Attached files

file filename
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - CBA Florida, Inc.cbai_ex321.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - CBA Florida, Inc.cbai_ex311.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
 
FORM 10-K
(MARK ONE)
 
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File No. 000-50746
 
cord blood america, inc.
(Exact Name of registrant as specified in its charter)
 
Florida
 
90-0613888
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
1857 Helm Drive, Las Vegas, NV
 
89119
(Address of Principal Executive Offices)
 
(Zip Code)
 
(702) 914-7250
(Issuer’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of Each Class to be so Registered:
 
Name of each exchange on which registered
None
 
None
 
Securities registered under Section 12(g) of the Act:
 
Common Stock, Par Value $.0001
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☑
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐  No ☑
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files) Yes ☑  No ☐
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or amendment to Form 10-K. ☑
 
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑
 
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ☐  No ☐
 
The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2016 based on the closing price of the common stock as reported by the Over the Counter Bulletin Board on such date, was approximately $4.07 million. The registrant has no outstanding non-voting common equity.
 
The Registrant had 1,272,066,146 shares of its common stock outstanding as of March 10, 2017, and no shares of its preferred stock outstanding.
 
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:
 
 

 
 
 
CORD BLOOD AMERICA, INC.
2016 ANNUAL REPORT ON FORM 10-K
Table of Contents
 
 
 
Page
 
 
 
FORWARD LOOKING STATEMENTS
3
 
 
 
PART I
 
 
 
 
Item 1.
BUSINESS
4
 
 
 
Item 1A.
RISK FACTORS
10
 
 
 
Item 2.
PROPERTIES
13
 
 
 
Item 3.
LEGAL PROCEEDINGS
13
 
 
 
PART II
 
 
 
 
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
14
 
 
 
Item 6.
SELECTED FINANCIAL DATA
15
 
 
 
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
15
 
 
 
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
18
 
 
 
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
18
 
 
 
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
18
 
 
 
Item 9A.
CONTROLS AND PROCEDURES
18
 
 
 
Item 9B.
OTHER INFORMATION
19
 
 
 
PART III
 
 
 
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
20
 
 
 
Item 11.
EXECUTIVE COMPENSATION
21
 
 
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
25
 
 
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
26
 
 
 
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
26
 
 
 
PART IV
 
 
 
 
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
28
 
 
 
 
SIGNATURES
31
 
 
2
 
 
FORWARD LOOKING STATEMENTS
 
Some of the information contained in this Annual Report may include forward-looking statements. The Company bases these forward-looking statements on its current views with respect to its research and development activities, business strategy, business plan, financial performance and other matters, both with respect to the Company, specifically, and the biotechnology sector, in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate,” “will” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise, but the absence of these words does not necessarily mean that a statement is not forward-looking.
 
All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. The Company believes that these factors include, but are not limited to, those factors set forth in the sections entitled “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Controls and Procedures” in this Annual Report, all of which you should review carefully. Please consider the Company’s forward-looking statements in light of those risks as you read this Annual Report. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
 
If one or more of these or other risks or uncertainties materializes, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company anticipates. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on its behalf are expressly qualified in their entirety by the cautionary language above. You should consider carefully all of the factors set forth or referred to in this Annual Report, as well as others, that could cause actual results to differ.
 
 
 
3
 
 
PART I
 
ITEM 1. 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.
 
Company Developments
 
Events in 2016
 
Changes in Officers and Directors
 
Effective February 12, 2016, the Company entered a Mutual Separation Agreement with Joseph Vicente as described below. Also on February 12, 2016, Stephen Morgan was appointed Interim President, along with his roles as Corporate Secretary and General Counsel. The Company and Mr. Morgan entered an amendment to Mr. Morgan’s employment agreement set forth in detail in Item 11. Executive Compensation.
 
Separation Agreement
 
Effective February 12, 2016 (the “Separation Date”), the Company entered a Mutual Separation Agreement with Mr. Vicente (the “Separation Agreement”).  Pursuant to the Separation Agreement, Mr. Vicente stepped down from his positions as President and as a member of the Board.  Under the Separation Agreement, Mr. Vicente is entitled to receive a severance, payable in equal monthly installments over the twenty four month period post separation, in an amount equal to all compensation paid by the Company to Mr. Vicente for the 24 months preceding the termination, including salary and bonus received by Mr. Vicente.  Additionally, the Company will pay for the value of his health insurance premiums, in monthly installments, until the earlier of twenty-four months after the Separation Date or until Mr. Vicente or his dependents become eligible for group health insurance coverage through a new employer.  Mr. Vicente is also entitled to payment of his salary through the Separation Date, payment for unused vacation days and payment for any unreimbursed expenses, and a bonus payment for work performed in calendar year 2015, payable within sixty (60) days of the Company completing its fiscal 2015 audit.
 
Mr. Vicente remains subject to the restrictive covenants contained in his January 1, 2015 employment agreement, including a covenant not to compete and a non-solicitation provision, and is subject to additional restrictive covenants in the Separation Agreement.
 
Banco Vida Agreement
 
On August 17, 2015, the Company received a notice of termination from Cord Blood Caribbean, Inc. d/b/a Banco Vida (“Banco Vida”) with regards to both the Tissue Agreement and the Storage and Processing Agreement between the two companies, effective February 2016.  The Company reached an amendment to the Tissue Agreement extending the agreement through February 7, 2018, and with automatic renewals for consecutive two (2) year terms, in perpetuity unless terminated prior to a renewal term or otherwise in accordance with the amendment.  Although the parties had not yet reached an agreement regarding the Storage and Processing Agreement between the two companies, Banco Vida continued to store samples with the Company until December 2016. In December 2016, the Company and Banco Vida entered a Release Agreement, pursuant to which the storage relationship between them ceased. In connection with the Release Agreement, Banco Vida paid the Company $20,000, and Banco Vida received from the Company equipment used in the storage of samples. The Company recorded a gain on settlement of $151,951 relating to release of deferred revenue and sales of equipment in connection with the transaction.
 
Reduction in Orders
 
In September 2015, a customer of the Company’s tissue procurement services informed the Company they expect a significant reduction in orders such that orders from this customer will be minimal in the foreseeable future.  This reduction commenced in October 2015. In March 2016, an additional customer of the Company’s tissue procurement services informed the Company they would not be ordering tissue services for the foreseeable future.  This reduction commenced in March 2016.
 
 
4
 
 
Boxwood Partners, LLC
 
On February 19, 2016, the Company announced that its Board approved the engagement of Boxwood Partners, LLC to advise the Company in its review of strategic alternatives. 
 
Industry Background of Cord
 
The human body is comprised of many types of cells with individual characteristics and specific functions. Cells with a defined or specialized function are referred to as differentiated. Examples of differentiated cells include nerve cells, red blood cells and skin cells. Differentiated cells are replaced and renewed over time from a population of rare, undifferentiated cells known as stem cells. As stem cells grow and proliferate, they are capable of producing both additional stem cells as well as cells that have differentiated to perform a specific function. Stem cell differentiation is prompted by specific cell-to-cell interactions or other molecular signals. These signals trigger a change in the cell’s genetic profile, causing specific genes to become active and others to become inactive. As a result, the cell develops specialized structures, features and functions representative of its differentiated cell type. 
 
