NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(UNAUDITED)
Note 1. Organization and Description of Business
Overview
CBA Florida, Inc. ("CBAI" or the “Company”), formerly
known as Cord Blood America, Inc., was incorporated in the State of
Florida on October 12, 1999. CBAI's wholly-owned subsidiaries
include
CBA Partners, Inc.
which was formerly Cord Partners, Inc., CBA Companies Inc. which
was formerly CorCell Companies, Inc., and CBA Sub Ltd. which was
formerly CorCell, Ltd., (CBA Partners, Inc., CBA Companies Inc. and
CBA Sub Ltd. are sometimes referred to herein collectively as
“Cord”), CBA Properties, Inc. ("Properties"), and
Career Channel, Inc. formerly D/B/A Rainmakers
International. As further described below, on May 17,
2018, CBAI completed a sale of essentially all of the assets of the
Company and its wholly-owned subsidiaries. Prior to the sale of
essentially all of the assets and related liabilities, CBAI and its
subsidiaries had engaged in the following business
activities:
|
●
|
CBAI and Cord specialized in providing private cord blood and cord
tissue stem cell services. Additionally, the Company was in the
business of 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.
|
Company Developments – Sale of Assets
On February 7, 2018, the Company announced that it entered into an
Asset Purchase Agreement, dated as of February 6, 2018 (the
“Purchase Agreement”), with California Cryobank Stem
Cell Services LLC (“FamilyCord”). The sale of
essentially all the Company assets occurred on May 17,
2018.
Pursuant to the terms of the Purchase Agreement, FamilyCord
acquired from CBAI substantially all of the assets of CBAI and its
wholly-owned subsidiaries and assumed certain liabilities of CBAI
and its wholly-owned subsidiaries. The sale did not include
CBAI’s cash and certain other excluded assets and
liabilities. FamilyCord agreed to pay a purchase price of
$15,500,000 in cash at closing with $3,000,000 of the purchase
price deposited into escrow to secure CBAI’s indemnification
obligations under the Purchase Agreement.
The Purchase Agreement contained customary representations,
warranties and covenants for a transaction of this type and nature.
Pursuant to the terms of the Purchase Agreement, CBAI indemnified
FamilyCord for breaches of its representations and warranties,
breaches of covenants, losses related to excluded assets or
excluded liabilities and certain other matters. The representations
and warranties set forth in the Purchase Agreement generally
survive for two years following the closing.
In connection with the sale, the parties also entered into a
transition services agreement designed to ensure a smooth
transition of CBAI’s business from CBAI to
FamilyCord.
CBAI presently anticipates it will distribute a portion of the sale
proceeds to its shareholders beginning in 2019. However, no
distribution has been declared by the Board of Directors. The
initial distribution amount will be determined by CBAI’s
board of directors and will be subject to such factors as taxes
payable, operating expenses, indemnification obligations under the
Purchase Agreement and other contingencies and estimates.
Additional monies may be distributed over time based on cash
available and the release of known and unknown liabilities. Given
cash needed for the aforementioned expenses and contingencies,
total proceeds paid out to shareholders are expected to be
significantly less than the gross purchase price.
A copy of the Purchase Agreement was attached as Exhibit 2.1 to the
Form 8-K filed February 8, 2018.
Unaudited Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 8 of Regulation
S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted
accounting principles for complete annual financial
statements. These statements reflect all adjustments,
consisting of normal recurring adjustments, which, in the opinion
of management, are necessary for fair presentation of the
information contained therein. Operating results for the
three and six months ended June 30, 2018 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2018 or for any other future period. The
condensed consolidated balance sheet at December 31, 2017 has been
derived from the audited consolidated financial statements at that
date but does not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. It is suggested that these interim
condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements of the Company
for the period ended December 31, 2017 and notes thereto included
in the Company's annual report on Form 10-K. The Company
follows the same accounting policies in the preparation of interim
reports as noted in the Company's annual report on Form
10-K.
