NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
Note 1. Organization and Description of Business
Cord Blood America, Inc. ("CBAI" or the “Company”), formerly D&A Lending, Inc., was incorporated in the State of Florida on October 12, 1999. In October, 2009, CBAI re-located its headquarters from Los Angeles, California to Las Vegas, Nevada. CBAI's wholly-owned subsidiaries include Cord Partners, Inc., CorCell Companies, Inc., CorCell, Ltd., (Cord Partners, Inc., CorCell Companies, Inc. and CorCell, Ltd. are sometimes referred to herein collectively as “Cord”), CBA Properties, Inc. ("Properties"), and Career Channel, Inc. formerly D/B/A Rainmakers International ("Rain"). In September 2010, CBAI purchased a majority interest in Biocordcell Argentina S.A. (“Bio”). CBAI and its subsidiaries engage in the following business activities:
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CBAI and Cord specializes in providing private cord blood and cord tissue stem cell storage services to families throughout the United States and Puerto Rico.
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Biocordcell Argentina S.A. specializes in providing private cord blood stem cell storage to families in Argentina, Uruguay and Paraguay.
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Properties was formed to hold corporate trademarks and other intellectual property.
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The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary in the event CBAI cannot continue as a going concern.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Going Concern
The accompanying financial statements of CBAI and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has experienced recurring net losses from operations, which losses have caused an accumulated deficit of approximately $54.12 million as of March 31, 2014. In addition, CBAI has notes and loans payable of approximately $1.49 million as of March 31, 2014. The Company has no available common stock outstanding as of March 31, 2014, and as such, the Company may not be able to issue common stock to retire debt until such time as the shareholders approve an increase in the number of shares authorized. These factors, among others, raise substantial doubt about CBAI's ability to continue as a going concern.
Since inception, the Company has financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. However, over the past eight quarters, the Company has reduced operating expenses, ended investment in its unconsolidated affiliates and Stellacure, and received no additional funding from outside sources for working capital. During the quarter ended March 31, 2014 the Company had positive cash flow from operations of $0.22 million. The Company plans to continue to operate on its cash flows from operations by aligning its expenses with its revenues. If cash flows from operations are significantly less than projected, then the Company would need to either cut back on its budgeted spending, look to outside sources for additional funding or a combination of the two. The Company currently does not have any financing agreements in place for additional funding. If the Company is unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, it could be forced to curtail or possibly cease operations.
In view of these conditions, CBAI's ability to continue as a going concern is dependent upon its ability to meet its financing requirements, and to ultimately achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event CBAI cannot continue as a going concern.
Basis of Consolidation
The consolidated financial statements include the accounts of CBAI and its wholly-owned and majority-owned subsidiaries, Cord and Biocordcell Argentina S.A. All significant inter-company balances and transactions have been eliminated upon consolidation
Deferred Revenue
Deferred revenue consists of payments for enrollment in the program and processing of umbilical cord blood and cord tissue by customers whose samples have not yet been collected, as well as the pro-rata share of annual storage fees for customers whose samples were stored during the year.
Valuation of Derivative Instruments
ASC 815-40 (formerly SFAS No. 133 "Accounting for derivative instruments and hedging activities"), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 "Accounting for derivative financial instruments indexed to, and potentially settled in, a company's own stock") to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula. At March 31, 2014, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operation and comprehensive loss.
Revenue Recognition
CBAI recognizes revenue under the provisions of ASC 605-25 (previously Staff Accounting Bulletin 104 “Revenue Recognition”). CBAI provides a combination of products and services to customers. This combination arrangement is evaluated under ASC 605-25-25 (previously Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"). ASC 605-25-25 addresses certain aspects of accounting for arrangements under multiple revenue generating activities.
Cord and Bio recognize revenue from both enrollment fees and processing fees upon the completion of processing while revenue from storage fees are recognized ratably over the contractual storage period.
Franchise revenues are recognized in accordance with ASC 952-605-3, according to requirements for recognizing franchise revenues after “franchise agreement” services are completed and substantially performed. Further, in accordance with ASC 952-605-25-7, the installment or cost recovery accounting method is used to account for franchise fee revenue only in those exceptional cases when revenue is collectible over an extended period and no reasonable basis exists for estimated collectability. During the quarter ended March 31, 2014, the Company did not recognize any franchise revenues.
Impairment of Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. The Company reviews goodwill for impairment at least annually or whenever events or circumstances are more likely than not to reduce the fair value of goodwill below its carrying amount.
Equity Investments
Cord had a non-controlling equity investment in ViviCells International, Inc., a privately held company in the business of providing cord blood stem cell and adult peripheral blood stem cell preservation services. The Company utilized the equity method of accounting as it owned more than 20% of the outstanding common stock and had the ability to exercise significant influence over this company. As such, the investment was carried at cost less Cord's proportionate share of ViviCells net loss for the period since investment. During 2011 the Company foreclosed on and acquired all the assets of Neocells, a subsidiary of ViviCells, as satisfaction on the outstanding receivable from ViviCells. There is no remaining investment in ViviCells as of December 31, 2012 because of this action.
Cord has a minority equity investment in China Stem Cells, Ltd., a Cayman Islands Company, a privately held company organized to conduct a stem cell storage business in China. In 2011, Cord acquired a minority equity investment in VidaPlus, an umbilical cord processing and storage company. The Company utilizes the cost method of accounting as it owns less than 20% of the outstanding common stock and only has the ability to exercise nominal, not significant, influence over these companies. The cost of this investment was $204,062 and represents 7% equity in Vivicells. As of December 31, 2013, the Company recognized an impairment loss on the Vidaplus investments and notes receivable, and wrote-down its equity interest and notes receivable value to $0.
Fair Value Measurements
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:
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Level 1 – quoted prices in active markets for identical assets or liabilities.
