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AMERICAN CRYOSTEM CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) 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 are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following: · Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; · Our failure to earn revenues or profits; · Inadequate capital to continue business; · Volatility or decline of our stock price; · Potential fluctuation in quarterly results; · Rapid and significant changes in markets; · Litigation with or legal claims and allegations by outside parties; and · Insufficient revenues to cover operating costs. The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors. Background 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 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. Overview American CryoStem Corporation, which we refer to as we, us, our and our Company, is a developer, marketer and global licensor of patented adipose tissue-based cellular technologies and related proprietary services with a focus on clinical processing, commercial bio-banking and application development for adipose (fat) tissue and autologous adipose-derived regenerative cells (ADRCs). We maintain a strategic portfolio of intellectual property and patent applications that form our Adipose Tissue Processing Platform, which supports and promotes a growing pipeline of biologic products and processes, clinical services and international licensing opportunities. Through our ACS Laboratories division, we operate an FDA registered, cGMP compliant human tissue processing, cryro-storage and cell culture and differentiation media development facility in Mount Laurel, New Jersey at the Burlington County College Science Incubator. 11 Our growth strategy is centered on fully capitalizing on the scientific breakthroughs that have been rapidly shaping the fast growing Regenerative and Personalized Medicine industries; and provide these industries with a standardized cell processing platform to enhance the delivery of healthcare through cellular-based therapies and applications which address burn and wound healing, joint repair, disease treatment and management, and personalized health and beauty care. We have pioneered a proprietary, patented clinical processing methodology that prepares and cryo-preserves adipose tissue in its raw form without manipulation, bio-generation or the addition of animal-derived products or other chemical materials requiring removal upon retrieval. This core process makes each sample suitable for use in cosmetic tissue grafting procedures or for further processing to adult stem cells for other types of stem cell therapies. Currently, there are over 100 therapeutic and orthopedic applications for adipose tissue and adult stem cell treatments identified and in use globally, and more discoveries are being made each day. Products and Services Currently, American CryoStem is focused on transitioning from a relative development-stage company to full commercial enterprise with multiple high margin business lines generating sustainable, recurring revenue streams. Our business remains in its formative stage and to date has generated minimal revenue; however, subject to, among other factors, obtaining the requisite financing, management anticipates that we are well positioned to provide the following services: · Collecting an individual's adipose tissue through a participating doctor who will forward the tissue to our FDA registered laboratory; · Processing the tissue in the laboratory for immediate storage or to separate the component parts of an individual's adipose tissue, which includes the stem cells and other regenerative cells; · Cryopreserving adipose tissue and/or adipose derived stem cells for immediate use or long term storage; · Provide testing services for physicians performing in-office procedures and tissue processing; · Contract manufacturing services to cosmetic and biotechnology cellular application developers; and · Sale or licensing of our patented stem cell culture and differentiation medium to researchers and product developers on a global basis. Our branded product and service offerings include: Cellular Processing and Cryopreservation Services · CELLECT™ Cellular Collection and Storage Service - a clinical solution for physicians to aseptically collect and deliver tissue samples utilizing proprietary and patent-pending methods and materials. The service creates an unbreakable "chain of custody" between physician/client and ACS Laboratories. The Cellect service is monitored in real-time and assures the highest cell viability upon laboratory receipt. Our collection/processing/storage pricing model provides for an initial collection and processing fee ranging from $750 to $2500, depending upon the volume of tissue and the desired processing and testing services required. The annual storage fee charged to an individual is based upon the type of material being cryo-preserved (adipose tissue or ADRCs), the total volume