Note 2. Summary of Significant Accounting
Policies
Basis of Consolidation
The
consolidated financial statements include the accounts of CBAI and
its wholly-owned subsidiaries. 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. The Company wrote off $16,197
and $56,120 in bad debt expense during the nine months ended
September 30, 2018 and 2017, respectively.
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.
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 (related to cord blood and cord tissue stem cell storage
business)
Inventory,
comprised principally of finished goods, is stated at the lower of
cost or net realized value, using the first-in, first-out
(“FIFO”) method. This policy requires the Company to
make estimates regarding the market value of its 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.
Note Receivable
Notes
receivable consists of the notes due from Biocordcell Argentina
S.A. (BioCells) (Note 4). The note receivable is recorded at the
carrying-value on the financial statements.
For
note receivable from BioCells, since the Company agreed to finance
the sale of the shares 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 is amortized throughout
the life of the note.
Deferred Revenue (related to cord blood and cord tissue stem cell
storage business)
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 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 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 June 30, 2018 and December 31, 2017, the Company
adjusted its derivative liability to its fair value, and reflected
the change in fair value, in its condensed consolidated statements
of income (loss).
Revenue Recognition (related to the divested cord blood and cord
tissue stem cell storage business)
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers (Topic 606). Under the provisions of ASU 2014-09,
entities should recognize revenue in an amount that reflects the
consideration to which they expect to be entitled to in exchange
for goods and services provided. ASU 2014-09 is effective for
annual reporting periods beginning after December 15, 2017. The
Company adopted the provisions of this standard effective January
1, 2018.
CBAI recognizes revenue under the provisions of
Topic 606. See Note 10 for the Company’s disclosures on
Revenue Recognition.
Cost of Services (related to the divested cord blood and cord
tissue stem cell storage business)
Costs
are incurred as umbilical cord blood, cord tissue and birth
tissue are collected. These costs include the transportation
of the umbilical cord blood, cord tissue and birthing tissue from
the hospital, direct material and labor, costs for processing and
cryogenic storage of new samples by a third party laboratory,
collection kit materials and allocated rent, utility and general
administrative expenses. The Company expenses costs in the period
incurred.
Accounting for Stock Option Plan
Stock-based compensation is accounted for based on the requirements
of the Share-Based Payment Topic of ASC 718 which requires
recognition in the consolidated financial statements of the cost of
employee and director services received in exchange for an award of
equity instruments over the period the employee or director is
required to perform the services in exchange for the award
(presumptively, the vesting period). The ASC also requires
measurement of the cost of employee and director services received
in exchange for an award based on the grant-date fair value of the
award.
Pursuant to ASC Topic 505-50, for share-based payments to
consultants and other third-parties, compensation expense is
determined at the “measurement date.” The expense is
recognized over the vesting period of the award. Until the
measurement date is reached, the total amount of compensation
expense remains uncertain. The Company initially records
compensation expense based on the fair value of the award at the
reporting date.
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.
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 condensed
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, 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.
|
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 Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers (Topic 606),” (“ASU 2014-09”). ASU
2014-09 supersedes the revenue recognition requirements in ASC 605
- Revenue Recognition (“ASC 605”) and most
industry-specific guidance throughout ASC 605. The FASB has issued
numerous updates that provide clarification on a number of specific
issues as well as requiring additional disclosures. The core
principle of ASC 606 requires that an entity recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or
services.
The Company adopted ASC 606 effective January 1, 2018 using the
full retrospective approach. The adoption of ASU 2014-09 did not
have any material impact on the Company’s consolidated
financial position, results of operations, equity or cash
flows.
In August 2016, the FASB issued ASU
No. 2016-15,
Statement of Cash Flows (Topic
230):
Classification of Certain Cash
Receipts and Cash Payments
, in
an effort to reduce the diversity of how certain cash receipts and
cash payments are presented and classified in the statement of cash
flows. The amendments of this ASU are effective for fiscal years
beginning after December 15, 2017, and interim periods within
those fiscal years. Early adoption is permitted. There was no
impact as a result of adopting this ASU will have on the financial
statements and related disclosures.