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Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
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Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
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The following table summarizes fair value measurements by level at March 31, 2014 of assets and liabilities measured at fair value on a recurring basis:
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Level 1
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Level 2
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Level 3
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Total
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Cash and cash equivalents
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$
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802,496
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$
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—
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$
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—
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$
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802,496
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Derivative liability
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$
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—
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$
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—
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$
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(388,507
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)
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$
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(388,507
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)
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Derivative liability was valued under the Black-Scholes model, consistent with last year, with the following assumptions:
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Risk free interest rate
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0 to 0.13 %
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Expected life
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0 to 1 years
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Dividend Yield
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0%
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Volatility
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0% to 112%
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The following is a reconciliation of the derivative liability:
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Value at December 31, 2013
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$
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359,407
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Change in value of derivative
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$
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29,100
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Value at March 31, 2014
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$
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388,507
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For certain parts of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, and deferred revenues, the carrying amounts approximate fair value due to their short maturities. The carrying amounts of the Company’s notes receivable and notes payable approximates fair value based on the prevailing interest rates.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
, ("ASU 2013-02"). ASU 2013-02 amends Accounting Standards Codification ("ASC") 220,
Comprehensive income
("ASC 220"), and requires entities to present the changes in the components of accumulated other comprehensive income for the current period. Entities are required to present separately the amount of the change that is due to reclassifications, and the amount that is due to current period other comprehensive income. These changes are permitted to be shown either before or net-of-tax and can be displayed either on the face of the financial statements or in the footnotes. ASU 2013-02 was effective for the Company's interim and annual periods beginning January 1, 2013. The adoption of ASU 2013-02 did not have a material effect on the Company's consolidated financial position or results of operations.
In March 2013, the FASB issued new guidance related to the release of cumulative translation adjustment related to an entity's investment in a foreign entity. The guidance clarifies that the guidance in Subtopic 830-30, Foreign Currency Matters - Translation of Financial Statements, applies to the release of cumulative translation adjustment into net income when a reporting entity either sells a part or all of its investment in a foreign entity or ceases to have a controlling financial interest in a subsidiary or group of assets that constitute a business within a foreign entity. This guidance is effective for the Company prospectively for reporting periods beginning October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
In April 2013, the FASB issued ASU 2013-07,
Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting
. ASU 2013-07 clarifies when an entity should apply the liquidation basis of accounting. ASU 2013-07 also provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. ASU 2013-07 is effective for fiscal years and interim periods within those years beginning after December 15, 2013. The Company does not expect amendments in ASU 2013-07 to impact the Company's financial statements, results of operations or liquidity.
In July 2013, the FASB issued ASU 2013-11,
Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
, which eliminates diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects only the presentation of such amounts in an entity’s balance sheet and is effective for fiscal years beginning after December 15, 2013 and interim periods within those years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
Note 3. Notes and Loans Payable
At March 31, 2014 and December 31, 2013 notes and loans payable consist of:
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March 31,
2014
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December 31,
2013
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Convertible Promissory Note Payable to St. George Investment, secured by the Company’s assets, interest rate of 6.0% per annum, with payment due on or before March 10, 2015
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259,530
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259,530
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Secured Convertible Promissory Note to Tonaquint, Inc., 6% per annum; due on or before February 27, 2014
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1,252,000
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1,252,000
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(See Item 1. Legal Proceedings as described more fully)
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1,511,530
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1,511,530
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Less: Unamortized Discount
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(16,227
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)
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(70,195
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)
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$
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1,495,303
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$
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1,441,335
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Note 4. Commitments and Contingencies
St. George Investments
On March 10, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "Purchase Agreement") with St. George Investments, LLC, (“St. George”) an Illinois limited liability company (the "Investor") whereby the Company issued and sold, and the Investor purchased: (i) Secured Convertible Promissory Notes of the Company in the principal amount of $1,105,500 (the "Company Note") and (ii) a Warrant to purchase common stock of the Company (the "Warrant"). The Investor paid $250,000 in cash as an initial payment to the Company and executed and delivered six separate “Secured Buyer Notes” (the “Buyer Notes”), as consideration in full for the issuance and sale of the Company Note and Warrants.
The principal amount of the Company Note is $1,105,500 ("Maturity Amount") and the Company Note is due 48 months from the issuance date of March 10, 2011. The Company Note has an interest rate of 6.0%, which would increase to a rate of 12.0% on the happening of certain Trigger Events, including but not limited to: a decline in the 10-day trailing average daily dollar volume of the common shares in the Company’s primary market to less than $30,000 of volume per day at any time; the failure by the Company or its transfer agent to deliver Conversion Shares (defined in the Company Note) within 5 days of Company’s receipt of a Conversion Notice (defined in the Company Note). Due to a triggering event occurring, the current interest rate is 12%. The total amount funded (in cash and notes) was $1,000,000, representing the Maturity Amount less an original issue discount of $100,500 and the payment of $5,000 to the Investor to cover its fees, with payment consisting of $250,000 advanced at closing and $750,000 in a series of six secured convertible Buyer Notes of $125,000 each, with interest rates of 5.0%. To date, St. George has paid the total amount due.
The Buyer Notes are secured by an Irrevocable Standby Letter of Credit (“Letter of Credit”). The warrant also contains a net exercise /cashless exercise provision. St. George may elect to convert all or part of the principal and any accrued unpaid interest on the Company Note on or before the aforementioned maturity date, subject to certain limitations. The conversion price under the Company Note is eighty percent (80%) of the average of the closing bid prices for the three (3) Trading Days (defined in the Purchase Agreement) with the lowest closing bids over the twenty (20) Trading Days immediately preceding the Conversion Date (defined in the Company Note), subject to adjustments as set forth in the Company Note. Due to adjustments, St. George’s current conversion ratio inserts fifty-five percent (55%) in the aforementioned formula, in place of eighty percent (80%).
The Investor has also received a five year warrant entitling it to purchase shares of common stock of the Company at an exercise price determined under the terms of the Warrant. The warrant also contains a net exercise /cashless exercise provision.
As of March 31, 2014 the balance due to St. George Investments was $259,530 in principal and $24,563 in accrued interest.
