CBA FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net loss from
continuing operations
|
$(210,911)
|
$(1,427,513)
|
Adjustments to
reconcile net income to net cash used in operating
activities:
|
|
|
Amortization of
loan receivable discount
|
--
|
(19,637)
|
Depreciation and
amortization
|
--
|
4,026
|
Bad
debt
|
--
|
16,197
|
Net change in
operating assets and liabilities
|
|
|
Changes
in accounts receivable
|
(24,262)
|
(225,514)
|
Changes
in prepaid
|
11,894
|
119,950
|
Change
in escrow receivable
|
(5,381)
|
(2,429)
|
Changes
in other assets
|
(1,872)
|
(15,822)
|
Changes
in accounts payable
|
(59,105)
|
(303,792)
|
Changes
in accrued expenses
|
(64,451)
|
23,676
|
Changes
in severance payable
|
--
|
(26,764)
|
Changes
in deferred income taxes
|
(690,934)
|
(1,226,314)
|
|
|
|
NET CASH USED
IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS
|
(1,045,022)
|
(3,083,936)
|
|
|
|
NET CASH USED
IN INVESTING ACTIVITIES OF
|
|
|
CONTINUING
OPERATIONS
|
|
|
Payment from
loan receivable- BioCells
|
--
|
55,000
|
CASH FLOWS FROM
FINANCING ACTIVITIES
Change in cash
– continuing operations
|
--
|
(3,028,936)
|
|
|
|
CASH FLOWS FROM
DISCONTINUED OPERATIONS
|
|
|
Net
Cash provided by operating activities
|
--
|
1,502,591
|
Net
Cash provided by investing activities
|
--
|
12,500,000
|
NET CASH PROVIDED
BY DISCONTINUED OPERATIONS
|
--
|
14,002,591
|
|
|
|
NET INCREASE IN
CASH
|
(1,045,022)
|
10,973,655
|
|
|
|
Cash balance at
beginning of period
|
$12,412,583
|
$1,069,917
|
Cash balance at end
of period
|
$11,367,561
|
$12,043,572
|
|
|
|
Cash Paid
For
|
|
|
Interest
|
$--
|
$--
|
Taxes
|
$(662,789)
|
$--
|
See
accompanying notes to these unaudited condensed consolidated
financial statements.
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 as D&A Lending, Inc. 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 substantially all of the assets of
the Company and its wholly-owned subsidiaries. Prior to the sale of
substantially all of the assets, 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
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
substantially all of the Company’s assets pursuant to the
Purchase Agreement was completed 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 previously
disclosed that it anticipated distributing a portion of the sale
proceeds to shareholders in 2019. With the goal of maximizing
shareholder value, CBAI and its board of directors are also
evaluating other alternatives including potentially pursuing a plan
of liquidation and dissolution and/or a sale of the Company. In
order to enable any such alternatives to be fully explored, the
Company may not distribute a portion of the sale proceeds to its
shareholders in 2019. The Company has no commitments, agreements or
understandings with respect to any such alternatives and there can
be no assurance that any such alternatives will be consummated or
the terms thereof. CBAI and its Board of Directors continue to
contemplate a distribution, but based on discussions, evaluations,
and business judgement, have not yet determined if this will occur,
or when. Regardless of the alternative(s) undertaken by the Company
given the Company’s expenses and other contingencies the
total proceeds ultimately paid out to shareholders will be
significantly less than the gross purchase price the Company
received from its Purchase Agreement with
FamilyCord.
Sale of China Stem Cell Stock and Convertible Debt
The Company entered into an Asset Purchase Agreement, dated June
19, 2019 (the “Golden Sun Purchase Agreement”), with
Golden Sun Multi-Manager Fund LP (“Golden Sun”),
whereby the Company sold all shares and convertible debt it held in
China Stem Cells Ltd. (“China Stem Cells”) to Golden
Sun. The total proceeds from the sale was $50,000. The Company
previously wrote-off the entire value of shares and convertible
debt held, and has accrued a gain for the full value of sale
proceeds received on its statement of operations for the nine
months ended September 30, 2019.
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 nine months ended September 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2019 or for any other future period. The
condensed consolidated balance sheet at December 31, 2018 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, 2018 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
Financial Statement Presentation
The
preparation of the financial statements in conformity with U.S.
generally accepted accounting principles (U.S. GAAP) requires
management to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results could differ from
these estimates. Certain prior year amounts have been reclassified
to conform to current year presentation.
