NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
Note 1. Organization and Description of Business
Overview
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. CBAI and its subsidiaries engage in the following business activities:
●
|
CBAI and Cord specialize in providing private cord blood and cord tissue stem cell storage services to families throughout the United States and Puerto Rico. Additionally, the Company is procuring birth tissue for organizations utilizing the tissue in the transplantation and/or research of therapeutic based products.
|
●
|
Properties was formed to hold corporate trademarks and other intellectual property.
|
In September 2010, CBAI purchased a majority interest in Biocordcell Argentina S.A. (BioCells), a company providing private cord blood processing and storage services to families in Argentina, Uruguay and Paraguay. On September 29, 2014, the Company sold its ownership interest in BioCells to Diego Rissola, who is the current President and Chairman of the Board of BioCells. In conjunction with the disposition of BioCells, the gain on the sale and results of historical operations are recorded as discontinued operations in the Company’s Consolidated Statements of Operations for the year ended December 31, 2014. Additionally, the cash flows from BioCells are reflected separately as cash flows from discontinued operations in the Company’s Consolidated Statement of Cash Flows.
Note 2. Summary of Significant Accounting Policies
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.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
Cash
Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.
The company maintains cash and cash equivalents at several financial institutions.
Accounts Receivable
Accounts receivable consist of the amounts due for facilitating the processing and storage of umbilical cord blood and cord tissue, and birth tissue procurement services. Accounts receivable relating to deferred revenues are netted against deferred revenue for presentation purposes. The allowance for doubtful accounts is estimated based upon historical experience. The allowance is reviewed quarterly and adjusted for accounts deemed uncollectible by management. Amounts are written off when all collection efforts have failed.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Routine maintenance and repairs are charged to expense as incurred while major replacement and improvements are capitalized as additions to the related assets. Sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the related asset and accumulated depreciation accounts with any gain or loss credited or charged to income upon disposition.
Intangible Assets
Intangible assets consist primarily of customer contracts and relationships as part of the acquisition of the CorCell and CureSource assets in 2007. During 2011 the Company also foreclosed and acquired assets from NeoCells, a subsidiary of ViviCells, as satisfaction of outstanding receivables from Vivicells. Intangible assets are stated at cost. Amortization of intangible assets is computed using the sum of the years’ digits method, over an estimated useful life of 18 years. Amortization expense for the years ended December 31, 2015 and 2014 was $345,348 and $377,443 respectively.
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.
Inventory
Inventory, comprised principally of finished goods, is stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. This policy requires the Company to make estimates regarding the market value of our inventory, including an assessment of excess or obsolete inventory. The Company determines excess and obsolete inventory based on an estimate of the future demand and estimated selling prices for its products.
Loans Receivable
Loan receivable consist the loans due from Biocordcell and Banco Vida (Note 6). The loans receivable are recorded at carrying-value on the financial statements. The allowance for doubtful accounts for the loans receivable is estimated based upon management’s estimation on collectability. As of December 31, 2015 and 2014, the Company recorded $0 and $25,000 in allowance for doubtful accounts on loans receivable.
For loan receivable from Biocordcell, Since the Company agreed to finance the sale of the share in Biocordcell at no stated interest, in accordance with ASC 500, the interest method was applied using a 6% borrowing rate. The Company recorded an unamortized discount based on the 6% borrowing rate and the discount amortized throughout the life of the loan.
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 Binomial option pricing formula and present value pricing. At December 31, 2015 and 2014, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations 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 year ended December 31, 2015, the Company did not recognize any franchise revenues.
Cost of Services
Costs are incurred as umbilical cord blood, cord tissue and birth tissue are collected. For Cord and/or Bio these costs include the transportation of the umbilical cord blood, cord tissue and birthing tissue from the hospital, direct material plus labor costs for processing and cryogenic storage, collection kit materials and allocated rent, utility and general administrative expenses. The Company expenses costs in the period incurred.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the portion of tax benefits that more likely than not will not be realized. There was a valuation allowance equal to 100% of deferred tax assets as of December 31, 2014 and 2015.
The Company follows guidance issued by the FASB with regard to its accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the years ended December 31, 2015 and 2014. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state jurisdictions. For jurisdictions in which tax filings are prepared, the Company is no longer subject to income tax examinations by state tax authorities for years through 2007 and by the IRS for years through 2008.
Accounting for Stock Option Plan
The Company’s share-based employee compensation plans are described in Note 9. On January 1, 2006, the Company adopted the provisions of ASC 718 , “Accounting for Stock-based Compensation (Revised 2004)” (“123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS is similar to basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been exercised. The diluted weighted average common shares outstanding are 1,464,460,742 and 895,106,775 as of December 31, 2015 and 2014, respectively.