and the storage configuration. The minimum storage fee is $200 per year. There are currently over 35 medical practices, and counting, across the United States now offering the Company's adipose tissue and ADRC collection, processing and storage services. · ATGRAFT™ Adipose Tissue Storage Service - a clinical solution for physicians to provide their patients with the highest quality fat transfer and body sculpting procedures and storage technologies. The ATGRAFT Service permits individual patients to benefit by using their own stored adipose tissue as a natural biocompatible filler for procedures without the trauma of further liposuctions. ATGRAFT procedures include breast augmentation, buttocks enhancement or volume corrections in the hands, face and neck. 12 Anti-Aging, Autologous Skin Care Product Line Under agreement with Personal Cell Sciences (PCS), we offer our CELLECT Service to PCS' current and new clients. PCS is a private company founded by our Chairman and CEO, John Arnone. Our ACS Laboratories division manufactures the key ingredient Autokine-CM for PCS' U-Autologous™ anti-aging topical formulation. Additionally, this relationship provides PCS' clients the ability to utilize the ATGRAFT service and create a clinical grade stem cell sample for future use in Regenerative Medicine, a form of "bio-insurance." Each cream is genetically unique and custom blended, deriving its key ingredients from the individual client's own stem cells. PCS' customers pay ACS storage fees $200 per year. Patented Cell Culture Media Products We are also engaged in marketing, selling and licensing our patented human-based tissue culture media products under the trademark ACSelerate™. The most widely used medium today for storing and growing stem cell cultures for in vitro diagnostics and research use is fetal bovine serum, raising questions about utilizing animals for the medium as well as generating debates relating to potential cross-contamination. We have pioneered and patented a new cell culture medium for growing human stromal cells (including all cells found in human skin, fat and other connective tissue) that is animal product free and suitable for human clinical and therapeutic uses. More specifically, the Company has been granted patent number 7,989,205 "Cell Culture Media, Kits and Methods of Use" (August 2, 2011). The granted claims include "A cell culture medium for clinical growth of human adipose stromal cells for human clinical and therapeutic applications." The granted claims also include variations for cellular differentiation of adipose derived stem cells into osteoblasts (bone), chondrocytes (cartilage), adipocytes (fat), neural cells, smooth muscles cells in both HSA (clinical) grade and FBS (research) grade. This patent covers both non-GMP research grades and GMP clinical grades suitable for cell culture of adipose-derived mesenchymal stem cells intended for use in humans. Product Development Our Company's core scientific endeavors are based on the original work of scientist Dr. David K. Moscatello, a founding member of our Scientific and Medical Advisory board. Dr. Moscatello earned his Bachelor of Science degree in Microbiology from Pennsylvania State University in 1975, and a PhD in Biology with a focus on cancer cell biology from Purdue University in 1984. He has held teaching positions at Purdue University and Richard Stockton College of New Jersey. He returned to research as an NIH Post-Doctoral fellow at the Kimmel Cancer Institute at Thomas Jefferson University working in the laboratory of Dr. Albert Wong. In October 1999, Dr. Moscatello accepted a position at Coriell Institute to pursue his own research interests. He is a member of the American Association for the Advancement of Science, the American Association for Cancer Research and the American Society for Cell Biology. His primary research interests involve the isolation, culture and characterization of adult tissue-derived stem cells, i.e. stem and multi-potent progenitor cells other than embryonic stem cells. He has had articles published in a variety of media, including Nature, Journal of Biological Chemistry, International Journal of Cancer, British Journal of Cancer and Cancer Research. We have implemented a strategic approach to developing and launching new products and services that we believe can produce near term cash flow, a strong recurring revenue stream and complementary scientific data. We focus on products, services and applications that require little or no regulatory approval. These products and services 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. We are continuing to expand our products and services based upon our intellectual property portfolio and projects in the pipeline. Our initial patent was granted on August 6, 2011 for our adipose stromal cell culture media and differentiation media. We have filed multiple patent applications for our products and methods including: · ACSelerate-SF (animal serum free) and ACSelerate-LS (low dose bovine serum) adipose stromal cell culture and differentiation medium in clinical and research grades; · The CELLECT collection and tracking system for collecting tissue and cellular samples; · Adipose tissue, stromal vascular fraction (SVF) and adipose derived mesenchymal cell processing, expansion and differentiation; · Storage preparation methods for adipose tissue, stromal vascular fraction (SVF) and adipose derived cellular samples; · Testing and quality management methods, systems, data collection and maintenance; · Cryoprotectant for the storage of adipose tissue samples; and · The ATGRAFT service for the collection, preparation, storage and retrieval of adipose tissue for cosmetic and plastic surgery biocompatible fillers. 