Pursuant
to guidance in ASC 205-20, Presentation of Financial Statements,
and ASC 360-10-45-9 to 14, Property, Plant and Equipment, regarding
when the results of operations of a component of an entity that is
classified as held for sale would be reported as a discontinued
operation in the financial statements of the entity. The Company
determined that it met the threshold for reporting discontinued
operations due to a strategic business shift having a major effect
on an entity's operations and financial results.
On February 7, 2018, the Company announced that it entered into the
Purchase Agreement with FamilyCord. The sale of substantially all
of the Company’s assets occurred on May 17, 2018. For
this reason, the results of operations for the cord blood and cord
tissue stem cell operations have been reclassified into
discontinued operations.
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 value of cash and cash equivalents held by the
Company at a bank in excess of federally insured limits
was $11,117,561 during the
period ended September 30, 2019.
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 $0 and
$16,197 in bad debt expense
during the nine months ended September 30, 2019 and 2018,
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.
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.
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 $662,789 and $1,074,000 for the
nine months ended September 30, 2019 and 2018, respectively. The
Company files income tax returns with the Internal Revenue Service
(“IRS”) and various state jurisdictions.
Accounting for Stock Option Plan
The
Company follows the provisions of Accounting Standards Codification
(“ASC”) 718, (“Accounting for Stock-based
Compensation”), 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). ASC 718 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 (Loss) 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, and as of
September 30, 2019, this was the case. 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, 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 Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers (Topic 606)” (ASU 2014-09) as modified by ASU No.
2015-14, “Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date,” ASU 2016-08, “Revenue
from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net),” ASU No.
2016-10, “Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing,” and ASU
No. 2016-12, “Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients.”
The revenue recognition principle in ASU 2014-09 is that an entity
should recognize revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. In addition, new and enhanced disclosures will
be required. Companies may adopt the new standard either using the
full retrospective approach, a modified retrospective approach with
practical expedients, or a cumulative effect upon adoption
approach. 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 has been no
impact as a result of adopting this ASU on our 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, and there was no impact as a
result of adopting this ASU on our financial statements and related
disclosures.
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 determined that there no impact this ASU on the
consolidated financial statements and related disclosures. The
Company has no long-term operating leases on the date of
adoption.
Note 3. Discontinued Operations - Cord Blood and Cord Tissue Stem Cell
Storage Operations
On February 7, 2018, the Company announced that it entered into the
Purchase Agreement with FamilyCord. The sale of substantially all
of the Company’s assets to FamilyCord was completed 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 FamilyCord $15.5
million in cash and 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 as net income from discontinued
operations in the 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
Consolidated Balance Sheets and has classified the CBCTS operating
results, net of tax, as discontinued operations in the accompanying
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, 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
previously 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
during the year ended December 31, 2018:
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
|
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, 2019
and 2018:
|
|
|
|
|
|
Revenue
|
$--
|
$1,108,381
|
Cost of
services
|
--
|
(418,107)
|
Gross
profit
|
--
|
690,274
|
Depreciation and
amortization
|
--
|
(99,231)
|
Income from
Discontinued Operations
|
--
|
591,043
|
FamilyCord
reimbursement
|
--
|
435,922
|
Gain on sale of
assets
|
--
|
15,973,537
|
Income from
discontinued operations before taxes
|
--
|
17,000,502
|
Income
taxes
|
--
|
(2,095,000)
|
Net income from
discontinued operations
|
--
|
14,905,202
|
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, 2019 and September 30,
2018:
|
|
|
|
|
|
Cash provided by
discontinued operations
|
$--
|
$1,087,004
|
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, 2019
and 2018:
|
|
|
|
|
|
Revenue
|
$--
|
$--
|
Cost
of services
|
--
|
(109,131)
|
Gross
profit
|
--
|
(109,131)
|
Depreciation
and amortization
|
--
|
--
|
Income
from Discontinued Operations
|
--
|
(109,131)
|
FamilyCord
reimbursement
|
--
|
271,445
|
Gain
on sale of assets
|
--
|
--
|
Income
from discontinued operations before taxes
|
--
|
162,314
|
Income
taxes
|
--
|
(300)
|
Net
income from discontinued operations
|
--
|
162,014
|
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, 2019 and September 30,
2018:
|
|
|
|
|
|
Cash provided by
discontinued operations
|
$--
|
$--
|
Cash provided by
investing activities of discontinued operations
|
$--
|
$--
|
Note
4. Property and Equipment
At
September 30, 2019 and December 31, 2018, property and equipment
consist of:
|
|
|
|
Furniture and
fixtures
|
1-5
|
$--
|
$17,597
|
Computer
equipment
|
5
|
--
|
124,466
|
Laboratory
Equipment
|
1-5
|
--
|
5,837
|
Freezer
equipment
|
7-15
|
--
|
34,699
|
Leasehold
Improvements
|
5
|
--
|
102,862
|
|
|
--
|
285,461
|
Less: accumulated
depreciation and amortization
|
|
--
|
(285,461)
|
|
|
$--
|
$--
|
For the
nine months ended September 30, 2019
and 2018, depreciation expense totaled $0 and $4,026 respectively
for continuing operations and $0 and $5,862 respectively for
discontinued operations.