The Company Note, Warrant and related documentation, including any amounts owed by the Company to St. George based thereon, are in dispute and are the subject of litigation, as
described more fully in Item 1. Legal Proceedings.
Tonaquint, Inc.
In a transaction that closed on June 29, 2012, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with Tonaquint, Inc. (“Tonaquint”) a Utah corporation whereby the Company issued and sold, and Tonaquint purchased a Secured Convertible Promissory Note of the Company in the principal amount of $1,252,000 (the "Company Note").
The Company Note was issued June 27, 2012 and is due 20 calendar months after the issuance date. The Company Note has an interest rate of 6.0%, which would increase to a rate of 18.0% on the happening of certain Events of Default (defined in the Company Note), including but not limited to: failure to pay and the failure by the Company or its transfer agent to deliver Conversion Shares (defined in the Company Note) within 3 Trading Days of the Company’s receipt of a Conversion Notice (defined in the Company Note). Tonaquint has claimed an interest rate of 18%, which is being disputed by the Company. The total amount funded in cash at closing was $1,120,000, representing the principal amount less an original issue discount of $112,000 and the payment of $20,000 to Tonaquint to cover its fees.
Tonaquint has the right to convert, subject to restrictions described in the Company Note, all or a portion of the outstanding amount of the Company Note into shares of the Company’s common stock at a price of $0.03. So long as Tonaquint has not extinguished the Company Note in its entirety pursuant to such conversions, the Company shall make monthly payments to Tonaquint on the Company Note, through either the issuance of shares of the Company’s common stock or by payment in cash, at the election of the Company. Payments commence six months from the date of issuance of the Company Note and continue until the Company Note has been paid in full. The amount of the monthly payments is the greater of (i) $100,000, plus the sum of any accrued and unpaid interest as of the applicable Installment Date (defined in the Company Note) and accrued and unpaid Late Charges (defined in the Company Note), if any, under the Company Note as of the applicable Installment Date (defined in the Company Note), and any other amounts accruing or owing to Investor under the Company Note as of such Installment Date, or (ii) the then-outstanding balance of the Company Note divided by the number of Installment Dates remaining prior to the Maturity Date.
In the event the Company is unable to make payments in cash or otherwise elects not to make a payment or payments in cash, the number of common shares delivered to the Investor upon conversion will be calculated by dividing the amount of the Company Note that is being converted by the market price of the common stock, which is defined as 80% of the arithmetic average of the three (3) lowest volume weighted average prices of the shares of the Company’s common stock during the twenty three (23) consecutive trading day period immediately preceding the date as of which such price determination is required (such as the effective date of a conversion).
As of March 31, 2014, the amount owed to Tonaquint was $1,252,000 of principal and $395,915 in accrued interest in accordance with Tonaquint’s claim which is being disputed by the Company.
The Company Note, Purchase Agreement and other related documents, including any amounts owed by the Company to Tonaquint based thereon, are in dispute and are the subject of litigation, as
described more fully in Item 1. Legal Proceedings.
VidaPlus
On January 24, 2011, the Company entered into a Stock Purchase Agreement to acquire up to 51% of the capital stock in VidaPlus, an umbilical cord processing and storage company headquartered in Madrid, Spain. The Agreement is organized into three tranches; the first executed at closing with an initial investment of approximately $204,000 (150,000 Euro) for an amount equivalent to 7% as follows; 1% of share capital in initial equity or approximately $30,000 and 6% or an estimated $174,000 as a loan convertible into equity within 12 months of closing. The initial investment was secured by a Pledge Agreement on 270 VidaPlus samples that are incurring annual storage fees. The second tranche provides the opportunity for an additional 28% in share capital through monthly investments based on the number of samples processed in that month (up to a maximum of 550,000 EUR). In connection with Tranche 2, the Company has loaned VidaPlus $246,525 to date. Converting the investment from a loan into equity will take place within 24 months of the date the amount of shares due to the Company pursuant to the second tranche is calculated. The third tranche follows a similar loan to equity agreement as tranche two but for an additional 16% equity at the option of the Company (up to a maximum of 550,000 EUR). VidaPlus contracts through Stellacure and their relationship with the German Red Cross for their processing and storage.
In connection with the VidaPlus Stock Purchase Agreement entered into on January 24, 2011, the Company is obligated to make monthly loans to VidaPlus based on the number of new samples processed and up to a maximum of 550,000 Euro for each of Tranche 2 and 3 of the Agreement. Tranche 2 did contain provisions that provided the Company an option to discontinue funding if certain performance targets were not met.
In January 2012, the Company exercised its right to convert its Tranche 1 loan into 6% of the outstanding shares of VidaPlus, and as a result, the Company owns a total of 7% of the outstanding shares. At the time of the equity conversion, the Company no longer maintained its Pledge on the 270 VidaPlus samples associated with Tranche 1; however, the Company maintained a liquidation preference in VidaPlus over the money invested by the Company in VidaPlus. Additionally, the Company declined to make any further investment (loan or otherwise) to VidaPlus under whether Tranche 2, Tranche 3 or otherwise. CBAI holds a pledge over the umbilical cord blood maintenance and storage contracts between VidaPlus and certain of its customers, and all rights contained therein, including but not limited to the rights to administer those contracts and the rights to collect the revenues derived from those contracts, for 328 samples. CBAI holds that pledge until such time as it converts the monies paid to VidaPlus under Tranche 2 of the Stock Purchase Agreement into equity into Vidaplus, in accordance with the formulas set forth in the Stock Purchase Agreement. CBAI must make that conversion within two years of when the calculation was made as to the amount of shares to which CBAI is entitled pursuant to Tranche 2, which means that such conversion shall take place around or before February 2014. CBAI also holds a liquidation preference in VidaPlus for the money the Company invested in VidaPlus. On February 14, 2014, CBAI delivered to VidaPlus its election to convert its loan under Tranche 2 into shares of stock in VidaPlus.