13 Collaboration and Partnering Opportunities During 2012 we entered into a Collaboration Agreement with Protein Genomics, Inc. (PGen) to test and develop new products combining certain intellectual property and patented products developed by our Company. We have provided PGen with research materials and our patented cell culture media for testing with PGen's patented products designed for the wound healing market. Initial testing has been completed and, on September 1, 2012, we entered into a Memorandum of Understanding (MOU) with PGen to further develop products based upon the results of the initial collaboration. In April 2013, we entered into Material Transfer Agreements with three leading research scientists at Rutgers University, distinguished as one of the world's top universities for stem cell research and training. We have teamed with Kathy Uhrich, PhD, Professor and Dean, Mathematical & Physical Sciences; KiBum Lee, PhD, Assistant Profession of Chemistry and Chemical Biology; and Prabhas Moghe, PhD, Professor of Biomedical Engineering and Professor of Chemical and Biochemical Engineering, all of whom will be utilizing our autologous adipose-derived stem cells (ADSCs) and patented, serum free, GMP grade, cell culture mediums to research, develop and commercialize innovative new cellular therapies to address the $5 billion global wound care market. Management intends to pursue additional collaborative and partnering opportunities as a strategic method to enhance awareness of and expand the distribution of our patented products, services, technologies and expertise in the clinical processing of adult adipose tissue for autologous (self) use and ADRCs. We believe that as the pace of clinical trial results increases and scientific and peer reviewed papers are published, new opportunities to market our existing products, services and Intellectual Property portfolio may also emerge. Moreover, we believe that the combination of our validated cellular processing capabilities and patented products give us an economical platform to develop and produce cellular therapy applications for injection or intravenous therapy, topical applications, burn and wound healing, joint repair, disease treatments and cosmetics. The clinical methods and products we have developed are designed to permit a variety of treatments for any patient with their own genetically matched raw materials which have shown to be safe and effective in a variety of applications in published early stage clinical trial results and application studies. 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, including those prevailing within the Regenerative Medicine, Cosmeceuticals and Cell Culture Media markets. Regenerative Medicine Market The market for Regenerative Medicine continues to grow worldwide; according to BCC Research (January 2013), it is expected to accelerate at roughly 12% annually, from $3.8 billion in 2011 to $6.6 billion in 2016. § The global market for stem cell products was $3.8 billion in 2011. This market is expected to reach nearly $4.3 billion in 2012 and $6.6 billion by 2016, increasing at a compound annual growth rate (CAGR) of 11.7% from 2011 to 2016. § The American market for stem cell products was $1.3 billion in 2011. This sector is expected to rise at a CAGR of 11.5% and reach nearly $2.3 billion by 2016. § The European market for stem cell products was $872 million in 2011 and is expected to reach nearly $1.5 billion by 2016, a CAGR of 10.9%. TriMarkPublications.com cites in its "Regenerative Medicine Markets" report (March 2013) that the Regenerative Medicine market will catapult to over $35 billion by 2019. 