Concentration of Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet their contractual obligations to be similarly affected by changes in economic or other conditions described below.
Relationships and agreements which could potentially expose the Company to concentrations of credit risk consist of the use of one source for the processing and storage of all umbilical cord blood and one source for the development and maintenance of a website. The Company believes that alternative sources are available for each of these concentrations.
Financial instruments that subject the Company to credit risk could consist of cash balances maintained in excess of federal depository insurance limits. The Company maintains its cash and cash equivalent balances with high credit quality financial institutions. At times, cash and cash equivalent balances may be in excess of Federal Deposit Insurance Corporation limits. To date, the Company has not experienced any such losses.
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:
●
|
Level 1 – quoted prices in active markets for identical assets or liabilities.
|
●
|
Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
|
●
|
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.
|
The following table summarizes fair value measurements by level at December 31, 2015 for assets and liabilities measured at fair value on a recurring basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
789,046
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
789,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
--
|
|
|
|
--
|
|
|
|
(437,503
|
)
|
|
|
(437,503
|
)
|
Derivative liability was valued under the Binomial model with the following assumptions:
Risk free interest rate
|
|
0.12% to 0.63%
|
|
Expected life
|
|
0 to 1.75 years
|
|
Dividend Yield
|
|
|
0%
|
|
Volatility
|
|
0% to 103%
|
|
The following table summarizes fair value measurements by level at December 31, 2014 for assets and liabilities measured at fair value on a recurring basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
750,886
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
750,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,031,630
|
)
|
|
|
(1,031,630
|
)
|
Derivative liability was valued under the Binomial model, with the following assumptions:
Risk free interest rate
|
|
0.12% to 0.51%
|
|
Expected life
|
|
0 to 3 years
|
|
Dividend Yield
|
|
|
0%
|
|
Volatility
|
|
0% to 103%
|
|
For certain 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 May 2014, the FASB issued an accounting standard update on revenue recognition that will be applied to all contracts with customers. The update requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will be required to be applied on a retrospective basis, using one of two methodologies, and will be effective for fiscal years beginning after December 15, 2016, with early application not being permitted. The Company is currently assessing the impact that the guidance will have on the Company's financial condition and results of operations.
Note 3. Property and Equipment
At December 31, 2015 and 2014, property and equipment consists of:
|
Useful Life
(Years)
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
1-5
|
|
$
|
23,030
|
|
|
$
|
23,030
|
|
Computer equipment
|
5
|
|
|
217,364
|
|
|
|
208,116
|
|
Laboratory Equipment
|
1-5
|
|
|
100,844
|
|
|
|
73,602
|
|
Freezer equipment
|
7-15
|
|
|
370,424
|
|
|
|
362,830
|
|
Leasehold Improvements
|
5
|
|
|
102,862
|
|
|
|
100,212
|
|
|
|
|
|
814,524
|
|
|
|
767,790
|
|
Less: accumulated depreciation and amortization
|
|
|
|
(695,335
|
)
|
|
|
(640,772
|
)
|
|
|
|
$
|
119,189
|
|
|
$
|
127,018
|
|
For the years ended December 31, 2015 and 2014, depreciation expense totaled $54,562 and $97,058 respectively.
Note 4. Discontinued Operations
On September 29, 2014, the Company closed a transaction whereby it sold its ownership stake in BioCells, amounting to 50.004% of the outstanding shares of BioCells to Diego Rissola, who is the current President and Chairman of the Board of BioCells and a shareholder prior to the transaction. Under the Agreement, the Purchaser is obligated to pay the total amount of $705,000. Three payments were due by March 1, 2015, in the amounts of
$5,000, $10,000 and $15,000,
respectively. An additional payment in the amount of $15,000 was due by June 1, 2015, and then payments are due annually thereafter from June 1, 2016 through June 1, 2025. The Company received a total of 41,303 from Purchaser in 2015. Purchaser is current with payments as of December 31, 2015.
Pursuant to the Agreement, the Shares are pledged by the Purchaser in favor of the Company to secure the Purchaser’s performance under the Agreement, as are an additional 4,503 Class B shares held by the Purchaser.
In conjunction with the disposition of BioCells, the gain on the sale and results of historical operations are recorded as discontinued operations in the Company’s Consolidated Statement of Operations and reflect a gain in the amount of $769,841. Additionally, the cash flows from BioCells are reflected separately as cash flows from discontinued operations in the Company’s Consolidated Statement of Cash Flows in the amount used of $516,872.