There are many types of stem cells in the human body. These stem cells are found in different concentrations and in different locations in the body during a person’s lifetime. Current thinking suggests that each organ and tissue in the body is founded, maintained and possibly rejuvenated to different degrees, on a more or less continual basis, by specific stem cell populations naturally present in the body. Types of stem cells include:
 
Hematopoietic stem cells. Hematopoietic, or blood, stem cells reside in the bone marrow, umbilical cord and placenta. They can also be found in an infant’s umbilical cord as well as circulating in very small numbers in the blood. Hematopoietic stem cells generate all other blood and immune system cells in the body.
 
Neural stem cells. Neural stem cells can be found in the brain and spinal cord and are capable of differentiating into nerve and brain tissue.
 
Mesenchymal stem cells. Mesenchymal stem cells can be found in bone marrow, cord tissue and adipose tissue and differentiate into bone, cartilage, fat, muscle, tendon and other connective tissues.
 
Pancreatic islet stem cells. Pancreatic islet stem cells can be found in the pancreas and differentiate into specialized cells of the pancreas including cells that secrete insulin.
 
The ability of a stem cell to differentiate into multiple types of cells of a certain tissue is referred to as pluripotency. For example, a hematopoietic stem cell has the ability to differentiate into many types of blood and immune system cells. However, stem cells of one tissue type may also generate specialized cells of another tissue type, a characteristic referred to as plasticity. For example, under specific conditions, hematopoietic stem cells have been shown to generate specialized cells of other systems, including neural, endocrine, skeletal, respiratory and cardiac systems. These characteristics make stem cells highly flexible and useful for a number of applications, including the potential use as therapeutics.
 
Cell therapy. Cell therapy is the use of live cells as therapeutic agents to treat disease. This therapy involves the introduction of cells to replace or initiate the production of other cells that are missing or damaged due to disease. Currently, the most common forms of cell therapy include blood and platelet transfusions and bone marrow transplants.
 
Bone marrow transplantation is a medical procedure in which hematopoietic stem cells are introduced into the body in order to regenerate healthy, functioning bone marrow. In this procedure, stem cells are obtained from a donor through a surgical procedure to remove bone marrow. The donated bone marrow, including any “captured” stem cells, is then transfused into the patient. Stem cells for transplantation may also be obtained from peripheral blood or umbilical cord blood donations. Sometimes the stem cells used in the procedure are obtained from the patient’s own bone marrow or blood.
 
Bone marrow transplantation has been successfully employed in the treatment of a variety of cancers and other serious diseases since the 1960s.
 
The flexibility and plasticity of stem cells has led many researchers to believe that stem cells have tremendous promise in the treatment of diseases other than those currently addressed by stem cell procedures. Researchers have reported progress in the development of new therapies utilizing stem cells for the treatment of cancer, neurological, immunological, genetic, cardiac, pancreatic, liver and degenerative diseases.
 
Umbilical Cord Blood Banking
 
The success of current and emerging cell therapies is dependent on the presence of a rich and abundant source of stem cells. Umbilical cord blood has been emerging as an ideal source for these cells. As information about the potential therapeutic value of stem cells has entered the mainstream, and following the first successful cord blood transplant performed in 1988, cord blood collection has grown. In the past decades, multiple public and private cord blood banks have been established to provide for the collection and storage of these cells. Public cord blood banks collect and store umbilical cord blood donated by women at the birth of the child. This blood is stored and made available for a significant fee to an unrelated individual who matches the cord blood stored. The Company does not currently collect or store donated cord blood units. Private, or family cord blood banks such as Cord, collect and store umbilical cord blood on a fee-for-service basis for families. This blood is stored and made available to the family in the event the family needs stem cells for a transplant.
 
 
5
 
 
Umbilical Cord Tissue Banking
 
An emerging source of stem cells found in the umbilical cord tissue for therapeutic use are Mesenchymal stem cells.  Mesenchymal stem cells, which are abundant in the cord tissue, possess the ability to regenerate into connective tissues including nerves, bones, muscles and ligaments.  While there are currently no clinically approved use for these stem cells, there are clinical trials underway, and many scientists view this source of stem cells as promising resource in the field of regenerative medicine.  In more recent years, many of the private or family cord blood banks have begun offering cord tissue related processing and storage services on a fee-for-service basis for families.   Private cord blood banks typically offer to store a whole segment of the cord tissue, or a service where the Mesenchymal stem cells are isolated from the cord tissue, expanded, and then cryogenically stored.   Cord facilitates whole segment cord tissue processing and storage services.
 
CORD
 
Services Provided By Cord
 
Cord’s operations facilitate umbilical cord blood banking and cord tissue services to expectant parents. The Company’s corporate headquarters re-located to Las Vegas, NV from Los Angeles, CA in October 2009. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord facilitates processing and storage of cord blood and cord tissue for new customers through an engagement with a third party laboratory. Cord provides or facilitates the following services to each customer.
 
Collection Materials. A medical kit that contains all of the materials and instructions necessary for collecting the newborn’s umbilical cord blood and cord tissue at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for infectious disease testing.
Physician And Customer Support. 24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing instruction for the successful collection, packaging, and transportation of the cord blood and cord tissue and maternal blood samples.
Transportation. Manage all logistics for transporting the cord blood and cord tissue unit to the Company’s third party facility immediately following birth. This procedure ensures chain-of-custody control during transportation for maximum security.
Comprehensive Testing. The cord blood sample is tested by third parties engaged by Cord for stem cell concentration levels and blood type. The maternal samples are tested for infectious diseases. Cord reports results to the newborn’s mother.
Cord Blood Storage. After processing and testing, the cord blood and cord tissue unit is cryogenically frozen in a controlled manner and stored in liquid nitrogen for potential future use. For new customers, this process is conducted at a third party laboratory.
 
Additionally, the Company provides services related to procuring birth tissue for organizations utilizing the tissue in the transplantation and/or research of therapeutic based products.  The Company receives a one-time recovery fee per tissue.  Associated services provided by the Company with this offering may include arranging for transportation, providing collection materials, facilitating information used to determine donor eligibility and arranging for infectious disease testing of the maternal blood. 
 
Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, primarily through organic growth.
 
Material Reclassification, Merger, Consolidation, or Purchase or Sale of Significant Assets
 
BioCells Acquisition
 
In September 2010, the Company entered into a Stock Purchase Agreement (the “Agreement”), with the Shareholders of Biocordcell Argentina S.A., a corporation organized under the laws of Argentina (“Bio”), providing for the Company’s acquisition of 50.004% of the outstanding shares of Bio (the “Shares).
 
 
 
Under the Agreement, the Company paid $375,000 in cash at the closing, and was obligated to pay an additional $350,000 in October, 2010, $150,000 of which is part of the fixed portion of the purchase price for the shares, for a total minimum purchase price of $525,000. The remaining $200,000 of this payment represents advances against the contingent payments due based on Bio’s 2010 and 2011 net income performances.
 