14 Cosmeceutical Market Many industry experts agree that Cosmeceuticals have become the fastest growing segment of the Cosmetics and Personal Care industry. These products are described as anti-aging cosmetic products with drug-like benefits. US retail sales of cosmeceuticals in 2011 totaled $9.7 billion with ongoing annual sales gains expected to boost the market to $11.7 billion by 2016, according to a Packaged Facts report released in July 2012. In a new report titled Global Cosmeceuticals Market Outlook 2016, published February 2013, RNCOS believes that the worldwide market is estimated to be valued at $30.5 billion and is likely to grow at a consistent CAGR of 7.7% during the period 2012 through 2016. Cell Culture Market The Cell Culture market is $2.3 billion according to a report in Genetic Engineering & Biotechnology News (January 12, 2012 Vol. 32 No.2) and is expected to grow to $3.9 billion by 2015; this equates to 70% growth over a six-year period. This expected growth may be further enhanced by an expected shortage of bovine serum, a major component in research and the manufacture of certain cellular therapy products according to "Peak Serum: Implications of serum supply for cell therapy manufacturing," a commentary by David A. Brindley published in RegenMed (2012, January 7(1), 7-13), which further states "Without a sustainable supply or viable alternatives to these components, the commercial-scale production of cell therapies will be impossible, halting the momentum of the industry." Marketing and Distribution A key objective of our underpinning marketing strategic is to position American CryoStem in the market as the "Gold Standard" for adipose tissue processing and cell storage, therapeutic applications, research and commercial uses of adipose tissue within the regulatory framework. The combination of a traditional sales approach supported by continuous internal and external marketing programs will be closely coordinated with the expansion of our laboratory processing capabilities. Our initial marketing efforts are intended to disseminate current and future uses of adipose tissue and adult stem cells which support our business model, products and services. We intend to employ both print advertising and social media sales campaigns. In addition, we plan to utilize key leaders, and early adoptors 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 and collaborate with us. As part of our marketing campaign to reach and educate physicians, we are actively seeking to bring highly qualified peer leaders onto our Scientific and Medical Advisory Board to assist us in our industry speaking and education platform. This physician education platform is designed to focus on industry needs and demands as they relate to current and future treatments using our adipose tissue and adult stem cell technologies. To date, we have succeeded in winning the following members to our Scientific and Medical Advisory Board: · Sanjay Batra, PhD - Advisory Board Chairman Dr. Batra currently serves as Chairman of the Medical & Scientific Advisory Board of American CryoStem Corporation. Until recently, he was President and CEO of Aesthetic Factors, LLC, an emerging company providing autologous, point-of-care therapies in Regenerative Medicine. In this role, Dr. Batra led the commercial growth of their platelet-rich plasma and autologous fat products and was instrumental in establishing the Company as the science-driven leader. Dr. Batra spent ten years in the Johnson & Johnson Family of Companies, culminating as Vice President of Research and Development, Pharmaceuticals, Asia Pacific & Japan. He also worked at Bracco Diagnostics in Princeton, New Jersey and Alliance Pharmaceutical located in San Diego, California. Dr. Batra obtained his PhD in Medical Physiology from the University of Ottawa and completed postdoctoral training in Japan & Switzerland. · Mel Bircoll, MD Dr. Bircoll was the first plastic surgeon to perform liposuction in North America. He pioneered that operation and saw it from its early beginnings to become what is now the most frequently performed cosmetic procedure worldwide Dr. Bircoll is also the originator of Fat Transfer (Autologous Fat Transplantation, AFT). His landmark presentation of Fat Transfer Using Liposuction Techniques (1984) established this procedure for breast augmentation, facial rejuvenation, hand rejuvenation and a host of reconstructive procedures. He is board certified by the American Board of Plastic Surgery and the American Board of Cosmetic Surgery. He is a member of the American Society of Plastic Surgery and the American Academy of Cosmetic Surgery. Dr. Bircoll is retired from 25 years of private practice in Beverly Hills, California. He is currently actively lecturing and teaching the techniques of Fat Transfer and Fat Storage for stem cell extraction, as well as cosmetic and reconstructive applications. Dr. Bircoll recently presented the latest application of his Fat Transfer/Storage/Serial Injection concepts for breast cancer prevention surgery. 