In
January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business.
This new standard clarifies the definition of a business and
provides a screen to determine when an integrated set of assets and
activities is not a business. The screen requires that when
substantially all of the fair value of the gross assets acquired
(or disposed of) is concentrated in a single identifiable asset or
a group of similar identifiable assets, the set is not a business.
This new standard was effective for the Company on January 1,
2018,
there was no impact as a result
of adopting this ASU on the financial statements and related
disclosures.
In May
2017, the FASB issued ASU No. 2017-09, Compensation – Stock
Compensation (Topic 718): Scope of Modification Accounting. This
new standard provides guidance about which changes to the terms or
conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This amendment was
effective for the Company on December 15, 2017.
There was no impact as a result of adopting this
ASU on the financial statements and related
disclosures.
On December 22, 2017 the SEC staff issued Staff Accounting
Bulletin 118 (SAB 118), which provides guidance on
accounting for the tax effects of the Tax Cuts and Jobs Act (the
TCJA). SAB 118 provides a measurement period that should
not extend beyond one year from the enactment date for companies to
complete the accounting under ASC 740. In accordance with SAB
118, a company must reflect the income tax effects of those aspects
of the TCJA for which the accounting under ASC 740 is
complete. To the extent that a company’s accounting for
certain income tax effects of the TCJA is incomplete but for
which they are able to determine a reasonable estimate, it must
record a provisional amount in the financial
statements. Provisional treatment is proper in light of
anticipated additional guidance from various taxing authorities,
the SEC, the FASB, and even the Joint Committee on
Taxation. If a company cannot determine a provisional amount
to be included in the financial statements, it should continue to
apply ASC 740 on the basis of the provisions of the tax laws that
were in effect immediately before the enactment of the TCJA.
The Company has applied this guidance to its financial
statement.
In February 2016, the FASB issued ASU No.
2016-02,
Leases
(Topic 842),
under the new guidance,
lessor accounting is largely unchanged. Certain targeted
improvements were made to align, where necessary, lessor accounting
with the lessee accounting model and Topic 606, Revenue from
Contracts with Customers.
The amendments of this ASU are effective for
fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption is permitted. The
Company is currently assessing the potential impact this ASU will
have on the consolidated financial statements and related
disclosures.
Note 3. Discontinued Operations
-
Cord Blood and Cord Tissue Stem Cell
Storage Operations
On February 7, 2018, the Company announced that it entered into an
Asset Purchase Agreement, dated as of February 6, 2018 (the
“Purchase Agreement”), with California Cryobank Stem
Cell Services LLC (“FamilyCord”). The sale of assets
occurred on May 17, 2018.
DISCONTINUED OPERATIONS
On May 17, 2018, the Company divested its Cord Blood and Cord
Tissue Stem Cell Storage Operations (CBCTS) to California Cryobank
Stem Cell Services LLC (“FamilyCord”) for $15.5 million
cash plus the assumption of net liabilities of $473,538. The sale
resulted in the recognition of an after-tax income of $13.9
million, which is reflected on net income from discontinued
operations in the Condensed Consolidated Statements of
Operations.
The Company has classified the CBCTS assets and liabilities as
held-for-sale as of December 31, 2017 in the accompanying Condensed
Consolidated Balance Sheets and has classified the CBCTS operating
results, net of tax, as discontinued operations in the accompanying
Condensed Consolidated Statement of operations for all periods
presented. Previously, CBCTS represented the sole operations of the
Company.