The Agreement provides that the Shareholders are to be paid contingent “earn-out” compensation in 2011 based on achieving certain levels of net income in 2010 of which the Shareholders were paid $500,000. As of June 22, 2012, the Company entered into an Agreement with the shareholders of Bio from whom the Company purchased its majority ownership interest in Bio in 2010 (the "Sellers") relating to the 2011 earnout. Under the Agreement, the Company would pay the Sellers the following: $25,000 on or before June 30, 2012; $10,000 on or before July 31, 2012; and $25,000 on or before September 30, 2012, for a total cash payment of $60,000. In addition, the Sellers would collect the Company’s portion of BioCells shareholder dividends for fiscal years 2012 and 2013, up to a maximum amount of $440,000, if any. Also, if BioCells is sold before April 2014 and certain thresholds for purchase price and payment are met or exceeded, then the Sellers could receive additional compensation, specifically an amount which equals $705,000 minus any amounts paid pursuant to the cash payments and payments from the Company’s shareholder dividends, which are detailed above. That sum would be paid to the Sellers out of the proceeds of such a sale.  All amounts owed by the Company described above have been paid in full.
 
On September 29, 2014, the Company closed a transaction whereby it sold its ownership stake in BioCells, amounting to 50.004% of the outstanding shares of BioCells to Diego Rissola (Purchaser), who is the current President and Chairman of the Board of BioCells and a shareholder prior to the transaction.
 
Under the Agreement, the Purchaser is obligated to pay the total amount of $705,000, as follows:
 
$5,000 on or before October 12, 2014; $10,000 on or before December 1, 2014; $15,000 on or before March 1, 2015; $15,000 on or before June 1, 2015; $45,000 on or before June 1, 2016; $55,000 on or before June 1, 2017; $55,000 on or before June 1, 2018; $55,000 on or before June 1, 2019; $65,000 on or before June 1, 2020; $75,000 on or before June 1, 2021; $75,000 on or before June 1, 2022; $75,000 on or before June 1, 2023; $80,000 on or before June 1, 2024; $80,000 on or before June 1, 2025.
 
The Purchaser is current with the payment schedule as of December 31, 2016.
 
VidaPlus
 
On January 24, 2011, the Company entered into a Stock Purchase Agreement to acquire up to 51% of the capital stock in VidaPlus, an umbilical cord processing and storage company headquartered in Madrid, Spain. The Agreement is organized into three tranches; the first executed at closing with an initial investment of approximately $204,000 (150,000 Euro) for an amount equivalent to 7% as follows; 1% of share capital in initial equity or approximately $30,000 and 6% or an estimated $174,000 as a loan convertible into equity within 12 months of closing. The initial investment was secured by a Pledge Agreement on 270 VidaPlus samples that were incurring annual storage fees. The second tranche provided the opportunity for an additional 28% in share capital through monthly investments based on the number of samples processed in that month (up to a maximum of 550,000 EUR). In connection with Tranche 2, the Company loaned VidaPlus $246,525. Converting the investment from a loan into equity was to take place within 24 months of the date the amount of shares due to the Company pursuant to the second tranche is calculated. According to the Stock Purchase Agreement, the third tranche follows a similar loan to equity agreement as tranche two but for an additional 16% equity at the option of the Company (up to a maximum of 550,000 EUR).
 
In connection with the VidaPlus Stock Purchase Agreement entered into on January 24, 2011, the Company was obligated to make monthly loans to VidaPlus based on the number of new samples processed and up to a maximum of 550,000 Euro for each of Tranche 2 and 3 of the Agreement. Tranche 2 did contain provisions that provided the Company an option to discontinue funding if certain performance targets were not met.
 
In January 2012, the Company exercised its right to convert its Tranche 1 loan into 6% of the outstanding shares of VidaPlus, and as a result, the Company owned a total of 7% of the outstanding shares. At the time of the equity conversion, the Company no longer maintained its Pledge on the 270 VidaPlus samples associated with Tranche 1; however, the Company maintained a liquidation preference in VidaPlus over the money invested by the Company in VidaPlus. Additionally, the Company declined to make any further investment (loan or otherwise) to VidaPlus under either Tranche 2, Tranche 3 or otherwise. Pursuant to the Agreement, CBAI held a pledge over the umbilical cord blood maintenance and storage contracts between VidaPlus and certain of its customers, and all rights contained therein, including but not limited to the rights to administer those contracts and the rights to collect the revenues derived from those contracts, for 328 samples. CBAI held that pledge until such time as it converted the monies paid to VidaPlus under Tranche 2 of the Stock Purchase Agreement into equity into VidaPlus, in accordance with the formulas set forth in the Stock Purchase Agreement. CBAI was required to make that conversion within two years of when the calculation was made as to the amount of shares to which CBAI is entitled pursuant to Tranche 2, which meant that such conversion would take place around or before February 2014. CBAI also held a liquidation preference in VidaPlus for the money the Company invested in VidaPlus. On February 14, 2014, CBAI delivered to VidaPlus its election to convert its loan under Tranche 2 into shares of stock in VidaPlus, including Anti-Dilution shares.  The Company is entitled to an additional ownership stake of approximately 2.24% in connection with the forgoing, bringing its total ownership percentage to approximately 9.24%.
 
 
8
 
 
The Company holds approximately 9.24% of the outstanding shares of VidaPlus, and has a balance of convertible loans receivable amounting to $246,525. During the year ended December 31, 2012, the Company reviewed the recoverability of the equity investment and loans receivable and the carrying amount exceeds the fair value of the investment as a result of recurring and continued operating losses at VidaPlus. Fair value of the loans receivable is determined based on the discounted future net cash flows expected to be generated by assets pledged against the loans. The Company recorded an impairment of 100% of the book value of the equity investment and convertible loan receivable.
 
Competition
 
The Company is one of an estimated twenty-five (25) firms in the US providing private cord blood banking services, with approximately one half of those providing additional cord tissue related services. The Company has built its business in the United States (“US”) via a model of organic growth and accretive acquisitions.
 
 
Patents, Trademarks, Licenses or Royalty Agreements.
 