15 · Alan H. Davis Mr. Davis is currently a partner in and the Chief Operating Officer of Novare, LLC. Novare Biologistics was created to meet the need of transporting and storing laboratory materials, including biological samples at required temperature anywhere within the U.S. Over the past 20 years, Mr. Davis has concentrated on business development and sales in biotechnology, manufacturing and software technology. Previously, he was primarily involved in retailing. · Burt D. Ensley, PhD 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. · Richard Goldfarb, MD, FACS Dr. Goldfarb established the Center for SmartLipo with the vision of providing advanced treatments and techniques to help patients restore and maintain a more youthful appearance. He has formed a team of specialists, each with a unique strength in treating the various parts of the face and body. Included are Aesthetic Laser and Liposuction Specialists, Facial Plastic Surgeons, a Plastic and Reconstructive Surgeon and a Medical Weight Loss team. As a group, they are unequaled in their ability to provide comprehensive consultative and treatment options to achieve an individual's aesthetic goals. Doctors visit the Center for SmartLipo from all over the world on a regular basis to learn state-of-the-art cosmetic treatments and techniques from Dr. Goldfarb and his team. In view of his unrivaled expertise and skills, Dr. Goldfarb is highly sought after to lecture and train physicians internationally on numerous cosmetic laser and surgery topics. He is the Medical Director, International and National Trainer for Selphyl®, and National and International trainer/lecturer for the Silhouette Lift Procedure. Dr. Goldfarb pioneered the technique to combine Silhouette Lift with fat transfer and Selphyl for total facial rejuvenation ("The Goldfarb Procedure"). He is on the Board of Directors of, and lectures and trains physicians for, the National Society of Cosmetic Physicians and Surgeons. Dr. Goldfarb is a faculty member and lecturer for The Aesthetics Show, a training organization for physicians in the field of Laser and Aesthetic Medicine and Cosmetic Surgery. The American Society of Lasers in Medicine, American Academy of Liposuction Surgery and American Academy of Cosmetic Surgery all count him as a member. He is board certified and a Fellow of the American College of Surgeons, in addition to the American Society of Laser Medicine and Surgery. Dr. Goldfarb graduated from the University of Health Sciences / Finch University, The Chicago Medical School with top honors in Surgery. He completed his surgical training at Northeastern Ohio College of Medicine. He completed additional training in Cosmetic Surgery at the University of Pennsylvania, Department of Plastic Surgery and Yale University. He has over 30 years of General and Vascular Surgery experience, and is a Cosmetic Surgery Specialist. · Peter Levitch, BA, MA Mr. Levitch is President of his own consulting firm, Peter Levitch and Associates, located in New Jersey. He provides clients guidance in the development of pharmaceuticals, medical devices, biologics and diagnostics. Mr. Levitch also possesses a background in the clinical evaluation and FDA regulatory approval phases of product development in the biotechnology industry. He has consulted for more than 200 pharmaceutical and biotechnology companies including Amgen, Inc.; Genentech, Inc.; DuPont; Monsanto Company; Johnson & Johnson Family of Companies, Beckman Coulter, Inc.; Chiron Corp.; Eastman Kodak Company and EMD Serono, Inc. He has authored several papers for publication and has lectured all over the country on various topics including Good Manufacturing Practices (GMP), the FDA approval process, and preparing INDs and NDAs. Peter has also served as an FDA liaison for FDA/company meetings. He is listed in Who's Who in Finance and Industry, is the co-founder of the Regulatory Affairs Professional Society, and a member of the Drug Information Association and the New York Academy of Sciences. 16 · 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. · David K. Moscatello, PhD - Chief Scientist Dr. Moscatello earned his Bachelor of Science degree in Microbiology from Pennsylvania State University in 1975, and a PhD in Biology with a focus on cancer cell biology from Purdue University in 1984. He has held teaching positions at Purdue University and Richard Stockton College of New Jersey. He returned to research as an NIH Post-Doctoral fellow at the Kimmel Cancer Institute at Thomas Jefferson University working in the laboratory of Dr. Albert Wong. In October 1999, Dr. Moscatello accepted a position at Coriell Institute to pursue his own research interests. He is a member of the American Association for the Advancement of Science, the American Association for Cancer Research and the American Society for Cell Biology. Dr. Moscatello's primary research interests involve the isolation, culture and characterization of adult tissue-derived stem cells, i.e. stem and multi-potent progenitor cells other than embryonic stem cells. He has had articles published in a variety of media, including Nature, Journal of Biological Chemistry, International Journal of Cancer, British Journal of Cancer and Cancer Research. Dr. Moscatello advises American CryoStem regarding its laboratory operations and processing. · Edwin Ruh, Jr. Mr. Ruh has been an associate and lecturer at the Harvard Information Infrastructure Project and spent more than 20 years in project finance and banking (Gerken Capital/Sino-Asia Industrial Equity Fund, The Fuji Bank Limited and Mellon Bank), closing more than 100 global transactions. He holds a Law degree from Yale University; Master's Degree of Public Administration from Harvard University; Master's Degrees in Business Administration and Public Policy from the Heinz School, Carnegie Mellon University; a Master's Certificate in Materials Science from the University of Michigan; and a Bachelor of Science degree in Biomedical Engineering from Pennsylvania State University. · Fredric A. Stern, MD, FACS 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. We have also initiated a direct marketing program focused on reaching plastic and cosmetic surgeons and have an initial group of 35 providers that have begun 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. 