A summary of certain assets and liabilities disposed of or discharged directly or indirectly in connection with this transaction as of September 30, 2014 was as follows:
Cash
|
|
$
|
37,432
|
|
Accounts receivable
|
|
|
142,510
|
|
Other current assets
|
|
|
104,388
|
|
Prepaid expenses
|
|
|
275,866
|
|
Total current assets
|
|
|
560,196
|
|
Property and equipment, net of accumulated depreciation
|
|
|
520,744
|
|
Customer contracts and relationships, net of amortization
|
|
|
1,019,147
|
|
Other assets
|
|
|
24,041
|
|
Goodwill
|
|
|
244,053
|
|
Total assets
|
|
$
|
2,368,181
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
213,054
|
|
Accrued expenses
|
|
|
1,082,542
|
|
Deferred revenue
|
|
|
1,192,008
|
|
Total liabilities
|
|
$
|
2,487,604
|
|
The gain on sale of BioCells reported during the period was determined as follows:
Receivable from sale of BioCells
|
|
$
|
705,000
|
|
Unamortized discount on receivable
|
|
|
(215,991
|
)
|
Receivable, net of discount
|
|
|
489,009
|
|
|
|
|
|
|
Net assets
|
|
|
(119,423
|
)
|
Non-controlling interest
|
|
|
188,018
|
|
Comprehensive loss
|
|
|
(349,018
|
)
|
Subtotal of disposal from sale of BioCells
|
|
|
(280,832
|
)
|
|
|
|
|
|
Net gain on sale of BioCells
|
|
$
|
769,841
|
|
Note 5. Notes and Loans Payable, and Derivative Liabilities
At December 31, 2015 and December 31, 2014, notes and loans payable consist of:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
|
|
|
|
|
Secured Convertible Promissory Note to Tonaquint, Inc. 7.5% per annum; due on or before September 17, 2018.
|
|
|
975,000
|
|
|
|
2,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized Discount
|
|
|
(273,185)
|
|
|
|
(1,051,085)
|
|
|
|
$
|
701,815
|
|
|
$
|
1,348,915
|
|
Tonaquint, Inc.
On December 17, 2014, in settlement of the Action, the parties entered into a Settlement and Exchange Agreement (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Secured Convertible Promissory Note and the Warrant to Purchase Shares of Common Stock issued by the Company to St. George on or around March 10, 2011, as well as the SGI Purchase Agreement, and all other documents that made up the March 2011 transaction between the Company and St. George, all of which have been set forth in detail in prior filings by the Company, were terminated, cancelled or otherwise extinguished. Further pursuant to the Settlement Agreement, the Tonaquint Note was exchanged for a Secured Convertible Promissory Note of the Company in the principal amount of $2,500,000 (the "Company Note"), and certain of the other documents that were part of the June 27, 2012 transaction between the Company and Tonaquint (the “June 2012 Tonaquint Transaction”) were terminated, cancelled or otherwise extinguished, and certain of them were amended, as set forth below.
Under the Company Note, the Company shall make monthly payments to Tonaquint, with the first payment due on or before April 17, 2015, and with payments continuing thereafter until the Company's Note is paid in full, with a maturity date that is 33 calendar months after the effective date of December 17, 2014. The Company made its first payment of $100,000 in December 2014 in accordance with the prepayment provisions of the Agreement, and prior to the above referenced first payment date. The amount of the monthly payments is $100,000 (the “Installment Amount”);
provided, however,
that if the remaining amount owing under the Company Note as of the applicable Installment Date (defined in the Company Note) is less than $100,000, then the Installment Amount for such Installment Date shall be equal to the outstanding amount. The Company may prepay any or all of the outstanding amount of the Company Note at any time, without penalty. In the event the Company prepays an amount that is less than the outstanding amount, then the prepayment amount shall be applied to the next Installment Amount(s) due under the Company Note.
For each monthly payment, the Company may elect to designate all or any portion of the Installment Amount then due as a conversion eligible amount (hereafter “Conversion Eligible Amount”); provided that the total outstanding Conversion Eligible Amount that has not been converted by Tonaquint, as set forth below, at any given time may not exceed one hundred thousand dollars ($100,000) without Tonaquint’s prior written consent and subject to additional restrictions set forth in the Company Note. In the event the Company designates any portion of any monthly payment amount as a Conversion Eligible Amount, the applicable monthly payment shall be reduced by an amount equal to the portion thereof designated as a Conversion Eligible Amount. The Conversion Eligible Amount shall continue to be included in and be deemed to be a part of the Outstanding Balance (defined in the Company Note) of the Company Note unless and until such amount is either paid in cash by the Company or converted into Common Stock by Tonaquint. The Company may pay the Conversion Eligible Amount in cash, provided that no prepayments of cash shall reduce the Conversion Eligible Amount until the Outstanding Balance is equal to or less than the Conversion Eligible Amount.
