NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(UNAUDITED)
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 services. Additionally, the Company is 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.
|
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, 2017 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2017 or for any other future period. The
condensed consolidated balance sheet at December 31, 2016 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, 2016 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 $47,276
and $11,644 as bad debt expenses during the six months ended June
30, 2017 and 2016, 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
Inventory,
comprised principally of finished goods, is stated at the lower of
cost or market, and 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
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, 2017 and December 31, 2016, 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
CBAI
recognizes revenue under the provisions of ASC 605. CBAI provides a
combination of products and services to customers. This combination
arrangement is evaluated under ASC 605. ASC 605 addresses certain
aspects of accounting for arrangements under multiple revenue
generating activities.
Cord
recognizes 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.
Cost of Services
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 (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. 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.
|
The
following table summarizes fair value measurements by level at June
30, 2017 for assets and liabilities measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
$
--
|
$
--
|
$
--
|
$
--
|
Derivative
liability was valued under the Binomial model with the following
assumptions:
Risk free interest
rate
|
0
%
|
Expected
life
|
|
Dividend
Yield
|
0
%
|
Volatility
|
0
%
|
The
following table summarizes fair value measurements by level at
December 31, 2016 for assets and liabilities measured at fair value
on a recurring basis:
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
$
--
|
$
--
|
$
(109,731
)
|
$
(109,731
)
|
Derivative
liability was valued under the Binomial model, with the following
assumptions:
Risk
free interest rate
|
|
0.12%-0.47%
|
|
Expected
life
|
|
0 to
0.75 years
|
|
Dividend
Yield
|
|
0%
|
|
Volatility
|
|
0% to
109%
|
|
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 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.
In May 2016, the FASB issued ASU No.
2016-12,
Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedient
, which is to (1)
clarify the objective of the collectability criterion for applying
paragraph 606-10-25-7; (2) permit an entity to exclude amounts
collected from customers for all sales (and other similar) taxes
from the transaction price; (3) specify that the measurement date
for noncash consideration is contract inception; (4) provide a
practical expedient that permits an entity to reflect the aggregate
effect of all modifications that occur before the beginning of the
earliest period presented when identifying the satisfied and
unsatisfied performance obligations, determining the transaction
price, and allocating the transaction price to the satisfied and
unsatisfied performance obligations; (5) clarify that a completed
contract for purposes of transition is a contract for which all (or
substantially all) of the revenue was recognized under legacy GAAP
before the date of initial application, and (6) clarify that an
entity that retrospectively applies the guidance in Topic 606 to
each prior reporting period is not required to disclose the effect
of the accounting change for the period of adoption. The amendments
of this ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. The Company is currently assessing the potential impact this
ASU will have on the consolidated financial statements and related
disclosures
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. The Company is
currently assessing the potential impact 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 will be effective for the Company on
January 1, 2018, however, early adoption is permitted with
prospective application to any business development
transaction.
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 will be effective for the Company on December 15,
2017.
Note 3. Notes and Loans Payable
At June
30, 2017 and December 31, 2016 notes and loans payable consist
of:
|
|
|
Secured Convertible
Promissory Note to Tonaquint, Inc., 7.5% per annum; due on or
before September 17, 2017
|
$
--
|
$
400,000
|
|
|
|
|
--
|
400,000
|
Less: Unamortized
Discount
|
--
|
(43,432
)
|
|
$
--
|
$
356,568
|
Tonaquint, Inc.
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.
On September 25, 2013, Defendants
each filed their Answer and Counterclaim in the Action, which they
amended on March 22, 2014.
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 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.
As of December 31, 2016, the principal balance on the Tonaquint
note was $400,000, and there was $
204,494
of accrued
interest.
As of June
30, 2017, the principal balance on the Tonaquint note was $0, and
there was $15,276 of accrued interest.
Note 4: Investment and Notes Receivable, Related
Parties
At June
30, 2017 and December 31, 2016, 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.
|
585,375
|
615,000
|
|
|
|
Unamortized
discount on BioCells note receivable
|
(153,686
)
|
(167,582
)
|
|
$
431,689
|
$
447,418
|
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; $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 June 30, 2017, the
Purchaser has paid $29,625 of the $55,000 payment due on June 1,
2017. The
Purchaser made an additional
payment after June 30, 2017, as described in Note 8 Subsequent
Events.
This loan receivable is secured, non-interest
bearing, and subject to a 6% discount rate. As of June 30, 2017 and
December 31, 2016, the receivable has a balance of $431,689 and
$447,418, respectively.