Patent License Agreement
PharmaStem Therapeutics claims to hold certain patents relating to the storage, expansion and use of hematopoietic stem cells. In the past several years, PharmaStem has commenced suit against numerous companies involved in cord blood collection and preservation alleging infringement of its patents. In October 2003, after a jury trial, judgment was entered against certain of our competitors and in favor of PharmaStem in one of those suits. In February 2004, PharmaStem commenced suit against Cord Partners and certain of its competitors alleging infringement of its patents. Management of Cord Partners determined to settle, rather than to litigate, this matter. As a result, PharmaStem and Cord Partners entered into a Patent License Agreement in March 2004. Pursuant to the Patent License Agreement, Cord Partners could, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem’s claimed technology and processes allegedly covered by its patents for so long as the patents may remain in effect. Most of the patents at issue expired in 2010. PharmaStem could claim,
arguendo
, Cord Partners is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by Cord Partners from the collection and storage of cord blood on and after January 1, 2004. Other than, potentially royalties, which would be disputed by Cord, no amount is payable by Cord Partners to PharmaStem. All litigation between the parties was dismissed and all prior claims were released. As of 2008, Cord ceased paying all royalties to PharmaStem. The patents have been declared void under a final decision on appeal, and as such, there is no pending litigation in this matter. As of March 31, 2014, the Company included approximately $226,000 in accounts payable and $120,000 included in accrued expenses to account for this liability since 2008, though the Company disputes that it owes any royalties to Pharmastem.
Commitments and Contingencies
BioCells
In September 2010, the Company entered into a Stock Purchase Agreement (the “Agreement”), with the Shareholders of Biocordcell Argentina S.A., a corporation organized under the laws of Argentina (“Bio”), providing for the Company’s acquisition of 50.1% of the outstanding shares of Bio (the “Shares).
Under the Agreement, the Company paid $375,000 in cash at the closing, and was obligated to pay an additional $350,000 in October, 2010, $150,000 of which is part of the fixed portion of the purchase price for the shares, for a total minimum purchase price of $525,000. The remaining $200,000 of this payment represents advances against the contingent payments due based on Bio’s 2010 and 2011 net income performances. In 2011, the Company negotiated and paid out the amount of $500,000 in connection with the 2010 earn out.
As of June 22, 2012, the Company entered into an Agreement with the shareholders of Bio from whom the Company purchased its majority ownership interest in
Bio
in 2010 (the "Sellers") relating to the 2011 earn out. U
nder the Agreement, the Company was to pay the Sellers the following:
$25,000 on or before June 30, 2012; $10,000 on or before July 31, 2012; and $25,000 on or before September 30, 2012, for a total cash payment of $60,000. In addition, the Sellers will collect the Company’s portion of BioCells shareholders’ dividends for fiscal years 2012 and 2013, up to a maximum amount of $440,000, if any. There were no shareholder dividends earned or paid for the 2012 and 2013 fiscal years. Also, since BioCells was not sold before April 2014, certain thresholds for purchase price and payment were not met or exceeded, and the Sellers did not receive compensation. As a result of this Agreement with the Sellers of BioCells, the Company has paid the total cash amount due of $60,000 as of December 31, 2012 and there have been no earned portion of Company’s dividends paid to Sellers for fiscal years 2012 and 2013.
Employment Agreements
On September 12, 2011 (the “Company”), entered into an Executive Employment Agreement with Joseph R. Vicente, then the Company’s Chief Operating Officer and Vice President and appointed Chairman and President on May 15, 2012 by the Board of Directors, which was effective as of August 1, 2011 and shall terminate as of December 31, 2014, unless earlier terminated by the Company or Mr. Vicente. Mr. Vicente’s Executive Employment Contract had an initial term from August 1, 2011 through December 31, 2011, and is renewable annually thereafter for up to three additional, successive years, and provides for a base salary equal to his previous year’s annual salary, which said salary was set under the provisions of the previous employment agreement entered between Mr. Vicente and the Company in July of 2008. Mr. Vicente voluntarily reduced his annual salary by 12.5% until otherwise determined by Mr. Vicente, along with the advice and consent of the Company’s Board of Directors. It also provides for an annual bonus, payable at the discretion of the Board of Directors, equal to 25% of Mr. Vicente’s prior year base salary. The Agreement provides for a change of control termination bonus, which provide that if Mr. Vicente is terminated, his compensation reduced, or Mr. Vicente terminates his employment within one year after a change of control, then Mr. Vicente is entitled to a termination benefit in an amount equal to the average annual cash compensation over the three (3) year period preceding the Triggering Event (defined in the agreements) multiplied (2.00). The Agreement also provides for termination payments in the absence of a change of control in the event the Company terminates Mr. Vicente without cause in an amount equal to all compensation paid by the Company to Mr. Vicente for the 24 months preceding the termination, along with health plan and 401k incentives (if any were to be offered – the Company terminated its 401k earlier in 2012), as stated in the agreement.
The Company entered into an Executive Employment Agreement with Stephen Morgan (the “Employee”) on August 10, 2012, with July 1, 2012 as the effective date of the Agreement. The Agreement provides for a change of control termination bonus, whereby if the Employee is terminated, his compensation reduced, or the Company terminates the Employee’s employment within one year after a change in control, then the Employee is entitled to a termination benefit in an amount equal to the employee’s cash compensation over the one (1) year preceding the Triggering Event (defined in the Agreement). The Agreement also provides for termination payments in the absence of a change of control in the event the Company terminates the Employee without cause in an amount equal to all compensation paid by the Company to the Employee for the 12 months preceding the termination, along with health plan and 401k incentives (if any were to be offered – the Company terminated its 401k earlier in 2012), as stated in the Agreement. The Agreement provides for an annual salary of $125,000, along with a bonus, payable at the discretion of the Board of Directors of up to an annual amount of 20% of the Employee’s salary. Mr. Morgan’s compensation, as set forth in the Agreement has not increased as a result of his election to the officer positions of Vice President and Secretary on May 15, 2012 in addition to his retention of his previous position, General Counsel. The Company believes the assumption of additional roles by existing management and other individuals in leadership positions, including filling recently vacated roles, will reduce overall management costs while also leading to greater efficiency within the organization.