Once the Company has designated amounts as Conversion Eligible Amount, Tonaquint may convert all or any portion of that amount into shares of the Company's Common Stock. In the event of a conversion by Tonaquint of a Conversion Eligible Amount, the number of Common Stock shares delivered to Tonaquint upon conversion will be calculated by dividing the amount of the Company Note that is being converted by 70% of the average of the three (3) lowest Closing Bid Prices of the Common Stock (as defined in the Company Note) in the twenty (20) Trading Days immediately preceding the applicable Conversion.
The Company records debt discounts in connection with the issuance of convertible debt and the initial valuation of the derivative liability. The discounts are amortized to non cash interest expense over the life of the debt.
The Company Note has an interest rate of 7.5%, compounding daily, which would increase to a rate of 15.0% on the happening of certain Events of Default (defined in the Company Note) that are not considered a Payment Default (defined in the Company Note), provided that the Company may cure the default in accordance with and subject to the terms set forth in the Company Note. Where a Payment Default occurs, including where (i) Borrower shall fail to pay any principal, interest, fees, charges, or any other amount when due and payable under that Company Note; or (ii) Borrower shall fail to deliver any Conversion Shares in accordance with the terms of the Company Note, late fees shall accrue as set forth in the Company Note, and in addition, the Company shall have ninety (90) days from delivery of notice of default from Tonaquint to cure the default, as set forth in more detail in the Company Note. If the Company fails to cure the Payment Default, Tonaquint may accelerate the Company Note by written notice to the Company, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount (defined in the Company Note) equal to (i) the Outstanding Balance as of the date of acceleration (which Outstanding Balance, for the avoidance of doubt, will include all Late Fees that accrue until any applicable Payment Default is cured) multiplied by (ii) two hundred fifty percent (250%), along with other remedies, as set forth in the Company Note.
The Company Note, as well as a First Amendment to Security Agreement, which amended the Security Agreement entered as part of the June 2012 Tonaquint Transaction and Consent to Entry of Judgment by Confession, along with a First Amendment to Guaranty executed by all wholly owned subsidiaries of the Company, which amended the Amendment to Guaranty that was entered as part of June 2012 Tonaquint Transaction were each delivered along with the Settlement Agreement (collectively the "Transaction Documents"). The Transaction Documents contain representations and warranties of the Company and Tonaquint that are customary for transactions of this kind
.
As of December 31, 2014, the principal balance on the Tonaquint note was $2,400,000, and there was $7,156 of accrued interest.
As of December 31, 2015, the principal balance on the Tonaquint note was $975,000, and there was $128,607 of accrued interest.
Note 6. Investment and Notes Receivable, Related Parties
At December 31, 2015 and 2014, notes receivable consist of:
|
|
2015
|
|
|
2014
|
|
Effective August 14, 2014, Company entered into a Secured Promissory Note with Banco Vida which carries 8% interest per annum. Interest only payments for first 12 months; thereafter principal and interest on standard amortization schedule due on or before February 1, 2017.
|
|
$
|
63,141
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
On September 29, 2014, the Company closed a transaction selling its stake in BioCells to Diego Rissola; current President. Payments are to be annually, after June of 2015, and the last payment due on or before June 1, 2025.
|
|
|
660,000
|
|
|
|
700,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount on BioCells note receivable
|
|
|
(195,336
|
)
|
|
|
(215,991)
|
|
Allowance of doubtful accounts on BioCells note receivable
|
|
|
--
|
|
|
|
(25,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
527,805
|
|
|
$
|
534,009
|
|
Under the Agreement with Purchaser of BioCells, BioCells is to make payments as follows: $5,000 on or before October 12, 2014 (amount paid in 2014); $10,000 on or before December 1, 2014 (amount paid in 2015); $15,000 on or before March 1, 2015 (amount paid in 2015); $15,000 on or before June 1, 2015 (amount paid in 2015); $45,000 on or before June 1, 2016; $55,000 on or before June 1, 2017; $55,000 on or before June 1, 2018; $55,000 on or before June 1, 2019; $65,000 on or before June 1, 2020; $75,000 on or before June 1, 2021; $75,000 on or before June 1, 2022; $75,000 on or before June 1, 2023; $80,000 on or before June 1, 2024; $80,000 on or before June 1, 2025. As of December 31, 2015, the Purchaser is current on all payments.