For the three months ended September 30, 2019 and 2018,
depreciation expense totaled $0 and $1,342 respectively for
continuing operations and $0 and $0, respectively for discontinued
operations.
Note 5. Commitments and Contingencies
Operating Leases
On
January 21, 2014, the Company entered a First Amendment to Lease
(the “Amendment”), 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 common area maintenance (“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 was
unable to or elected not to lease a portion of the premises to a
third party by November 30, 2015 and each subsequent anniversary
thereof, the Company was to 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 CAM expenses and home owner association
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. All lease
payments due for the Second Amendment Lease for the three and nine
months ended September 30, 2019, were paid by September 30, 2019.
On October 25, 2018, the Company
entered into a Sublease with a Sublesee 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. The Sublease ended on September 30, 2019
and the Sublesee vacated the Property.
On
October 1, 2019, the Company moved to a new corporate headquarters
located at 3753 Howard Hughes Parkway, Suite 200, Las Vegas,
Nevada. The new month-to-month term lease (the “New Property
Lease”) was entered into on August 21, 2019 and commenced on
October 1, 2019.
Note 6. Share Based Compensation
Stock Option Plan
The
Company's Stock Option Plan permits the granting of stock options
to its employees, directors, consultants and independent
contractors for up to 8.0 million shares of its common stock. 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 nine
months ended September 30, 2019 and the year ended December 31,
2018.
The
Company’s stock option activity was as follows:
|
|
Weighted Average
Exercise Price
|
Weighted Avg.
Contractual
Remaining
Life
|
|
|
|
|
Outstanding,
December 31, 2018
|
4,307,994
|
0.69
|
0.31
|
Granted
|
--
|
--
|
--
|
Exercised
|
--
|
--
|
--
|
Forfeited/Expired
|
--
|
--
|
--
|
Outstanding
September 30, 2019
|
4,307,994
|
0.69
|
0.31
|
Exercisable
September 30, 2019
|
4,307,994
|
0.69
|
0.31
|
The
following table summarizes significant ranges of outstanding stock
options under the stock option plan at September 30,
2019:
|
|
Weighted
Average
Remaining
Contractual
Life
(years)
|
Weighted
Average
Exercise
Price
|
Number
of
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
$0-53 — 1.11
|
4,307,994
|
0.31
|
$0.69
|
4,307,994
|
$0.69
|
|
4,307,994
|
0.31
|
$0.69
|
4,307,994
|
$0.69
|
Note 7. Income Tax
The
Company provides for income taxes using the asset and liability
approach. Deferred tax assets and liabilities are recorded based on
the differences between the financial statement and tax bases of
assets and liabilities and the tax rates in effect when these
differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. For the first quarter
of 2019 the Company expects to utilize net operating losses
generated in the current year to offset future deferred tax
liabilities derived from the sale of assets in 2018.
The
company expects its overall effective tax rate for 2019 to be
around 20.89%.
As of
September 30, 2019 and December 31, 2018, the Company has a partial
valuation allowance on net operating losses that may not be able to
be utilized fully.
For the
nine months ended September 30, 2019 the Company recorded a tax
benefit of $49,933, as compared to a tax benefit of $268,314 for
the comparative nine month period ended September 30,
2018.
For the
three months ended September 30, 2019 the Company recorded a tax
benefit of $28,144, as compared to a tax benefit of $8,314 for the
comparative three month period ended September 30,
2018.
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, 2019, and December 31, 2018, 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, 2019, and December 31, 2018, 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. Subsequent Events
None.