Background
Pursuant to the terms of the Purchase Agreement dated as of
February 6, 2018, FamilyCord agreed to acquire from CBAI
substantially all of the assets of CBAI and its wholly-owned
subsidiaries and to assume certain liabilities of CBAI and its
wholly-owned subsidiaries. FamilyCord agreed to pay a purchase
price of $15,500,000 in cash at closing with $3,000,000 of the
purchase price deposited into escrow to secure CBAI’s
indemnification obligations under the Purchase Agreement. The sale,
which was completed on May 17, 2018, did not include CBAI’s
cash, accounts receivables, and certain other excluded assets and
liabilities.
The assets sold and liabilities transferred in the transaction were
the sole revenue generating assets of the Company. The results of
operations associated with the assets sold have been reclassified
into discontinued operations for periods prior to the completion of
the transaction.
The
following is a summary of assets and liabilities sold, and gain
recognized, in connection with the sale of assets to
FamilyCord:
|
Other current
assets
|
$
45,391
|
|
Total current
assets
|
45,391
|
|
Customer contracts
and relationships, net of amortization
|
953,490
|
|
Property, plant
& equipment, less accumulated depreciation
|
23,685
|
|
Total
assets
|
$
1,022,566
|
|
|
|
|
Deferred
revenue
|
$
1,496,104
|
|
Total
liabilities
|
$
1,496,104
|
|
|
|
|
The gain on sale of
assets was reported during the period was determined as
follows:
|
|
|
Total assets
sold
|
$
1,022,566
|
|
Total liability
sold
|
1,496,104
|
|
Net liability
sold
|
473,538
|
|
|
|
|
Cash
received
|
12,500,000
|
|
Cash in
escrow
|
3,000,000
|
|
Total
consideration
|
15,500,000
|
|
|
|
|
Net gain from sales
of assets
|
$
15,973,538
|
Additionally, the operating results and cash flows related to
assets sold on May 17, 2018 are included in discontinued operations
in the consolidated statements of operations and consolidated
statements of cash flows for the nine months ended September 30,
2018 and September 30, 2017.
The following is summary of aggregate carrying amounts of the major
classes of assets and liabilities classified as held-for-sale as of
September 30, 2018 and December 31, 2017:
|
|
|
|
|
ASSETS
|
|
|
|
Inventory
|
$
--
|
$
45,762
|
|
Property and
equipment, net of accumulated depreciation
|
--
|
35,152
|
|
Customer contracts
and relationships, net of accumulated amortization
|
--
|
1,049,118
|
|
Total
assets
|
$
--
|
$
1,130,032
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Deferred
revenue
|
$
--
|
$
1,381,215
|
|
Total
liabilities
|
$
--
|
$
1,381,215
|
Income From Discontinued Operations
The sale of the majority of the assets and liabilities related to
the cord blood and cord tissue stem cell operation represents a
strategic shift in the Company’s business. For this reason,
the results of operations related to the assets and liabilities
held for sale for all periods are classified as discontinued
operations.
The
following is a summary of the results of operations related to the
assets held for sale for the nine months ended September 30, 2018
and 2017:
|
|
|
|
|
|
|
|
|
Revenue
|
$
1,108,381
|
$
2,240,069
|
|
Cost of
services
|
(418,107
)
|
(509,166
)
|
|
Gross
profit
|
690,274
|
1,730,903
|
|
Depreciation and
amortization
|
(99,231
)
|
(227,453
)
|
|
Income from
Discontinued Operations
|
591,043
|
1,503,450
|
|
FamilyCord
reimbursement
|
435,922
|
--
|
|
Gain on sale of
assets
|
15,973,537
|
--
|
|
Income from
discontinued operations before taxes
|
17,000,502
|
1,503,450
|
|
Income
taxes
|
(2,095,300
)
|
--
|
|
Net income from
discontinued operations
|
14,905,202
|
1,503,450
|
The
following is a summary of net cash provided by operating activities