This loan receivable is secured, non-interest bearing, and subject to a 6% discount rate. As of December 31, 2014, the receivable has a balance of $489,009, net of unamortized discount of $215,991 and allowance of doubtful accounts of $25,000. As of December 31, 2015, the receivable has a balance of $464,664, net of unamortized discount of $195,336 and allowance of doubtful accounts of $0. The Purchaser is current with payments as of December 31, 2015. The Company incurred interest income from the amortized discount of $20,655 and $0 during the years ended December 31, 2015 and 2014, respectively.
Note 7. Commitments and Contingencies
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 owned 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, including Anti-Dilution shares. The Company is entitled to an additional ownership stake of approximately 2.24% in connection with the forgoing, bringing its total ownership percentage to approximately 9.24%
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 December 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.
As of September 30, 2015, the Company made a one-time adjustment of the previously held amount of approximately $226,000 in accounts payable and $120,000 in accrued expenses, to its income statement as a gain on a settlement payable of $346,269.
Contingencies
Employment Agreement
On March 31, 2015, the Company entered into an Executive Employment Agreement with Stephen Morgan, the Company’s Vice President, General Counsel and Corporate Secretary, which is effective as of April 1, 2015 and shall terminate as of March 31, 2017, unless earlier terminated by the Company or Mr. Morgan in accordance with the agreement (the “Morgan Employment Agreement”).
The Morgan Employment Agreement provides for a base salary
equal to $130,000, as well as an annual bonus, payable at the discretion of the Board of Directors, equal to 25% of Mr. Morgan’s base salary for that calendar year, provided that Mr. Morgan has the option to receive any portion of his salary and bonus in stock of the Company, in lieu of cash, at a value determined by the Board of Directors in their reasonable discretion and otherwise in accordance with the Employment Agreement.
Amended Employment Agreements
Effective April 9, 2015, the Company entered into an Amendment to Executive Employment Agreement with Stephen Morgan amending his employment agreement, such that Mr. Morgan no longer has the option, in his sole discretion, to receive his salary and bonus amounts in the form of Company stock, rather than cash.
Mr. Morgan and the Company entered into a Second Amendment to Employment Agreement effective February 12, 2016, as set forth in Note 14. Subsequent Events.
Employment Agreements
On December 18, 2014, the Company entered into an Executive Employment Agreement with Joseph R. Vicente, the Company’s President and Chairman of the Board, which is effective as of January 1, 2015 and shall terminate as of December 31, 2017, unless earlier terminated by the Company or Mr. Vicente in accordance with the agreement (the “Vicente Employment Agreement”).
The Vicente Employment Agreement provides for a base salary
equal to $135,000, as well as an annual bonus, payable at the discretion of the Board of Directors, equal to 30% of Mr. Vicente’s base salary for that calendar year, provided that Mr. Vicente has the option to receive any portion of his salary and bonus in stock of the Company, in lieu of cash, at a value determined by the Board of Directors in their reasonable discretion and otherwise in accordance with the Vicente Employment Agreement.
The Vicente Employment Agreement provides for change of control termination payments, whereby if Mr. Vicente is terminated, his compensation reduced, or the employer terminates his employment within one year after a change of control, then Mr. Vicente is entitled to a termination benefit in an amount no less than the total of the highest annual salary and bonus amount set forth in the Vicente Employment Agreement multiplied by two (2). The Employment Agreement also provides for termination payments in the absence of a change of control in the event the Company terminates Mr. Vicente without cause, which said payments shall be in an amount equal to all compensation paid by the Company to Mr. Vicente for the 24 months preceding the termination, including salary, bonus, equity, stock options and other compensation, to be paid in equal, monthly installments over the 24-month period following termination. The Vicente Employment Agreement includes two-year restrictions on competition and solicitation of customers following termination of the agreement.
Effective April 9, 2015, the Company entered into an Amendment to Executive Employment Agreement with Mr. Vicente amending his employment agreement, such that Mr. Vicente no longer had the option, in his sole discretion, to receive his salary and bonus amounts in the form of Company stock, rather than cash.
Mr. Vicente and the Company entered into a Mutual Separation Agreement effective February 12, 2016, as set forth in Note 14. Subsequent Events.
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.
Commitments for future minimum rental payments, by year, and in the aggregate, to be paid under such operating lease as of December 31, 2015, are as follows:
|
|
Rent
|
|
|
|
to be paid
|
|
2016
|
|
|
184,243
|
|
2017
|
|
|
188,600
|
|
2018
|
|
|
193,088
|
|
2019
|
|
|
147,397
|
|
Total
|
|
$
|
713,328
|
|
Convertible Promissory Note to Tonaquint
Commitments for future minimum principal payments, by year, and in the aggregate, to be paid under such convertible note as of December 31, 2015, are as follows:
|
|
Principal
|
|
|
|
to be paid
|
|
2016
|
|
|
500,000
|
|
2017
|
|
|
475,000
|
|
Total
|
|
$
|
975,000
|
|
Note 8. Related Party Transactions and Commitments
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 approximately 9.24% 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.