Patent License Agreement
 
PharmaStem Therapeutics claimed to hold certain patents relating to the storage, expansion and use of hematopoietic stem cells. Previously, PharmaStem commenced suit against numerous companies involved in cord blood collection and preservation alleging infringement of its patents. In October 2003, after a jury trial, judgment was entered against certain of the Company’s competitors and in favor of PharmaStem in one of those suits. In February 2004, PharmaStem commenced suit against Cord Partners and certain of its competitors alleging infringement of its patents. Management of Cord Partners determined to settle, rather than to litigate, this matter. As a result, PharmaStem and Cord Partners entered into a Patent License Agreement in March 2004. Pursuant to the Patent License Agreement, Cord Partners could, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem’s claimed technology and processes allegedly covered by its patents for so long as the patents may remain in effect. Most of the patents at issue expired in 2010. PharmaStem could claim, arguendo, Cord Partners is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by Cord Partners from the collection and storage of cord blood on and after January 1, 2004. Other than potential royalties, which would be disputed by Cord, no amount is payable by Cord Partners to PharmaStem. All litigation between the parties was dismissed and all prior claims were released. As of 2008, Cord ceased paying all royalties to PharmaStem. The patents have been declared void under a final decision on appeal, and as such, there is no pending litigation in this matter. As of December 31, 2014, the Company included approximately $226,000 in accounts payable and $120,000 included in accrued expenses to account for this liability since 2008, though the Company disputes that it owes any royalties to Pharmastem. As of September 30, 2015, and for fiscal year 2015, the Company made a one-time adjustment of the previously held amount of approximately $226,000 in accounts payable and $120,000 in accrued expenses, to its income statement as a gain on a settlement payable of $346,269.
 
 
9
 
 
Trademarks and Other Intellectual Property
 
The Company relies upon a combination of trade secret, copyright and trademark laws, license agreements, confidentiality procedures, nondisclosure agreements and technical measures to protect the intellectual property used in its business. The Company generally enters into confidentiality agreements with its consultants, vendors and others. The Company also seeks to control access to and distribution of its technology, documentation and other proprietary information. The Company uses numerous trademarks, trade names and service marks for its products and services. CBAI also from time to time relies on a variety of intellectual property rights that the Company licenses from third parties. Although the Company believes that alternative technologies are generally available to replace such licensed intellectual property, these third party properties and technologies may not continue to be available to the Company on commercially reasonable terms.
 
The steps the Company has taken to protect its copyrights, trademarks, service marks and other intellectual property may not be adequate, and third parties could infringe, misappropriate or misuse the Company’s intellectual property. If this were to occur, it could harm its reputation and adversely affect its competitive position or results of operations.
 
The Company and CBA Properties, Inc. own various trademarks utilized by the Company and its subsidiaries. These trademarks include, among other marks, word marks registered with the United States Patent and Trademark Office (“USPTO”) in two international classes for the words “Cord Blood America,” as well as design marks which incorporate the words “Cord Blood America” registered with the USPTO in two international classes, a design mark registered with the USPTO utilizing the word “CorCell,” along with other trademarks registered with the USPTO. The Company also claims intellectual property rights in other words and designs not currently registered with the USPTO.
 
Environmental Remediation
 
The Company does not currently have any material capital expenditure commitments for environmental compliance or environmental remediation for any of its properties. The Company does not believe compliance with federal, state and local provisions that have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material effect on its capital expenditures, potential earnings or competitive position.
 
Employees
 
As of December 31, 2016, the Company had nine full-time employees, and one part time employee. This includes the Company’s Interim President and General Counsel, operations, laboratory, administrative, accounting, customer service and sales personnel.
 
Exchange Act Reports
 
The Company makes available free of charge through its Internet website, www.cordblood-america.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, (both XBRL compliant), current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (SEC). The SEC maintains an Internet website, www.sec.gov, which contains reports, proxy and information statements, and other information filed electronically with the SEC. Any materials that the Company files with the SEC may also be read and copied at the SEC’s Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
 
Information on the operations of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The information provided on the Company’s website is not part of this report and is not incorporated herein by reference.
 
ITEM 1A. RISK FACTORS
 
Risks Related To the Company’s Business
 
The Company May Not Be Able To Increase Sales Or Otherwise Successfully Operate Its Business, Which Could Have A Significant Negative Impact On Its Financial Condition
 
The Company believes that the key to its success is to increase sales of its cord blood and cord tissue processing and storage services, and birth tissue related procurement services; thereby increasing its revenues and available cash. The Company’s success with regard to cord blood and cord tissue processing and storage services will depend in large part on widespread market acceptance of cryo-storage of cord blood and tissue, and its efforts to educate potential customers and sell its services. Broad use and acceptance of the Company’s service requires marketing expenditures and education and awareness of consumers and medical practitioners. The Company may not have the resources required to promote its services and their potential benefits. Continued commercialization of the Company’s services will also require that it satisfactorily address the needs of various medical practitioners that constitute a target market to reach consumers of its services and to address potential resistance to recommendations for its services. If the Company is unable to increase market acceptance of its services, the Company may be unable to generate enough additional revenue to maintain profitability or to continue its operation.
 
For the Company’s birth tissue related procurement services, success will depend in a large part on the level of demand in the products being developed by the organizations for which the Company provides tissue, or ones to which the Company may provide services in the future, as well as on the Company’s ability to procure birth tissue acceptable to these organizations.  If the Company is unable to meet the current or future demand of birth tissue from its sources, this emerging source of Company revenue may impact profitability and/or continuing operations.
 
 
10
 
 
The Company May Be Liable To Its Customers And May Lose Customers If It Provides Poor Service, If Its Services Do Not Comply With Its Agreements Or If Its Storage Facilities Fail.
 
The Company must meet its customers’ service level expectations and its contractual obligations with respect to its services. Failure to do so could subject the Company to liability, as well as cause it to lose customers. In some cases, the Company relies upon third party contractors to assist in providing its services. The Company’s ability to meet its contractual obligations and customer expectations may be impacted by the performance of its third party contractors and their ability to comply with applicable laws and regulations.
 
The Company Storage Systems Are Subject To The Risk Of Material Disruption; Insurance Risks
 
Any material disruption in the Company's ability to maintain continued, uninterrupted and fully operating storage systems could have a material adverse effect on the Company business, operating results and financial condition. The Company systems and operations are vulnerable to damage or interruption from fire, flood, break-ins, tornadoes and similar events. The Company may not carry sufficient business interruption insurance and/or liability insurance to compensate for losses and claims that might occur in the event of such an interruption.
 
If The Company Does Not Obtain And Maintain Necessary Domestic Regulatory Registrations, Approvals And Comply With Ongoing Regulations, It May Not Be Able To Market Its Cord Blood and Cord Tissue Banking Services.
 
The cord blood and cord tissue banking services, and tissue procurement services that the Company provides are currently subject to FDA regulations requiring infectious disease testing. The facility the Company operates has registered with the FDA as a cord blood and cord tissue banking service and tissue procurement service. Its products and services are registered with the FDA, and are subject to FDA inspection. The FDA has established a comprehensive regulatory program for human cellular and tissue-based products as well as rules for donor suitability. Consistent with industry practice, the Company’s collection kits have not been cleared as a medical device. CBAI’s activities are regulated by the FDA under 21 CFR (Code of Federal Regulations) 1271 and Section 361 of the Public Health Service Act.  Procedures for all steps that the Company performs in testing, screening and determination of donor eligibility must be established and maintained requiring additional resources, staff and management oversight. Significant costs are associated with maintaining compliance in accordance with current regulatory requirements. The Company may not be able to comply with any future regulatory requirements, including product standards that may be developed after the date hereof. Moreover, the cost of compliance with government regulations may adversely affect revenue and profitability.
 