and investing activities for the assets held for sale for the nine
months ended September 30, 2018 and September 30,
2017:
|
|
|
|
|
|
|
|
|
Cash provided by
discontinued operations
|
$
1,087,004
|
$
1,482,731
|
|
Cash provided by
investing activities of discontinued operations
|
$
12,500,000
|
$
--
|
The
following is a summary of the results of operations related to the
assets held for sale for the three months ended September 30, 2018
and 2017:
|
|
|
|
|
|
|
|
|
Revenue
|
$
--
|
$
747,735
|
|
Cost of
services
|
(109,131
)
|
(162,236
)
|
|
Gross
profit
|
(109,131
)
|
585,499
|
|
Depreciation and
amortization
|
--
|
(72,403
)
|
|
Income from
Discontinued Operations
|
(109,131
)
|
513,096
|
|
FamilyCord
reimbursement
|
271,445
|
--
|
|
Gain on sale of
assets
|
--
|
--
|
|
Income from
discontinued operations before taxes
|
162,314
|
513,096
|
|
Income
taxes
|
(300
)
|
--
|
|
Net income from
discontinued operations
|
162,014
|
513,096
|
The
following is a summary of net cash provided by operating activities
and investing activities for the assets held for sale for the three
months ended September 30, 2018 and September 30,
2017:
|
|
|
|
|
|
|
|
|
Cash provided by
discontinued operations
|
$
--
|
$
324,436
|
|
Cash provided by
investing activities of discontinued operations
|
$
--
|
$
--
|
Note 4. Property and Equipment
At
September 30, 2018 and December 31, 2017, property and equipment
consist of:
|
|
|
|
|
|
Furniture and
fixtures
|
1-5
|
$
17,597
|
$
17,597
|
|
Computer
equipment
|
5
|
124,466
|
124,466
|
|
Laboratory
Equipment
|
1-5
|
5,837
|
5,837
|
|
Freezer
equipment
|
7-15
|
34,699
|
34,699
|
|
Leasehold
Improvements
|
5
|
102,862
|
102,862
|
|
|
|
285,461
|
285,461
|
|
Less: accumulated
depreciation and amortization
|
|
(280,395
)
|
(276,369
)
|
|
|
|
$
5,066
|
$
9,092
|
|
Assets
held for sale:
|
|
|
|
|
Furniture
and fixtures
|
1-5
|
$
--
|
$
5,432
|
|
Computer
equipment
|
5
|
--
|
93,339
|
|
Laboratory
Equipment
|
1-5
|
--
|
92,351
|
|
Freezer
equipment
|
7-15
|
--
|
329,526
|
|
|
|
--
|
520,648
|
|
Less: accumulated
depreciation and amortization
|
|
--
|
(485,496
)
|
|
|
|
$
--
|
$
35,152
|
For the
nine months ended September 30, 2018 and 2017, depreciation expense
totaled $4,026 and $4,026 respectively for continuing operations
and $5,862 and $13,497, respectively for discontinued
operations.
For the
three months ended September 30, 2018 and 2017, depreciation
expense totaled $1,342 and $1,342 respectively for continuing
operations and $0 and $4,006, respectively for discontinued
operations.
Note 5. Investment and Notes Receivable, Related
Parties
At
September 30, 2018 and December 31, 2017, notes receivable consist
of:
|
|
|
|
|
|
|
|
|
On September 29,
2014, the Company closed a transaction selling its stake in
BioCells to Diego Rissola; current President. Payments
are to be made annually, after June of 2015, and the last payment
due on or before June 1, 2025.
|
$
505,000
|
$
560,000
|
|
|
|
|
|
Unamortized
discount on BioCells note receivable
|
(120,403
)
|
(140,040
)
|
|
|
$
384,597
|
$
419,960
|
Under
the Agreement with the 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 (amount paid in 2016); $55,000 on or before
June 1, 2017 (amount paid in 2017); $55,000 on or before June 1,
2018 (amount paid in June 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 September 30, 2018, the Purchaser has paid all
amounts due for the June 1, 2018 payment, such that the Purchaser
is current with payments due under the Agreement. This loan
receivable is secured, non-interest bearing, and subject to a 6%
discount rate. As of September 30, 2018 and December 31, 2017, the
receivable has a balance of $384,597 and $419,960,
respectively.