Note 9. Stock Option Plan
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 years ended December 31, 2015 and 2014.
The Company’s stock option activity was as follows
|
|
Stock
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Avg. Contractual
Remaining Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
|
5,570,830
|
|
|
|
1.01
|
|
|
|
4.51
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
464,055
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2014
|
|
|
5,106,775
|
|
|
|
1.01
|
|
|
|
4.41
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
497,411
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2015
|
|
|
4,609,364
|
|
|
|
0.67
|
|
|
|
3.87
|
|
Exercisable at December 31, 2015
|
|
|
4,609,364
|
|
|
|
0.67
|
|
|
|
3.87
|
|
The following table summarizes significant ranges of outstanding stock options under the stock option plan at December 31, 2014:
Range 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
|
|
|
|
4,609,364
|
|
|
|
3.87
|
|
|
$
|
0.67
|
|
|
|
4,609,364
|
|
|
$
|
0.67
|
|
$
|
21.00 — 30.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
31.00— 51.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
4,609,364
|
|
|
|
3.87
|
|
|
$
|
0.67
|
|
|
|
4,609,364
|
|
|
$
|
0.67
|
|
Note 10. Warrant Agreements
As part of the Settlement and Exchange Agreement entered into on December 17, 2014 between the Company and St. George, the Warrant to Purchase Shares of Common Stock issued by the Company to St. George on or around March 10, 2011, was terminated, cancelled or otherwise extinguished.
The Company has not issued any warrants since January 1, 2012. There are no warrants outstanding and exercisable at December 31, 2015 and 2014.
Note 11. Income Tax
As of December 31, 2015, the Company had net operating gain of $685,970. Future tax benefits for Cord Blood America which may arise as a result of these gains have not been recognized in these consolidated financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards.
|
|
Tax Loss (Gain)
|
|
|
Deferred Assets
|
|
Net income (loss)
|
|
|
437,935
|
|
|
|
153,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOL at December 31, 2014
|
|
|
(42,827,184)
|
|
|
|
(14,989,514)
|
|
Bad debt expense
|
|
|
59,311
|
|
|
|
20,759
|
|
Accounts payable
|
|
|
152,804
|
|
|
|
53,481
|
|
Accrued expenses
|
|
|
240,940
|
|
|
|
71,729
|
|
Deferred revenue
|
|
|
1,601,432
|
|
|
|
560,501
|
|
Accounts receivable
|
|
|
(349,859)
|
|
|
|
(122,451)
|
|
Prepaid expense
|
|
|
(151,874)
|
|
|
|
(53,156)
|
|
Stock-based compensation
|
|
|
(3,649)
|
|
|
|
(1,277)
|
|
Meal & ent (50% of $17,746)
|
|
|
8,873
|
|
|
|
3,106
|
|
|
|
|
|
|
|
|
|
|
Tax loss (gain) as of December 31, 2015
|
|
|
(40,867,271)
|
|
|
|
(14,303,545)
|
|
Note 12. Stockholders’ Equity
Preferred Stock
The Company has 5,000,000 shares of $.0001 par value preferred stock authorized. The Company issued
724,000 shares of Series A Convertible Preferred Stock
in connection with the Red Oak investment of cash proceeds of $724,000 in accordance with the Agreement set forth in detail in Item 1.
On May 7, 2015, per the terms of the Red Oak Agreement, the 724,000 shares of Preferred Stock held by Red Oak automatically converted into 381,052,632 common shares of the Company equivalent to 29.98% ownership in the Company.
Common Stock
On May 7, 2015, the Company’s shareholders approved an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the authorized common stock to 2,890,000,000 shares, par value $0.0001, up from 890,000,000. This amendment was adopted by the Company’s Board of Directors on January 21, 2015.
During the year ended December 31, 2014, the Company did not issue any shares of common stock and had 890,000,000 shares of Common Stock outstanding. 20,000 shares remain in the Company's treasury.
During the year ended December 31, 2015, the Company issued
381,052,632 shares of common stock to Red Oak as described above under the heading Preferred Stock.
During the year ended December 31, 2015, the Company
issued 1,013,514 shares of common stock to employees as employee compensation fair value at $3,746.
As of December 31, 2015, the Company had 1,272,066,146 shares outstanding. 20,000 shares remain in the Company’s treasury.