Failure to comply with applicable regulatory requirements can result in, among other things, injunctions, operating restrictions, and civil fines and criminal prosecution. Delays or failure to obtain registrations could have a material adverse effect on the marketing and sales of services and impair the ability to operate profitably in the future. Of the states in which the Company provides services, only California, New Jersey, New York, and Maryland currently require that cord blood banks be licensed. The states of New York and California require that cord tissue banks be licensed as well.   CBAI maintains the required procurement service licenses of the states of California, New York, New Jersey and Maryland. CBAI’s third party laboratory does not maintain all of the required service licenses in the state of Maryland, but CBAI anticipates the third party laboratory will seek these licenses. If other states adopt requirements for the licensing of cord blood and tissue banking or procurement services, the Company and its third party laboratory may have to obtain licenses to continue providing services in those states.
 
Because The Industry Is Subject To Rapid Technological And Therapeutic Changes And New Developments, The Company’s Future Success Will Depend On The Continued Viability Of The Use Of Stem Cells And Its Ability To Respond To The Changes.
 
The use of stem cells in the treatment of disease is a relatively new technology and is subject to potentially revolutionary technological, medical and therapeutic changes. Future technological and medical developments could render the use of stem cells obsolete. In addition, there may be significant advances in other treatment methods, such as genetics, or in disease prevention techniques, which could significantly reduce the need for the services the Company provides. Therefore, changes in technology could affect the market for the Company's services and necessitate changes to those services. CBAI believes that its future success will depend largely on its ability to anticipate or adapt to such changes, to offer on a timely basis, services that meet these evolving standards and demand of its customers. Expectant parents may not use Company services and its services may not provide competitive advantages with current or future technologies. Failure to achieve increased market acceptance could have a material adverse effect on Company business, financial condition and results of operations.
  
 
11
 
 
The Company’s Markets Are Increasingly Competitive, And In The Event The Company Is Unable To Compete Against Larger Competitors, Its Business Could Be Adversely Affected.
 
Cord blood and cord tissue banking and stem cell processing and storage is becoming an increasingly competitive business. The Company faces competition from other operators of cord blood and cord tissue stem cell processing and storage businesses and providers of cord blood and stem cell storage services. Competitors with greater access to financial resources may enter Company markets and compete with the Company for increased market share. Many competitors have longer operating histories, larger customer bases, longer relationships with clients, and significantly greater financial, technical, marketing, and public relations resources than the Company currently has. The Company has no research and development underway, while other competitors have established budgets for such research and development activities.  Established competitors, who have substantially greater financial resources and longer operating histories than the Company, are able to engage in more substantial advertising and promotion and attract a greater number of customers and business than the Company currently attracts. While this competition is already intense, if it increases, it could have an even greater adverse impact on the Company revenues and profitability. In the event that the Company is unable to compete successfully, its business will be adversely affected and competition may make it more difficult for the Company to grow its revenue and maintain its existing business.
 
The Company Information Systems Are Critical To Its Business And A Failure Of Those Systems Could Materially Harm the Company.
 
The Company depends on its ability to store, retrieve, process and manage a significant amount of information. If Company information systems fail to perform as expected, or if the Company suffers an interruption, malfunction or loss of information processing capabilities, it could have a material adverse effect on its business.
 
The Company’s Sales Can Be Impacted By The Health And Stability Of The General Economy.
 
Unfavorable changes in general economic conditions, such as a recession, or economic slowdown in the geographic markets in which the Company does business, may have the temporary effect of reducing the demand for the Company’s services. For example, economic forces may cause consumers to withhold discretionary dollars that might otherwise be spent on its services. Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of the uncollectable accounts. Each of these factors could adversely affect the Company’s revenue, price realization, gross margins and overall financial condition and operating results.
 
Volatility In The Financial Market May Negatively Impact The Company’s Ability To Access The Credit Markets.
 
Capital and credit markets have become increasingly volatile for microcap companies. If the capital and credit markets continue to experience volatility and availability of funds remains limited or prohibitively expensive, it is possible that the Company’s ability to raise additional capital, if needed, through the private placement of shares, debt and/or convertible debt may be limited by these factors if the Company requires such sources of additional capital in order to continue its operations, fund negative cash flow, and implement its business plans.
 
The Company Could Fail To Attract Or Retain Key Personnel, Which Could Be Detrimental To Its Operations.
 
The Company’s success largely depends on the efforts and abilities of its management team. The loss of their services could materially harm the Company’s business because of the cost and time necessary to find a successor. Such a loss would also divert management’s attention away from operational issues. The Company does not presently maintain key-man life insurance policies on its Executive Officers. The Company also has other key employees who manage its operations, and if the Company were to lose their services, senior management would be required to expend time and energy to find and train their replacements. To the extent that the Company is smaller than its competitors and has fewer resources, the Company may not be able to attract sufficient number and quality of staff.
 
The Company Could Fail to Retire Its Remaining Debt Obligation Which Could Subject the Company To A Default, And If Not Remedied, The Company’s Assets Being Sold or Seized.
 
The Company settled a lawsuit in December 2014, as set forth more fully in Note 4. Notes and Loans Payable, and Derivative Liabilities. If the Company is unable to pay the monthly installment amount of $100,000 per the terms described in the Settlement Agreement, the Company would be in default, with increased costs and possible acceleration of the note balance in full if not remedied within a prescribed timeline.  If unable to meet default and/or acceleration conditions of the Agreement, the obligations are secured by the Company assets which could lead to the sale or seizure of Company assets.  Such an adverse outcome could be significant to the Company’s results of operations and may limit the Company’s ability to engage in its business activities.
 
 
12
 
 
Trading Of The Company Stock May Be Restricted By The Securities Exchange Commission’s Penny Stock Regulations, Which May Limit A Stockholder’s Ability To Buy And Sell The Company Stock.
 
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. CBAI securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade Company securities. The Company believes that the penny stock rules discourage investor interest in and limit the marketability of its common stock.
 
Failure To Establish And Maintain Effective Internal Controls Over Financial Reporting Could Have An Adverse Effect On The Company’s Business, Operating Results and Stock Price.
 
Maintaining effective internal control over financial reporting is necessary for the Company to produce reliable financial reports and is important in helping to prevent financial fraud. If CBAI is unable to maintain adequate internal controls, its business and operating results could be harmed.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None
 
ITEM 2. PROPERTIES.
 
In October, 2009, the Company re-located its headquarters from Los Angeles, California to Las Vegas, Nevada. The Company’s principal office and laboratory operations are located at 1857 Helm Drive, Las Vegas, NV 89119. This facility encompasses approximately 16,523 square feet. The property is leased from an unaffiliated third party, whereby the original lease was for a period of five years ending September 2014.  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. The Company’s monthly rent payments are approximately $15,451, which includes Common Area Maintenance (CAM) charges.  
 
The Company maintains fire and casualty insurance on its leased property in an amount deemed adequate by management.
 
ITEM 3. LEGAL PROCEEDINGS
 
None.
 
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not Applicable.
 