As
further described in the Subsequent Events section below, on
October 31, 2018, the Company entered into a settlement agreement
whereby Diego Rissola agreed to make a one-time payment of $295,000
to the Company to settle and all remaining payments and obligations
due under the Agreement with the Purchaser. The settlement payment
was received by the Company on November 6, 2018 and constitutes a
full and final satisfaction of outstanding
obligations.
Note 6. Commitments and Contingencies
Joseph Vicente Agreements
On December 18, 2014, the Company entered into an Executive
Employment Agreement with Joseph R. Vicente, the Company’s
former President and Chairman of the Board, which was effective as
of January 1, 2015 and was to 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 provided for a base
salary
equal to $135,000, as well as an annual bonus
opportunity, payable at the discretion of the Board of Directors,
equal to 30% of Mr. Vicente’s base salary for that
calendar year. Mr. Vicente had the option to receive any portion of
his salary and bonus in stock of the Company, which was amended
effective April 9, 2015 pursuant to
an Amendment to
Executive Employment Agreement whereby Mr. Vicente no longer had
the option in his sole discretion to receive his salary and bonus
amounts in stock
. The Vicente
Employment Agreement includes two-year restrictions on competition
and solicitation of customers following termination of the
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 was
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 would 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 became eligible for group health insurance coverage
through a new employer. Mr. Vicente was also entitled to
payment of his salary through the Separation Date, payment for
unused vacation days, 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 remained subject to the restrictive covenants contained
in the Vicente Employment Agreement, including a covenant not to
compete and a non-solicitation provision, and was subject to
additional restrictive covenants in the Separation
Agreement.
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 (the “Property”), 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
reverted 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 had the option to
lease a portion of the premises then occupied by the Company to a
third party, and if this portion is leased to a third party, the
Company’s monthly rent amount was to 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. Effective May 15, 2016, the
Company entered a Second Amendment to Lease. The Second Amendment
to Lease sets forth that the square footage of the Property has
been reduced by 380 square feet, such that the Property now
consists of 16,523 square feet, confirms the abatements set forth
in the First Amendment to Lease, sets forth that the
Company’s Common Area Maintenance Expenses and HOA costs
shall be calculated based on the reduced square footage amount, and
confirms that the Company’s monthly rent amounts will remain
unchanged from the First Amendment to Lease.
Commitments
for future minimum rental payments, by year, and in the aggregate,
to be paid under such operating lease as of September 30, 2018, are
as follows:
|
|
|
|
|
|
|
2018
|
$
48,612
|
|
2019
|
145,835
|
|
Total
|
$
194,447
|
As
further described in the Subsequent Events section below, on
October 25, 2018, the Company entered into a sublease agreement
(“Sublease”) with a subleasee
(“Subleasee”). The Sublease, approved by the Landlord
on October 26, 2018, includes essentially the same terms as lease
payment obligations included in the First Amendment to Lease
between the Company and the Landlord.
Note 7. 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. On
July 13, 2009, the Company registered its 2009 Flexible Stock Plan,
which increased the total shares available to 4 million common
shares. The plan 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 during the six
months ended September 30, 2018 and the year ended December 31,
2017.
The
Company’s stock option activity was as follows:
|
|
|
Weighted Average
Exercise Price
|
Weighted Avg.