Operating Leases
On January 21, 2014, the Company entered a First Amendment to Lease, which extended its lease at the property located at 1857 Helm Drive, Las Vegas, Nevada through September 30, 2019. In connection with the amendment, the Company received an abatement of the entire amount of its rent for January 2014, except for CAM charges. In addition, as of October 1, 2014, the Company’s monthly lease payments shall revert back to their rates as they existed in June 2009, other than CAM charges, with annual adjustments thereafter as set forth in the Amendment. Moreover, the Landlord has the option to lease a portion of the premises currently occupied by the Company to a third party, and if this portion is leased to a third party, the Company’s monthly rent amount shall be reduced
pro rata
with the portion of the space leased to a third party. If the Landlord is unable to or elects not to lease a portion of the premises to a third party by November 30, 2015 and by each subsequent anniversary thereof, the Company shall receive an additional abatement of one month rent, excluding CAM charges, in December 2015, December 2016 and December 2017, respectively and as applicable. CBAI’s subsidiary leases office space in Argentina, (Bio). The lease for Bio is for three years beginning in May 2014, and Bio shall receive rent abatement for May and June of 2014.
Commitments for future minimum rental payments, by year, and in the aggregate, to be paid under such operating lease as of March 31, 2014, are as follows:
|
|
|
Rent
|
|
|
|
|
to be paid
|
|
|
2014
|
|
$
|
169,083
|
|
|
2015
|
|
|
232,064
|
|
|
2016
|
|
|
244,943
|
|
|
2017
|
|
|
199,109
|
|
|
2018
|
|
|
189,842
|
|
|
Thereafter
|
|
|
153,902
|
|
|
Total
|
|
$
|
1,188,943
|
|
Note 5. Related Party Transactions
China Stem Cells, Ltd.
In March of 2010 the Company acquired pursuant to a License Agreement, a 10% non dilutable interest in what became, in December 2010, China Stem Cells, Ltd., a Cayman Islands Company (hereinafter "Cayman"), which indirectly holds a 100% capital interest in AXM Shenyang, a company organized to conduct a Stem Cell Storage Business in China. In exchange for issuance of an equity interest in Cayman, under the terms of the Transfer of Technology Agreement the Company agreed to provide technology transfer, knowhow and training in the setup, marketing and operation of the China Stem Cell Storage business. In connection with the License Agreement, the Company is to receive royalties equal to 8.5% of "Net Revenues" realized from the China Stem Cell Storage business, over the 15 year term of the agreement, with certain minimum annual royalties’ payable beginning in 2011. The Company has not been paid any royalty balance due to date, and it remains doubtful that any such royalties will be collected.
In December of 2010 the Company also acquired the option to provide up to $750,000 of additional capital funding to Cayman through the purchase of Cayman Secured Convertible Promissory Notes and attached Cayman Warrants to acquire its Common Stock. Other Cayman shareholders were granted similar options, with the intent of raising the aggregate up to $1.5 million in additional capital for Cayman and its subsidiaries. CBAI has exercised this option in part, provided a total of $400,000 in additional capital to Cayman, and is to receive Cayman Secured Convertible Promissory Notes for this sum along with 80 Cayman (TBD) Warrants. The Secured Convertible Promissory Notes are convertible into Cayman stock at a conversion price of $1,500 per share, subject to certain adjustments. The Warrants have a five year term and are exercisable at an option exercise price of $0.05 per share per share, subject to certain adjustments. The Company has recorded a reserve for the entire carrying amount of the receivable, including interest. The Company’s current President, Joseph Vicente was appointed as a Director of China Stem Cells Ltd. in July 2012.
VidaPlus
The Company holds 7% of the outstanding shares of VidaPlus, and has a balance of convertible loans receivable amounting to $246,525. During the year ended December 31, 2012, the Company reviewed the recoverability of the equity investment and loans receivable and the carrying amount exceeds the fair value of the investment as a result of recurring and continued operating losses at VidaPlus. Fair value of the loans receivable is determined based on the discounted future net cash flows expected to be generated by assets pledged against the loans. The Company recorded an impairment of 100% of the book value of the equity investment and convertible loan receivable.
Frozen Food Gift Group, Inc.
CBAI engaged Frozen Food Gift Group, Inc. (“FFGG”) as a vendor, prepaying for $45,000 in products during the year ended December 31, 2011. The remaining balance on that account is $30,655 as of March 31, 2013, not including additional interest and fees to which the Company may be entitled. The Company’s former CEO and Chairman of the Board, Mathew Schissler who resigned effective May 14, 2012, owned 36.2% of the outstanding shares of FFGG based on an S-1 filing made by that company with the SEC on July 31, 2012, and on information and belief is FFGG’s Chairman of the Board. CBAI’s former COO, and now President Joseph Vicente served on the Board of Directors of FFGG, but resigned effective as of January 26, 2012.
The Company entered into a
Release
with FFGG effective as of March 5, 2014, with the mutual releases and negative covenants contained therein not taking effect until such time as the Company receive
d
payment under the Claim Purchase Agreement, entered as of March 12, 2014 with a third party to the Company in exchange for the Company’s claims against FFGG.
Note 6. Share Based Compensation
Stock Option Plan
The Company's Stock Option Plan permits the granting of stock options to its employees, directors, consultants and independent contractors for up to 8.0 million shares of its common stock. The Company believes that such awards encourage employees to remain employed by the Company and also to attract persons of exceptional ability to become employees of the Company. On July 13, 2009, the Company registered its 2009 Flexible Stock Plan, which increases the total shares available to 4 million common shares. The agreement allows the Company to issue either stock options or common shares from this Plan.
On June 3, 2011, the Company registered its 2011 Flexible Stock Option plan, and reserved 1,000,000 shares of the Company's common stock for future issuance under the Plan. The Company canceled the Company's 2010 Flexible Stock Plan, and returned 501,991 reserved but unused common shares back to its treasury.