 
13
 
 
PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
(a) Market Information. The Company Common Stock is traded on the OTC Bulletin Board, under the symbol CBAI.OB.
 
The following table sets forth the high and low bid prices of the Company’s Common Stock traded on the OTC Bulletin Board for fiscal years ended December 31, 2016, and December 31, 2015. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
 
 
Common Stock
 
Fiscal Year 2016
 
High
 
 
Low
 
First Quarter
 $0.0045 
 $0.0027 
Second Quarter
 $0.0045 
 $0.0029 
Third Quarter
 $0.0035 
 $0.0026 
Fourth Quarter
 $0.0031 
 $0.0024 
 
 
 
Common Stock
 
Fiscal Year 2015
 
High
 
 
Low
 
First Quarter
 $0.002 
 $0.001 
Second Quarter
 $0.004 
 $0.002 
Third Quarter
 $0.004 
 $0.003 
Fourth Quarter
 $0.006 
 $0.004 
 
 
(b) Holders. As of March 7, 2017, the Company Common Stock was held by approximately 663 shareholders of record. The Company’s transfer agent is Interwest Transfer Company, Inc., with offices at 1981 Murray Holiday Road, Suite 100, Salt Lake City, Utah 84117, phone number (801) 272-9294. The transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares of stock.
 
(c) Dividends. The Company has never declared or paid a cash dividend. There are legal restrictions which preclude the Company's ability to pay cash dividends on its common shares so long as it has an accumulated deficit. The Company does not anticipate declaring or paying any cash dividends in the foreseeable future.
 
(d) Securities Authorized for Issuance Under Equity Compensation Plans.
 
Equity Compensation Plan Information
 
The following table sets forth the information indicated with respect to the Company's compensation plans as of December 31, 2016, under which its common stock is authorized for issuance.
 
 
 
Number of Securities
to be issued
upon exercise of outstanding
options, warrants
and rights
(a)
 
 
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
 
 
Number of securities
remaining available
for future issuance
under equity compensation plans
(excluding securities
reflected in column (a))
(c)
 
Equity compensation plans approved by security holders
  664,058 
 $1.01 
  664,058 
Equity compensation plans not approved by security holders
  N/A 
    
    
 
    
    
    
Total
  664,058 
 $1.01 
  664,058 
 
 
14
 
 
Recent Issuances of Unregistered Securities
 
In the instances described under this sub-heading, the Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, in issuing securities.
 
Red Oak Agreement
 
On April 9, 2015, Cord Blood America, Inc. (the "Company") executed a Preferred Stock Purchase Agreement (the “Purchase Agreement”) and a Stockholder Agreement with Red Oak Fund LP, Red Oak Long Fund, LP and Pinnacle Opportunities Fund, LP (collectively the “Purchasers” or “Red Oak”). Subsequently, on April 14, 2015, the Company and Red Oak closed the transaction.
 
Pursuant to the Purchase Agreement, the Purchasers delivered to the Company, at Closing (defined in the Purchase Agreement), $724,000 (the “Purchase Price”), and the Company delivered to the Purchasers 724,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”).  The Purchase Price proceeds were used as repayment to the Company’s outstanding debt obligations.  The terms of the Preferred Stock are set forth in Articles of Amendment to Articles of Incorporation of the Company (“Articles of Amendment”) that were designated by the Board of Directors of the Company on April 9, 2015.
 
As set forth in the Articles of Amendment, the Preferred Stock shall be convertible into common stock of the Company at the “Conversion Rate,” where each holder of Preferred Stock shall be entitled to common stock in accordance with the number of shares of Preferred Stock they hold divided by the total shares of Preferred Stock outstanding, 724,000 shares, multiplied by the “Maximum Common Converted Share Number,” which is 29.9793% of the outstanding shares of the Company on a fully diluted and converted basis assuming the conversion of all convertible securities, including the conversion of the Preferred Stock.  The Preferred Stock shall not be converted until such time as there are sufficient authorized common stock shares, which are not reserved for other purposes, in order that all of the Preferred Stock can be converted to common shares.  When there are sufficient such shares, all of the Preferred Stock shall automatically be converted to common stock at the Conversion Rate.
 
Further pursuant to the Articles of Amendment, while Preferred Stock is outstanding, the holders of Preferred Stock, voting exclusively and as a separate class, are entitled to elect three (3) Directors to the Board of Directors of the Company (the “Series A Directors”).  The Series A Directors may be removed without cause only by a vote of the holders of the Preferred Stock.
 
In addition, on any matter presented to the stockholders for vote, the Preferred Stock shall vote as a class with the holders of common stock, and each share of Preferred Stock shall entitle the holder thereof to such number of votes as if the Preferred Stock were converted to common stock at the Conversion Rate.
 
Red Oak Conversion from Preferred to Common Shares
 
As a result of the increase in the authorized shares being approved by the shareholders on May 7, 2015, and per the terms of the Red Oak Agreement, the 724,000 shares of Preferred Stock held by Red Oak automatically converted into 381,052,632 common shares of the Company equivalent to 29.98% ownership in the Company.
 
Repurchase of Shares
 
The Company did not repurchase any of its shares during the year ended December 31, 2016.
 
ITEM 6. SELECTED FINANCIAL DATA
 
Not Applicable.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Summary and Outlook of the Business
 
CBAI primarily facilitates umbilical cord blood and cord tissue stem cell services, with a particular focus on the acquisition of customers in need of family based products and services. 
 
Cord
 
Services Provided By Cord
 
Cord’s operations facilitate umbilical cord blood banking and cord tissue services to expectant parents. The Company’s corporate headquarters re-located to Las Vegas, NV from Los Angeles, CA in October 2009. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord facilitates processing and storage of cord blood and cord tissue for new customers through an engagement with a third party laboratory. Cord provides or facilitates the following services to each customer.
 
 
15
 
 
Collection Materials. A medical kit that contains all of the materials and instructions necessary for collecting the newborn’s umbilical cord blood and cord tissue at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for infectious disease testing.
Physician And Customer Support. 24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing instruction for the successful collection, packaging, and transportation of the cord blood and cord tissue and maternal blood samples.
Transportation. Manage all logistics for transporting the cord blood and cord tissue unit to the Company’s third party facility immediately following birth. This procedure ensures chain-of-custody control during transportation for maximum security.
Comprehensive Testing. The cord blood sample is tested by third parties engaged by Cord for stem cell concentration levels and blood type. The maternal samples are tested for infectious diseases. Cord reports results to the newborn’s mother.
Cord Blood Storage. After processing and testing, the cord blood and cord tissue unit is cryogenically frozen in a controlled manner and stored in liquid nitrogen for potential future use. For new customers, this process is conducted at a third party laboratory.
 
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.  The Company receives a one-time recovery fee per tissue.  Associated services provided by the Company with this offering may include arranging for transportation, providing collection materials, facilitating information used to determine donor eligibility and arranging for infectious disease testing of the maternal blood.
 
Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, primarily through organic growth.
 