17 Our plan 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 The Company seeks to develop regional relationships to leverage its new products and services through existing cosmetic surgery and regenerative medicine practices. During our first fiscal quarter ended December 31, 2012, we announced the initiation of adult stem cell and adipose tissue collection at the Stern Center for Aesthetic Surgery in Bellevue Washington. Dr. Frederick Stern, a member of the Company's Scientific and Medical Advisory Board, founded the Stem Center in 1997. The Stern Center offers state-of-the-art laser and cosmetic surgical techniques to patients throughout the western U.S., and is one of the premier laser-assisted liposuction centers in the Pacific Northwest. Also during the first quarter of fiscal 2013, the Company entered into it first private label agreement with XeoStem, LLC of Coral Gables, Florida under which American CryoStem will provide its proprietary adipose tissue processing and storage services. The agreement permits XeoStem to offer the Company's tissue, cell banking and storage services to its customers and through other XeoStem-affiliated physicians. Early in the second quarter, ended March 31, 2013, we announced that Eterna MD of Orlando, Florida began offering our ATGRAFT fat storage service to its patients for future natural cosmetic enhancements. Eterna MD is a medical spa and medical rejuvenation center specializing in anti-aging, laser hair removal, Botox, Lipodissolve, cellulite and age management. The Company intends to pursue additional private label opportunities as they develop in the future. Development of International Markets American CryoStem also seeks to develop relationships with strategic business partners operating in key international markets capable of leveraging our proprietary Adipose Tissue Processing Platform. On April 23, 2013, we announced receipt of our first commercial international shipment of adipose tissue for processing and long term cryo-storage. The master sample was shipped to the Company by BALS (Biomedical and Life Sciences) Institute (BALS), a Hong Kong-based regenerative medicine company and client of Personal Cell Sciences Corp. (PCS), the developer of U-Autologous skin care products and formulations. The product uses an individual's own adult stem cells to create and supply that individual with his or her own personalized anti-aging skin care line. As part of the contract manufacturing arrangement between American CryoStem and PCS, we are responsible for clinically testing, processing, culturing and storing samples shipped from PCS clients to create Autokine-CM, the key ingredient in the U-Autologous formulation. BALS Institute has teamed with PCS to ensure the people in Greater China gain access to safe, quality and effective life science technologies through partnerships with leading international corporations. We have committed extensive resources to establishing and perfecting our international shipping methodologies and protocols, ensuring that our processes meet the highest possible standards of regulatory compliance for shipment of biologic materials. As a result, our FDA registered laboratory and cryo-storage facilities in New Jersey are now able to send and receive viable tissue samples to and from clients globally. 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 in Mount Laurel, New Jersey at the Burlington County College Science Incubator located on the Burlington County College campus. Our laboratory website address is www.acslaboratories.com. 18 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 would enable us to satisfy our cash requirements for a period of the next twelve (12) to twenty-four (24) months. We have minimal long term debt and have been able to meet our past financial obligations on a current basis. In order to finance further market development with the associated expansion of operational capabilities for the time period discussed above, 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. We expended $137,270 during the six months ended March 31, 2013 in professional fees (legal, accounting and consultants) and $76,403 in Research and Development. Going Concern As of the date of this quarterly 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 business. We have suffered recurring losses from operations since our inception. In addition, we have yet to generate sufficient internal cash flow from our business operations or successfully raise the financing required to fully develop our business. As a result of these and other factors, our independent auditor has expressed substantial doubt about our ability to continue as a going concern. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon us and our shareholders. Our plans with regard to these matters encompass the following actions: (i) obtaining funding from new investors to alleviate our working capital deficiency, and (ii) implementing a plan to generate sales of our proposed products and services. Our continued existence is dependent upon our ability to resolve our liquidity problems and increase 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. Liquidity and Capital Resources We had a cash balance of $25,912 as of the date of this quarterly report. Our principal source of funds has been sales of our securities. Should we be unable to raise sufficient funds, we will be required to curtail our operating plans if not cease them entirely. We cannot assure you that we will generate the necessary funding to operate or develop our business. Please see "Cash Requirements" above for our existing plans with respect to raising the capital we believe will be required. In the event that we are able to obtain the necessary financing to move forward with our business plan, we expect that our expenses will increase significantly as we attempt to grow our business. Accordingly, the above estimates for the financing required may not be accurate and must be considered in light these circumstances. Commitments As of the date of this quarterly report, the Company's material capital commitments were (i) the continued funding of the expansion of our marketing efforts and laboratory processing capabilities; (ii) an equipment lease in the amount of $67,320 for laboratory equipment with monthly payments of $1,869.74 and the final payment due March 2015; and (iii) the current two-year lease for the laboratory spaces at the Burlington County College Science Incubator, Laboratory 110 and 108, which was signed on February1, 2012 and is subject to a monthly payment of $1,650. 19 The Company has an operating lease for its main office facility located at 1 Meridian Road, Eatontown, New Jersey 07724. The lease is for a term of three years with a monthly rent of $2,500. The total rent for office facilities for the three months ended March 31, 2013 was $7,500 The Company in connection with the closing of the Asset Purchase Agreement assumed an unsecured note payable in the face amount of $65,000 with interest payable upon maturity of 6%. As a result of the Company's negotiation with the note holder, the holder of the original note was issued $72,500 of the Company's 8% Convertible Notes on December 31, 2012 in satisfaction of the maturing note. The note plus accrued interest on the note was $72,475 at December 31, 2012. The Company has unsecured liabilities without interest of $139,447 due to ACS Global, the majority shareholder of the Company, for certain prepaid expenses made by ACS Global prior to the closing of the transaction. There is no due date associated with this liability. 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. Off Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Critical Accounting Policies We prepare financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), which requires us to make estimates and assumptions that affect the amounts reported in our combined and consolidated financial statements and related notes. We periodically evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. Basis of Presentation. Our financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles in the United State of America, whereby revenues are recognized in the period earned and expenses when incurred. Management's Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Long-Lived Assets We review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the assets' carrying amounts against the estimated undiscounted cash flows to be generated by those assets over their estimated useful lives. If the carrying amounts are greater than the undiscounted cash flows, the fair values of those assets are estimated by discounting the projected cash flows. Any excess of the carrying amounts over the fair values are recorded as impairments in that fiscal period. Statement of Cash Flows For purposes of the statement of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents. Fair Value of Financial Instruments Our financial instruments consist of cash and cash equivalents. The fair value of cash and cash equivalents approximates the recorded amounts because of the liquidity and short-term nature of these items. 20 Recent Accounting Pronouncements We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe that any future adoption of such pronouncements will have a material impact on our financial condition or the results of our operations. |