Contractual
Remaining
Life
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
4,307,994
|
0.69
|
2.06
|
|
Granted
|
--
|
--
|
--
|
|
Exercised
|
--
|
--
|
--
|
|
Forfeited/Expired
|
--
|
--
|
--
|
|
Outstanding
September 30, 2018
|
4,307,994
|
0.69
|
1.31
|
|
Exercisable
September 30, 2018
|
4,307,994
|
0.69
|
1.31
|
The
following table summarizes significant ranges of outstanding stock
options under the stock option plan at September 30,
2018:
|
|
|
Weighted
Average
Remaining
Contractual
Life
(years)
|
Weighted
Average
Exercise
Price
|
Number
of
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
|
$
0-33 —
20.00
|
4,307,994
|
1.31
|
$
0.69
|
4,307,994
|
$
0.69
|
|
|
4,307,994
|
1.31
|
$
0.69
|
4,307,994
|
$
0.69
|
Note 8. Stockholder’s Equity
Preferred Stock
The
Company has 5,000,000 shares of $.0001 par value preferred stock
authorized. As of September 30, 2018, and December 31, 2017, the
Company had no shares of preferred stock outstanding.
Common Stock
The
Company has 2,890,000,000 shares of $.0001 par value common stock
authorized. As of September 30, 2018, and December 31, 2017, the
Company had 1,272,066,146 shares of common stock issued and
outstanding. 20,000 shares remain in the Company’s
treasury.
Note 9. Revenue Recognition (related to cord blood and cord tissue
stem cell storage business)
The
Company recognized revenue under ASC 606,
Revenue from Contracts with Customers
.
The core principle of the new revenue standard is that a company
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in
exchange for those goods or services. The following five steps are
applied to achieve that core principle:
●
Step 1: Identify
the contract with the customer
●
Step 2: Identify
the performance obligations in the contract
●
Step 3: Determine
the transaction price
●
Step 4: Allocate
the transaction price to the performance obligations in the
contract
●
Step 5: Recognize
revenue when the company satisfies a performance
obligation
Because
the Company’s agreements have an expected duration of one
year or less, the Company has elected the practical expedient in
ASC 606-10-50-14(a) to not disclose information about its remaining
performance obligations.
The
Company’s performance obligation to preserve cord blood
and/or cord tissue is satisfied when the cord blood and/or cord
tissue is cryogenically frozen, which is when the customer has
obtained control and is receiving the benefits of the
Company’s performance. The Company satisfies its performance
obligation to store cord blood and/or cord tissue over time using a
time-based input measure of progress that recognizes revenue on a
straight-line basis as the customer is receiving a service that is
provided continuously over time. The Company allocates the
transaction price to each performance obligation using an adjusted
market assessment approach. Customers pay upfront for processing
and storage fees that are billed annually for each year of storage.
Due to the sale of essentially all its assets on May 17, 2018, CBAI
ceased to generate revenue from any cord blood and/or cord tissue
activities as of divesture date.
Note: 10. Tax Estimates and Tax Expense
For the
three and nine months ended September 30, 2018, income from
discontinued operations includes a $2,095,000 expense for estimated
federal and state income taxes arising from the sale of essentially
all the Company’s assets and we have realized an income tax
benefit from continuing operations of $309,432 as a consequence of
the utilization of the federal and state net operating
losses.
The
Company recognizes interest and/or penalties related to uncertain
tax positions in income tax expense. For the three and nine months
ended September 30, 2018, the Company accrued an income tax expense
of $41,118 for tax penalties and related interest imposed by the
Internal Revenue Service. The penalties cover tax years 2012
through 2014, and are due to the late filing of Company tax
returns.
Note: 11. Subsequent Events
On
October 25, 2018, the Company entered into a Sublease with a
Subleasee for its offices at 1857 Helm Drive, Las Vegas, Nevada.
The Sublease was approved by the Landlord on October 26, 2018 and
includes essentially the same terms as lease payment obligations
included in the First Amendment to Lease between the Company and
the Landlord. Lease payments will cover the period commencing the
second half of October 2018 through September 30, 2019, the end of
the remaining term existing on the First Amendment to
Lease.
On
October 31, 2018, the Company entered into a settlement agreement
whereby Diego Rissola agreed to make a one-time payment of $295,000
to the Company to settle any and all remaining payments and
obligations due under the Agreement with the Purchaser. The
settlement payment was received by the company on November 06, 2019
and constitutes a full and final satisfaction of outstanding
obligations.