Stock options that vest at the end of a one-year period are amortized over the vesting period using the straight-line method. For stock options awarded using graded vesting, the expense is recorded at the beginning of each year in which a percentage of the options vests. The Company did not issue any stock options for the period ended March 31, 2014.
The Company’s stock option activity was as follows:
|
|
|
Stock
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Avg. Contractual
Remaining Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2013
|
|
|
6,323,570
|
|
|
|
1.01
|
|
|
|
5.76
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Expired
|
|
|
627,740
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, December 31, 2013
|
|
|
5,570,830
|
|
|
|
1.01
|
|
|
|
4.51
|
|
|
Exercisable at December 31, 2013
|
|
|
5,570,830
|
|
|
|
1.01
|
|
|
|
4.51
|
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, March 31, 2014
|
|
|
5,570,830
|
|
|
|
1.01
|
|
|
|
|
|
|
Exercisable at March 31, 2014
|
|
|
5,570,830
|
|
|
|
1.01
|
|
|
|
4.26
|
|
The following table summarizes significant ranges of outstanding stock options under the stock option plan at March 31, 2014:
|
Ra
nge of
Exercise Prices
|
|
|
Number of
Options
|
|
|
Weighted Average
Remaining
Contractual Life
(years)
|
|
|
Weighted Average
Exercise
Price
|
|
|
Number of
Options
Exercisable
|
|
|
Weighted Average
Exercise
Price
|
|
|
$
|
0.33 — 20.00
|
|
|
|
5,522,806
|
|
|
|
4.28
|
|
|
$
|
0.83
|
|
|
|
5,522,806
|
|
|
$
|
0.83
|
|
|
$
|
21.00 — 30.00
|
|
|
|
30,126
|
|
|
|
0.87
|
|
|
|
25.00
|
|
|
|
30,126
|
|
|
|
25.00
|
|
|
$
|
31.00— 51.00
|
|
|
|
17,898
|
|
|
|
4.26
|
|
|
|
31.21
|
|
|
|
17,898
|
|
|
|
31.21
|
|
|
|
|
|
|
|
5,570,830
|
|
|
|
4.26
|
|
|
$
|
1.01
|
|
|
|
5,570,830
|
|
|
$
|
1.01
|
|
A summary of the activity for unvested employee stock options as of March 31, 2014 and changes during the period presented below:
Weighted Average Grant Date Fair Value per Share
|
|
|
Stock
Options
|
|
|
Weighted Avg. Grant Date Fair Value per Share
|
|
|
Nonvested at January 1, 2014
|
|
|
--
|
|
|
|
0.39
|
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
Vested
|
|
|
--
|
|
|
|
--
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
|
Pre-vested forfeitures
|
|
|
--
|
|
|
|
--
|
|
|
Nonvested at March 31, 2014
|
|
|
--
|
|
|
|
0.39
|
|
The total compensation cost related to non-vested options amounts to $0. All outstanding unexercised options provide for adjustment upon stock split, as well as under certain other circumstances.
Note 7. Warrant Agreements
On March 10, 2011 the Company issued a Promissory Note for $1,105,000 to St. George Investments along with 1,392,354 five year warrants at $0.01 per share.
The Company has not issued any warrants since January 1, 2012.
The following table summarizes the warrants outstanding and exercisable at March 31, 2014 (post split):
|
|
|
WARRANTS OUTSTANDING
|
|
|
EXERCISE
PRICE
|
|
MATURITY DATE
|
|
|
|
|
1,392,354
|
|
|
$
|
0.01
|
|
|
03/10/2016
|
|
Total
|
|
|
1,392,354
|
|
|
|
|
|
|
|
Note 8. Stockholder’s Equity
Preferred Stock
CBAI has 5,000,000 shares of $.0001 par value preferred stock authorized.
Common Stock
On September 25, 2012, the Company’s Articles of Incorporation were amended to increase the authorized common stock to 890,000,000 shares, par value $0.0001, up from 250,000,000. This amendment was adopted by the Company’s Board of Directors on July 11, 2012, and its Shareholders at a Special Meeting of Shareholders called for this purpose on September 25, 2012.
During the year ended December 31, 2013, the Company issued 513,765,592 shares of common stock to retire $776,502 of principal and interest in convertible debt which had a fair market value of $1,823,206.
As of March 31, 2014 CBAI had 890,000,000 shares of Common Stock outstanding. 20,000 shares remain in the Company's treasury.
Note 9. Segment Reporting
Guidance issued by the FASB requires that public business enterprises report financial and descriptive information about its reportable operating segments. Cord generates revenues related to the processing and preservation of umbilical cord blood. Cord’s long-lived assets are located in, and substantially all of its revenues are generated from, the United States of America and Argentina.