Critical Accounting Policies
 
CBAI defines critical accounting policies as those that are important to the portrayal of its financial condition and results of operations and require estimates and assumptions based on the Company's judgment of changing market conditions and the performance of its assets and liabilities at any given time. In determining which accounting policies meet this definition, the Company considered its policies with respect to the valuation of its assets and liabilities and estimates and assumptions used in determining those valuations. The Company believes the most critical accounting issues that require the most complex and difficult judgments and that are particularly susceptible to significant change to our financial condition and results of operations include the following:
 
determination of the level of allowance for bad debt
deferred revenue
revenue recognition
valuation of derivative instruments
 
Accounts Receivable
 
Accounts receivable consist of the amounts due for facilitating the processing and storage of umbilical cord blood and cord tissue, and for 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.
 
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.
 
Revenue Recognition
 
CBAI recognizes revenue under the provisions of ASC 605-25 (previously Staff Accounting Bulletin 104 “Revenue Recognition”). CBAI provides a combination of products and services to customers. This combination arrangement is evaluated under ASC 605-25-25 (previously Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"). ASC 605-25-25 addresses certain aspects of accounting for arrangements under multiple revenue generating activities.
 
 
16
 
 
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.
 
Valuation of Derivative Instruments
 
ASC 815-40 (formerly SFAS No. 133 "Accounting for derivative instruments and hedging activities"), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 "Accounting for derivative financial instruments indexed to, and potentially settled in, a company's own stock") to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Binomial option pricing formula and present value pricing. At December 31, 2015 and 2016, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations and comprehensive loss.
 
Results of Operations for the Year Ended December 31, 2016 Compared To the Year Ended December 31, 2015
 
For the year ended December 31, 2016, the Company's total revenue decreased to $3.29 million from $5.23 million over the same period of 2015, a decrease of 37.1%. Revenues are generated primarily from three sources: new enrollment/processing fees; recurring storage fees (both from cord blood and cord tissue); and services related to the procurement of birth tissue for organizations utilized in the transplantation and/or research of therapeutic products. The decrease in revenue is primarily due to a reduction in orders for procurement of birth tissue related services. Recurring storage revenues increased approximately 3% to $2.71 million for the year ended December 31, 2016, versus $2.62 million for the prior comparative year ended December 31, 2015.  Revenues from the procurement of birth tissue decreased to $0.17 million for the year ended December 31, 2016 from $1.73 million from the year ended December 31, 2015, a decrease of 90%.  This decline is attributable to the cessation of orders for birth tissue procurement services in 2016.
 
Cost of services as a percentage of revenue decreased from 35.7% to 27.5% for the comparative year ending 2016 versus 2015. The cost of services include transportation of the umbilical cord blood and tissue from the hospital to the lab, direct material, costs for processing and cryogenic storage of new samples by a third party laboratory, and allocated rent, utility and general administrative expenses. Gross profit decreased by approximately $0.98 million or 29.1% to $2.4 million from year ending 2015 to year ending 2016. The decline in gross profit is largely due to reduction in revenue as a result of cessation of orders for birth tissue procurement services.
 
Administrative and selling expenses for the year ended December 31, 2016 were $2.5 million as compared to $3.0 million for the comparative period of 2015, representing a 17% decrease. These expenses are primarily related to marketing/advertising, professional services, allocated facility, including utilities, expenses, and wages for personnel. The Company continues to evaluate its administrative and selling expenses for alignment with revenues.
 
The Company's net income was $0.10 million for the year ended December 31, 2016, a decrease of $0.34 million from $0.44 million for the year ended December 31, 2015.
 
Liquidity and Capital Resources
 
Total assets at December 31, 2016 were $3.1 million, compared to $3.7 million at December 31, 2015.  The total liabilities at December 31, 2016 were $2.55 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $0.36 million, $0.15 million, and $1.43 million respectively. The total liabilities at December 31, 2015 were $3.23 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $0.7 million, $0.15 million, and $1.6 million respectively. Total liabilities decreased by $0.68 million, primarily due to pay down of Promissory Notes.  
 
At December 31, 2016, the company had $0.93 million in cash, an increase of $0.14 million or 17% from the prior comparative period of 2015. Cash flows from operations are currently sufficient to fund operations, though net cash provided by operating activities for the year ended December 31, 2016 decreased by $0.15 million from $0.73 million from the prior comparative period of 2015.  During the last 12 months of 2016 there was no increase in notes payable for purposes of working capital, and the Company made payments toward notes payable to Tonaquint, Inc., as more fully described in Note 4. Notes and Loans Payable, and Derivative Liabilities. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred losses since its inception through December 31, 2014, as development and infrastructure costs were incurred in advance of obtaining customers. However, the Company had and has net income and positive cash flow from operations for the years ended December 31, 2015 and December 31, 2016. Starting in 2014, the Company's management commenced a plan to reduce operating expenses to be commensurate with operating cash flows. Prior to 2015, the Company relied on debt to provide capital for working capital needs.
 
Management has taken several actions to ensure that the Company will continue as a going concern, including the divesture of its investment in its unconsolidated affiliates, including the sale of its 51% ownership in Stellacure GmbH and 50.004% interest in Biocordcell Argentina S.A., headcount reductions, and reductions in discretionary expenditures. These changes effected by the Company's management resulted in the Company generating cash flow from operations in 2015 and 2016, and the Company did not require additional debt or equity capital from external sources. Further, the Company has reduced its debt via the repayment of the principal balance. Management plans to continue to implement its business plan and to fund operations through operating revenue and a corresponding increase in the amount of net income from its operations. The Company expects that cash flow from operations over the next 12 months will be sufficient to meet its working capital needs. Management's objective is to continue to monitor and manage expenses relative to its revenue such that it will continue to generate operating cash flows to meet its operating cash requirements. Management believes that these actions will enable the Company to continue as a going concern through December 31, 2017.
 
 
17
 
 
Off-Balance Sheet Arrangements
 
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
 
Recently Issued Accounting Pronouncements
 
In April 2015, the FASB issued an accounting standard update on simplifying the presentation of debt issuance costs.  The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.  Updates are effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
 
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 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 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.
 
ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not Applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
The Company’s consolidated financial statements and supplemental schedule and notes thereto as of December 31, 2016 and December 31, 2015, and for each of the two years then ended, together with the independent registered public accounting firm’s reports thereon, are set forth on pages F-1 to F-18 of this Annual Report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). The Company’s management has reviewed and evaluated the effectiveness of its disclosure controls and procedures as of December 31, 2016. Following this review and evaluation, management collectively determined that its disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including its president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
The deficiency in the Company’s disclosure controls and procedures is related to a lack of segregation of duties due to the size of the accounting department and the lack of experienced accountants due to the limited financial resources of the Company. The Company continues to actively develop the controls and resources necessary in order to be in position to remediate this lack of segregation of duties. 
 
 
18
 
 
Changes in Internal Control over Financial Reporting
 
There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that its receipts and expenditures are being made only in accordance with authorizations of its management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of its assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company assessed the effectiveness of its internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
 
Based upon management’s assessment using the criteria contained in COSO, and for the reasons discussed below, management has concluded that, as of December 31, 2016, its internal control over financial reporting was not effective.
 