Note 13. Legal Proceedings
On August 30, 2013, Cord Blood America, Inc. (the “Company”) filed a Complaint in the United States District Court for the District of Utah, Central Division against Tonaquint, Inc. (“Tonaquint”) and St. George Investments, LLC (“St. George”) (collectively “Defendants”), case number 2:13-cv-00806-PMW (the “Action”), and on May 7, 2014, the Company filed an amended complaint. Among other things, the Company alleged Defendants fraudulently induced the Company to enter into the June 27, 2012 Secured Convertible Promissory Note (“Tonaquint Note”), Securities Purchase Agreement (“Tonaquint Purchase Agreement”) and related documentation through misrepresentations. The Company sought relief in the form of rescission or reformation of the Tonaquint Note, as well as a St. George Note and a Warrant issued to St. George as part of the previously disclosed March 10, 2011 transaction, as well as related agreements and documents, an order enjoining Defendants from foreclosing on the Notes or selling the Company’s assets, punitive and other damages in an unspecified amount, costs, attorneys’ fees, interest and such other relief as the Court deemed just and proper.
On September 25, 2013, Defendants each filed their Answer and Counterclaim in the Action, which they amended on March 22, 2014. Among other claims, Defendants claimed the Company purportedly breached the March 10, 2011 Note and Warrant Purchase Agreement between St. George and the Company (“SGI Purchase Agreement”), Tonaquint Purchase Agreement, and Tonaquint Note, by, among other things, failing to maintain a share reserve, failing to increase the number of authorized shares, failing to call or hold a meeting to increase the authorized shares of Common Stock of the Company, and failing to make installment payments under the Tonaquint Convertible Note. Defendants sought relief in the form of damages in an unspecified amount and an order from the Court requiring the Company to establish and maintain a share reserve for the benefit of the Defendants, along with costs, attorneys’ fees and such other relief as the Court deemed just and proper.
On December 17, 2014, in settlement of the Action, the parties entered into a Settlement and Exchange Agreement (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Secured Convertible Promissory Note and the Warrant to Purchase Shares of Common Stock issued by the Company to St. George on or around March 10, 2011, as well as the SGI Purchase Agreement, and all other documents that made up the March 2011 transaction between the Company and St. George, all of which have been set forth in detail in prior filings by the Company, were terminated, cancelled or otherwise extinguished. Further pursuant to the Settlement Agreement, the Tonaquint Note was exchanged for a Secured Convertible Promissory Note of the Company in the principal amount of $2,500,000 (the "Company Note"), and certain of the other documents that were part of the June 27, 2012 transaction between the Company and Tonaquint (the “June 2012 Tonaquint Transaction”) were terminated, cancelled or otherwise extinguished, and certain of them were amended, as set forth below.
Under the Company Note, the Company shall make monthly payments to Tonaquint, with the first payment due on or before April 17, 2015, and with payments continuing thereafter until the Company's Note is paid in full, with a maturity date that is 33 calendar months after the effective date of December 17, 2014. The amount of the monthly payments is $100,000 (the “Installment Amount”);
provided, however,
that if the remaining amount owing under the Company Note as of the applicable Installment Date (defined in the Company Note) is less than $100,000, then the Installment Amount for such Installment Date shall be equal to the outstanding amount. The Company may prepay any or all of the outstanding amount of the Company Note at any time, without penalty. In the event the Company prepays an amount that is less than the outstanding amount, then the prepayment amount shall be applied to the next Installment Amount(s) due under the Company Note.
For each monthly payment, the Company may elect to designate all or any portion of the Installment Amount then due as a conversion eligible amount (hereafter “Conversion Eligible Amount”); provided that the total outstanding Conversion Eligible Amount that has not been converted by Tonaquint, as set forth below, at any given time may not exceed one hundred thousand dollars ($100,000) without Tonaquint’s prior written consent and subject to additional restrictions set forth in the Company Note. In the event the Company designates any portion of any monthly payment amount as a Conversion Eligible Amount, the applicable monthly payment shall be reduced by an amount equal to the portion thereof designated as a Conversion Eligible Amount. The Conversion Eligible Amount shall continue to be included in and be deemed to be a part of the Outstanding Balance (defined in the Company Note) of the Company Note unless and until such amount is either paid in cash by the Company or converted into Common Stock by Tonaquint. The Company may pay the Conversion Eligible Amount in cash, provided that no prepayments of cash shall reduce the Conversion Eligible Amount until the Outstanding Balance is equal to or less than the Conversion Eligible Amount.
Once the Company has designated amounts as Conversion Eligible Amount, Tonaquint may convert all or any portion of that amount into shares of the Company's Common Stock. In the event of a conversion by Tonaquint of a Conversion Eligible Amount, the number of Common Stock shares delivered to Tonaquint upon conversion will be calculated by dividing the amount of the Company Note that is being converted by 70% of the average of the three (3) lowest Closing Bid Prices of the Common Stock (as defined in the Company Note) in the twenty (20) Trading Days immediately preceding the applicable Conversion.