The table below presents certain financial information by business segment for the three months ended March 31, 2014:
|
|
|
Cord
|
|
|
Biocordcell
|
|
|
Segment
Total
|
|
|
Consolidation
Eliminations
|
|
|
Condensed
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from External Customers
|
|
$
|
919,508
|
|
|
$
|
496,018
|
|
|
|
1,415,526
|
|
|
$
|
|
|
|
$
|
1,415,526
|
|
|
Interest & Derivative Expense
|
|
|
171,391
|
|
|
|
27,891
|
|
|
|
199,282
|
|
|
|
--
|
|
|
|
199,282
|
|
|
Depreciation and Amortization
|
|
|
134,199
|
|
|
|
46,942
|
|
|
|
181,141
|
|
|
|
--
|
|
|
|
181,141
|
|
|
Segment Income (Loss)
|
|
|
(327,877)
|
|
|
|
(217,604)
|
|
|
|
(545,481
|
)
|
|
|
--
|
|
|
|
(545,481)
|
|
|
Segment Assets
|
|
$
|
4,404,627
|
|
|
$
|
1,609,734
|
|
|
|
6,014,361
|
|
|
$
|
(256,480)
|
|
|
$
|
5,757,881
|
|
The table below presents certain financial information by business segment for the three months ended March 31, 2013:
|
|
|
Cord
|
|
|
Biocordcell
|
|
|
Segment
Total
|
|
|
Consolidation
Eliminations
|
|
|
Condensed
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from External Customers
|
|
$
|
934,947
|
|
|
$
|
517,191
|
|
|
$
|
1,452,138
|
|
|
$
|
--
|
|
|
$
|
1,452,138
|
|
|
Interest & Derivative Expense
|
|
|
488,668
|
|
|
|
4,328
|
|
|
|
492,996
|
|
|
|
--
|
|
|
|
492,996
|
|
|
Depreciation and Amortization
|
|
|
180,561
|
|
|
|
12,836
|
|
|
|
193,397
|
|
|
|
--
|
|
|
|
193,397
|
|
|
Segment Income (Loss)
|
|
|
(514,173
|
)
|
|
|
(73,747)
|
|
|
|
(587,920
|
)
|
|
|
--
|
|
|
|
(587,920
|
)
|
|
Segment Assets
|
|
$
|
4,643,277
|
|
|
$
|
1,775,924
|
|
|
$
|
6,419,201
|
|
|
$
|
(43,998)
|
|
|
$
|
6,375,203
|
|
Note 10. Subsequent Events
Frozen Food Gift Group
Effective as of March 12, 2014 the Company entered into a Claim Purchase Agreement with a third party calling for payment by the third party to the Company in exchange for the Company’s claims against Frozen Food Gift Group, Inc. (“FFGG”), as set forth in a Mutual General Release described below (“Release”). Payment was made by the third party to the Company on or around April 1, 2014.
The Company entered the Release with FFGG effective as of March 5, 2014, with the mutual releases and negative covenants contained therein not taking effect until such time as the Company received payment under the Claim Purchase Agreement as described above, which payment was made as mentioned above.
Litigation versus Tonaquint, Inc. and St. George Investments, LLC
As stated in Item 1. Legal Proceedings, on March 21, 2014, the Company filed a Motion for Leave to File Amended Complaint and Memorandum in the Action, seeking to amend its Complaint to add an additional claim for breach of contract, as well as a claim for promissory estoppel against Defendants. On May 6, 2014 the Court granted the Company’s Motion, and the Company filed its First Amended Complaint and Jury Demand on May 7, 2014.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward Looking Statements
In addition to the historical information contained herein, the Company makes statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about our future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and our ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in the Company's periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The following information should be read in conjunction with the Company’s March 31, 2014 condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with its condensed consolidated financial statements and notes thereto for the year ended December 31, 2013 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as well as its quarterly reports and reports filed on Form 8-K for the relevant periods. The Company also urges you to review and consider its disclosures describing various risks that may affect its business, which are set forth under the heading "Risk Factors Related to the Company Business" in its Annual Report on Form 10-K for the year ended December 31, 2013.
Recent Developments During the Quarter
AABB Accreditation
The Company announced effective January 1, 2014, it had received its AABB accreditation for cell therapy activity associated with cord blood processing, storage and distribution.
Lease
On January 21, 2014, the Company entered a First Amendment to Lease, which extended its lease at the property located at 1857 Helm Drive, Las Vegas, Nevada through September 30, 2019. In connection with the amendment, the Company received an abatement of the entire amount of its rent for January 2014, except for CAM charges. In addition, as of October 1, 2014, the Company’s monthly lease payments shall revert back to their rates as they existed in June 2009, other than CAM charges, with annual adjustments thereafter as set forth in the Amendment. Moreover, the Landlord has the option to lease a portion of the premises currently occupied by the Company to a third party, and if this portion is leased to a third party, the Company’s monthly rent amount shall be reduced
pro rata
with the portion of the space leased to a third party. If the Landlord is unable to or elects not to lease a portion of the premises to a third party by November 30, 2015 and by each subsequent anniversary thereof, the Company shall receive an additional abatement of one month rent, excluding CAM charges, in December 2015, December 2016 and December 2017, respectively and as applicable.
Cord Blood America, Inc. v. Tonaquint and St. George
In the action described in detail in Item 1. Legal Proceedings, on March 22, 2014, Defendants filed an Amended Counterclaim. The Amended Counterclaim adds a claim for declaratory judgment, wherein Defendants seek that the Court declare the Security Agreement entered into by the Company and Tonaquint secured repayment for the Company’s purported obligations to both Tonaquint and St. George.
On March 21, 2014, the Company filed a Motion for Leave to File Amended Complaint and Memorandum, seeking to amend its Complaint to add an additional claim for breach of contract, as well as a claim for promissory estoppel. No hearing date has been set for that motion.
VIDAPLUS 2007 S.L.
In accordance with the terms for Tranche 2 of the Stock Purchase Agreement between VidaPlus and CBAI entered in January 2011, on February 14, 2014, CBAI delivered to VidaPlus its election to convert its loan under Tranche 2 into shares of stock in VidaPlus, including Anti-Dilution shares to which CBAI is entitled pursuant to the conversion. CBAI is entitled to an additional ownership stake of approximately 2.24% in connection with the foregoing, bringing its total ownership percentage to approximately 9.24%.
Frozen Food Gift Group
Effective as of March 12, 2014 the Company entered into a Claim Purchase Agreement with a third party calling for payment by the third party to the Company in exchange for the Company’s claims against Frozen Food Gift Group, Inc. (“FFGG”), as set forth in a Mutual General Release described below (“Release”). Payment shall be made by the third party to the Company upon the happening of certain events, provided that both parties have the right to cancel the agreement if those events have not taken place within 90 days of the effective date of the Claim Purchase Agreement.
The Company entered a Mutual General Release with FFGG effective as of March 5, 2014, with the mutual releases and negative covenants contained therein not taking effect until such time as the Company receives payment under the Claim Purchase Agreement as described above.
