recoverable. When such factors and circumstances exist, we compare the assets'
carrying amounts against the estimated undiscounted cash flows to be generated
by those assets over their estimated useful lives. If the carrying amounts are
greater than the undiscounted cash flows, the fair values of those assets are
estimated by discounting the projected cash flows. Any excess of the carrying
amounts over the fair values are recorded as impairments in that fiscal period.
Statement of Cash Flows
For purposes of the statement of cash flows, we consider all highly liquid
investments (i.e., investments which, when purchased, have original maturities
of three months or less) to be cash equivalents.
Recent Accounting Pronouncements
In 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. Prior periods' results continue to be presented
under ASC 840 based on the accounting standard originally in effect for such
period.
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 begin reporting
revenue for the Baoxin Contract according to ASU 2018-18 in that Fiscal Year
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