Note 5. Commitments and Contingencies
Stephen Morgan 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
opportunity, 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 had 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.
Amendments to Employment Agreement
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.
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. Concurrent with the Second Amendment,
Mr. Morgan commenced serving as Interim President of the
Company. Mr. Morgan no longer serves as Vice President
of the Company, but remains in his positions as Corporate Secretary
and General Counsel. 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.
Effective March 31, 2017,
the Company entered
into a Third Amendment to Executive Employment Agreement (the
“Third Amendment”) with Stephen Morgan (the
“Employee”), amending his original, April 1, 2015
employment agreement. The Third Amendment provides
that
the last day of the
term of Employee’s employment is extended from March 31,
2017, to March 31, 2018, subject to the other terms and conditions
of Section 2 of the original agreement; provided, however, that (i)
the Company may change Employee’s status from full-time to
part-time employee at any time, (ii) concurrently with any such
change in status, the Company may modify Employee’s base
compensation amount and structure, and Employee’s prospective
bonus, if any, and (iii) notwithstanding any such change in status,
Employee shall remain eligible to receive the amount and other
benefits set forth in Section 5(f) in accordance with the terms and
conditions thereof.
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 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, 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 the Vicente Employment Agreement, including a covenant not to
compete and a non-solicitation provision, and is 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 June 30, 2017, are as
follows:
|
|
|
|
2017
|
93,816
|
2018
|
191,006
|
2019
|
145,835
|
Total
|
$
430,656
|
Note 6. Share Based Compensation
Stock Option Plan
The
Company's Stock Option Plan permits the granting of stock options
to its employees, directors, consultants and independent
contractors for up to 8.0 million shares of its common stock. The
Company believes that such awards encourage employees to remain
employed by the Company and also to attract persons of exceptional
ability to become employees of the Company. On July 13, 2009, the
Company registered its 2009 Flexible Stock Plan, which 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 June 30, 2017 and the year ended December 31,
2016.
The
Company’s stock option activity was as follows:
|
|
Weighted Average
Exercise Price
|
Weighted Avg.
Contractual
Remaining
Life
|
|
|
|
|
Outstanding,
December 31, 2016
|
4,458,679
|
0.68
|
2.98
|
Granted
|
--
|
--
|
--
|
Exercised
|
--
|
--
|
--
|
Forfeited/Expired
|
--
|
--
|
--
|
Outstanding June
30, 2017
|
4,458,679
|
0.68
|
2.48
|
Exercisable June
30, 2017
|
4,458,679
|
0.68
|
2.48
|
The
following table summarizes significant ranges of outstanding stock
options under the stock option plan at June 30, 2017:
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
— 1.11
|
|
|
|
4,458,679
|
|
|
|
2.48
|
|
|
$
|
0.68
|
|
|
|
4,458,679
|
|
|
$
|
0.68
|
|
|
|
|
|
|
4,458,679
|
|
|
|
2.48
|
|
|
$
|
0.68
|
|
|
|
4,458,679
|
|
|
$
|
0.68
|
|
Note 7. Stockholder’s Equity
Preferred Stock
The
Company has 5,000,000 shares of $.0001 par value preferred stock
authorized. As of June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016, the Company
had 1,272,066,146 shares of common stock issued and outstanding.
20,000 shares remain in the Company’s treasury.
Note: 8. Subsequent Events
Interim President Resignation
On July
11, 2017, the Company’s Board of Directors announced that
Stephen Morgan
resigned from his
positions as Interim President, General Counsel, and Corporate
Secretary effective July 19, 2017. Effective July 19, 2017, the
Company’s Board of Directors named Director and Chairman of
the Audit Committee Anthony Snow as Interim President and Corporate
Secretary.
Payment Made on Note Receivable
Pursuant to the Company’s September 2014 agreement selling
its ownership stake in Biocordcell Argentina S.A., the
purchaser was to make a payment in the amount of $55,000 on or
before June 1, 2017. The Purchaser paid $29,625 of that amount in
June 2017 and an additional $5,800 of that amount in July 2017. In
July, the Purchaser informed the Company that Argentina’s tax
authority requires Purchaser to withhold income taxes at the rate
of 13.5% of all payments made from Purchaser to the Company and the
$19,575 of payment withheld represents income taxes due from all
previous payments made by Purchaser to date. The Company is
currently in discussions with Purchaser to obtain verification of
Argentina tax requirements.