The Company Note has an interest rate of 7.5%, compounding daily, which would increase to a rate of 15.0% on the happening of certain Events of Default (defined in the Company Note) that are not considered a Payment Default (defined in the Company Note), provided that the Company may cure the default in accordance with and subject to the terms set forth in the Company Note. Where a Payment Default occurs, including where (i) Borrower shall fail to pay any principal, interest, fees, charges, or any other amount when due and payable under that Company Note; or (ii) Borrower shall fail to deliver any Conversion Shares in accordance with the terms of the Company Note, late fees shall accrue as set forth in the Company Note, and in addition, the Company shall have ninety (90) days from delivery of notice of default from Tonaquint to cure the default, as set forth in more detail in the Company Note. If the Company fails to cure the Payment Default, Tonaquint may accelerate the Company Note by written notice to the Company, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount (defined in the Company Note) equal to (i) the Outstanding Balance as of the date of acceleration (which Outstanding Balance, for the avoidance of doubt, will include all Late Fees that accrue until any applicable Payment Default is cured) multiplied by (ii) two hundred fifty percent (250%), along with other remedies, as set forth in the Company Note.
The Company Note, as well as a First Amendment to Security Agreement, which amended the Security Agreement entered as part of the June 2012 Tonaquint Transaction and Consent to Entry of Judgment by Confession, along with a First Amendment to Guaranty executed by all wholly owned subsidiaries of the Company, which amended the Amendment to Guaranty that was entered as part of June 2012 Tonaquint Transaction were each delivered along with the Settlement Agreement (collectively the "Transaction Documents"). The Transaction Documents contain representations and warranties of the Company and Tonaquint that are customary for transactions of this kind.
On December 22, 2014, the parties filed a Stipulated Motion to Dismiss with Prejudice the Action
, and on that same day, the Court entered an Order of Dismissal, dismissing the Action in its entirety.
Note 14. Subsequent Events
Banco Vida Loan
As of March 15, 2016,
Cord Blood Caribbean, Inc. d/b/a Banco Vida
paid the entirety of the remaining amount owed to the Company pursuant to the Secured Promissory Note that was entered into and effective as of August 1, 2014 such that there is no remaining balance on that loan.
Change in Officers and Directors
Joseph Vicente and the Company reached a mutual separation pursuant to which Mr. Vicente stepped down as President of the Company and as a member of the Board, effective February 12, 2016. Stephen Morgan, Vice President and General Counsel, has been named interim President of the Company, in addition to his titles as Corporate Secretary and General Counsel, effective that same date.
Amendment to Employment Agreement
Effective February 12, 2016, the Company entered into a Second Amendment to Executive Employment Agreement with Mr. Morgan (the “Second Amendment”), amending his original, April 1, 2015 employment agreement. The Second Amendment reflects a five thousand dollar ($5,000) increase in Mr. Morgan’s annual salary during the period Mr. Morgan serves as interim President, which period commenced on February 12, 2016 and shall end at any time on three (3) days’ notice by the Company (the “Interim Term”). The Amendment further provides that the increase in Mr. Morgan’s salary shall not be included in any severance calculations, including the severance calculations set forth in Sections 5(e) and 5(f) of his original agreement, and that upon termination of the Interim Term for any reason, Mr. Morgan’s employment, duties and salary shall revert back to what they were prior to the Second Amendment.
Separation Agreement
Effective February 12, 2016 (the “Separation Date”), the Company entered a Mutual Separation Agreement with Mr. Vicente (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Vicente stepped down from his positions as President and as a member of the Board. Under the Separation Agreement, Mr. Vicente is entitled to receive a severance, payable in equal monthly installments over the twenty four month period post separation, in an amount equal to all compensation paid by the Company to Mr. Vicente for the 24 months preceding the termination, including salary and bonus received by Mr. Vicente. Additionally, the Company will pay for the value of his health insurance premiums, in monthly installments, until the earlier of twenty-four months after the Separation Date or until Mr. Vicente or his dependents become eligible for group health insurance coverage through a new employer. Mr. Vicente is also entitled to payment of his salary through the Separation Date, payment for unused vacation days and payment for any unreimbursed expenses, and a bonus payment for work performed in calendar year 2015, payable within sixty (60) days of the Company completing its fiscal 2015 audit.
Mr. Vicente remains subject to the restrictive covenants contained in his January 1, 2015 employment agreement, including a covenant not to compete and a non-solicitation provision, and is subject to additional restrictive covenants in the Separation Agreement.