Summary and Outlook of the Business
CBAI is primarily an umbilical cord blood stem cell and cord tissue processing and storage company with a particular focus on the acquisition of customers in need of family based products and services.
Cord
Services Provided By Cord
Cord’s operations provide umbilical cord blood banking and cord tissue services to expectant parents throughout all 50 United States and Puerto Rico. The Company’s corporate headquarters re-located to Las Vegas, NV from Los Angeles, CA in October 2009. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord processes and stores cord blood and cord tissue in its own facility. Cord provides the following services to each customer.
|
●
|
Collection Materials.
A medical kit that contains all of the materials and instructions necessary for collecting the newborn’s umbilical cord blood and cord tissue at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for infectious disease testing.
|
|
|
|
|
●
|
Physician And Customer Support.
24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing any instruction necessary for the successful collection, packaging, and transportation of the cord blood and cord tissue and maternal blood samples.
|
|
|
|
|
●
|
Transportation.
Manage all logistics for transporting the cord blood and cord tissue unit to the Company’s centralized facility immediately following birth. This procedure ensures chain-of-custody control during transportation for maximum security.
|
|
|
|
|
●
|
Comprehensive Testing.
The cord blood sample is tested for stem cell concentration levels and blood type. The maternal samples are tested for infectious diseases. Cord reports these results to the newborn’s mother.
|
|
|
|
|
●
|
Cord Blood Storage.
After processing and testing, the cord blood and cord tissue unit is cryogenically frozen in a controlled manner and stored in liquid nitrogen for potential future use. Data indicates that cord blood retains viability and function for at least twenty five years when stored in this manner and theoretically could be maintained at least as long as the normal life span of an individual.
|
Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, primarily through organic growth.
Biocordcell Argentina S.A.
Based in Buenos Aires, Biocordcell Argentina S.A., processes and stores cord blood samples as a private bank for use in current or future medical therapies in Argentina, Uruguay and Paraguay and Panama. In 2012, Bio began franchising with locations in Argentina and Brazil for which it receives franchise fees and/or royalty payments based on franchise revenues. Bio continues to explore additional franchise opportunities.
Results of Operations for the Three-Months Ended March 31, 2014
For the three months ended March 31, 2014, total revenue decreased to approximately $1.42 million from $1.45 million, a decrease of 3% over the same period of 2013. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. The processing fees decreased approximately 14%, and the recurring revenues increased approximately 11% for the three months ended March 31, 2014 versus the prior comparative period of 2013. The remaining revenue consisted primarily of tissue related sales which decreased 31% from prior comparative period. Per segment, Cord had an decrease of its total revenues of 2%, and Bio decreased its revenues 4% over the same period ending March 31, 2014. Cord remains focused on strategic organic growth which management hopes will provide sustainable operating cash flows, and, positive operating and net income.
Cost of services as a percentage of revenue increased to 31% for the period ended March 31, 2014 compared to 30% the same prior period of 2013. The cost of services include transportation of the umbilical cord blood from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses. Gross profit decreased by approximately $0.04 million or 4% to approximately $1.0 million for the period ending March 31, 2014 from the prior three month period of 2013. The Company anticipates that through the growth and expansion of its Cord business, seasonal adjustments and continuing efficiencies in its own facilities, direct costs should decrease and gross profits should continue to improve.
Administrative and selling expenses for the three months ended March 31, 2014 were $1.32 million as compared to $1.11 million for the comparative period of 2013 representing a 19% increase. These expenses are primarily related to marketing/advertising, professional services, allocated facility related expenses and wages for personnel. Professional services, primarily legal fees related to the Company complaint against Tonaquint and St. George, were a major contributor for the increase in administrative and selling expenses. The Company continues to evaluate its expenses and their relationship to revenues for alignment. Depreciation and amortization are included as an administrative expense. For the three month period ending March 31, 2014, depreciation and amortization was approximately $0.18 million versus $0.19 million for the prior comparative period of 2013.
The Company’s loss from operations was $0.35 million versus a loss of $0.10 million for the comparative period. The Company’s net loss was $0.43 million for the period ended March 31, 2014, a decrease of approximately 21% compared to the comparative period net loss of $0.55 million.
Liquidity and Capital Resources
Total assets at March 31, 2014 were $5.75 million, compared to $6.07 million at December 31, 2013. Total liabilities at March 31, 2014 were $6.44 million consisting primarily of promissory notes, accounts payable and deferred revenue $1.49 million, $0.52 million and $2.21 million respectively. At December 31, 2013, total liabilities were $6.45 million consisting primarily of promissory notes, accounts payable and deferred revenue $1.44 million, $0.59 million and $ 2.24 million respectively.
For the period ending March 31, 2014, the company had $0.80 million in cash, an increase of 104% from the prior comparative period total of $0.39 million. The Company currently collects cash receipts from operations through Cord and its subsidiary, Bio-cells. During the three month period ended March 31, 2014 there was no increase in notes payable for purposes of working capital or investment in affiliate companies. Net cash provided by operating activities for the three month period ending March 31, 2014 was $0.22 million, versus $0.09 million provided from the prior comparative period of 2013, an improvement of $0.13 million. Net cash used in investing activities decreased by $0.01 million. Net cash provided by financing activities were $0.00, the same as the prior comparative period ending March 31, 2013. The Company did not have any financing activities during three month period ending March 31, 2014, and cash flow from operations continue to be sufficient to fund operations.
Since inception, the Company has financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. However, over the past eight quarters, the Company has reduced operating expenses, ended investment in its unconsolidated affiliates and received no additional funding from outside sources for working capital. The Company plans to continue to operate on its cash flows from operations by aligning its expenses with its revenues. If cash flows from operations are significantly less than projected, then the company would need to either cut back on its budgeted spending, look to outside sources for additional funding or a combination of the two. The Company currently does not have any financing agreements in place for additional funding. If the Company is unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, the Company could be forced to curtail or possibly cease operations.
Inflation
In the opinion of management, inflation has not and will not have a material effect on the Company operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on the Company's business and operations.