Based on its evaluation, the Company's President and Principal Financial Officer identified a major deficiency that existed in the design or operation of its internal control over financial reporting that it considers to be a “material weakness”. The Public Company Accounting Oversight Board has defined a material weakness as a “significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” The material weakness was first identified at the beginning of 2007 and remained unchanged through December 31, 2016.
 
The deficiency in the Company's internal control is related to a lack of segregation of duties due to the size of the accounting department and the lack of experienced accountants due to the limited financial resources of the Company. The Company continues to actively develop the controls and resources necessary in order to be in position to remediate this lack of segregation of duties.
 
ITEM 9B. OTHER INFORMATION
 
Not applicable.
 
19
 
 
PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
 
The following table sets forth the names and positions of the Company’s Executive Officers and Directors. The terms of office for the Company’s Directors are as follows: Adrian Pertierra and Anthony Snow will continue until the 2018 annual meeting of shareholders; Timothy McGrath will continue until the 2017 annual meeting of shareholders; David Sandberg was elected to continue until the 2016 annual meeting of shareholders, provided that all Directors continue until a successor has been elected and qualified, or until his or her earlier death, resignation or removal. The Company Board of Directors elects its Officers, and their terms of office are at the discretion of the Board, except to the extent governed by an employment contract.
 
 
The Company's directors, executive officers and other significant employees, their ages and positions are as follows:
 
Name
 
Age
 
Position with the Company
Timothy McGrath
 
53
 
Director
David Sandberg
 
43
 
Chairman and Director
Anthony Snow
 
41
 
Director
Adrian Pertierra
 
44
 
Director
Stephen Morgan
 
40
 
Interim President, Corporate Secretary, General Counsel
 
David Sandberg has been the Chairman of the Board of the Company since April 2015.  He is the managing member and founder of Red Oak Partners, LLC, a Florida-based, SEC Registered investment company founded in 2003 and which manages several public and private funds. Previously, Mr. Sandberg co-managed JH Whitney & Co.’s Green River Fund from 1998 to 2002. Mr. Sandberg presently serves as the Chairman of the Board of Asure Software, Inc., and as a director of public companies SMTC Corp. and Issuer Direct Corporation, each of which Red Oak Partners is the largest or one of the largest owners. Mr. Sandberg has previously served as a director of public companies Planar Systems, Inc., RF Industries Ltd., and EDCI Holdings Inc., and presently serves as the Chairman of the Board of Kensington Vanguard Group, LLC, a private real estate services company. Mr. Sandberg’s public board experience includes serving as the Chairman of each of Audit, Compensation, Governance, and Strategic committees. Mr. Sandberg received a BA in Economics and a BS in Industrial Management from Carnegie Mellon University.
 
Timothy McGrath has been a Director of the Company since March 2006. Mr. McGrath has served in an executive capacity for the past fourteen years. Mr. McGrath is currently serving as Controller for Logic Information Systems, Inc., a technology services company. From January 2006 to February 2008 Mr. McGrath served as the Vice President of Finance and Accounting at BioE, Inc. From October 1999 through September 2005 Mr. McGrath served as Vice President and Chief Financial Officer of Orphan Medical, Inc.
 
Anthony Snow has been a Director of the Company since April 2015.  He is a Managing Director at Red Oak Partners. Prior to joining Red Oak, Mr. Snow worked at Soros Fund Management where he was part of a two person team that managed a $250 million global long/short equity portfolio. Prior to Soros, Mr. Snow focused on investments in global equities at both Ardea Capital Management, as part of the founding team, and Wyper Capital Management. Previously, Mr. Snow was employed at Lindsay Goldberg, a private equity firm, where he focused on leveraged buyouts. Mr. Snow began his career at Merrill Lynch & Co. as an Analyst in the Mergers & Acquisitions group. He received a B.B.A. with high distinction from the University of Michigan, concentrating in finance and accounting, and an M.B.A. from Harvard Business School. Mr. Snow is currently a Director and Chairman of the Finance Committee of StreetWise Partners, a New York City non-profit, and also serves on the Executive Committee.
 
Adrian Pertierra has been a Director of the Company since April 2015.  He is the Chief Financial Officer and Head of Trading at Red Oak Partners, LLC, a Florida-based, SEC Registered investment company.  Prior to joining Red Oak Partners in 2007, Mr. Pertierra worked at Tradition Asiel Securities, Inc. from 2006-2007, specializing in risk arbitrage. Previously, Mr. Pertierra served as the Vice President of Institutional Equity Sales and Trading at BGC Partners, LP, from 2002-2006. Mr. Pertierra is currently the Chairman of the Nominating and Governance committee and serves as a Director on the Board of Asure Software, Inc., a publicly traded company. Mr. Pertierra received a BA in Economics from the College of Holy Cross.
 
Stephen Morgan currently serves as Interim President, Corporate Secretary and General Counsel. Mr. Morgan has been General Counsel of the Company since August 2010 and in addition, has served as Vice President and Corporate Secretary since May 2012.  Prior to his employment with the Company, Mr. Morgan was an associate with Freund & Brackey LLP in Beverly Hills, California from 2005 to 2007 and with Shaub & Williams LLP in Los Angeles, California, from 2007 until his employment with the Company.  Mr. Morgan earned his Bachelor of Science degree from the University of Minnesota in 1999, and his Juris Doctor from Loyola Law School in Los Angeles, California in 2005.
 
 
20
 
 
Involvement In Certain Legal Proceedings
 
None of the Company's Officers, Directors, promoters or control persons has been involved in the past five years in any of the following:
 
(1)
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2)
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4)
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Committees; Audit Committee Financial Expert.
 
The Audit Committee provides assistance to the Board of the Company in fulfilling its oversight responsibility to shareholders, potential shareholders and the investment community relating to (a) the accounting and reporting practices of the Company, (b) the effectiveness of the Company’s internal control over financial reporting, (c) the Corporation’s compliance with legal and regulatory requirements related to financial reporting, (d) the qualifications and independence of the Corporation’s independent auditor, (e) the performance of the Corporation’s independent auditor and (f) the quality and integrity of the financial reports of the Corporation.  Mr. McGrath, Mr. Sandberg, Mr. Snow and Mr. Pertierra are the current members of the Audit Committee.  The Board has determined that the Company has two Audit Committee financial experts, Mr. Snow and Mr. McGrath.  In April 2015, the Board adopted its written Audit Committee charter and it can be found on the Company’s website at http://www.cordblood-america.com/investors/charters/.
 
Compliance with Section 16(a) of the Exchange Act
 
Section 16(a) of the Securities Exchange Act of 1934 requires that Company Officers and Directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission and with any exchange on which the Company's securities are traded. Officers, Directors and persons owning more than ten percent of such securities are required by Commission regulation to file with the Commission and furnish the Company with copies of all reports required under Section 16(a) of the Exchange Act. To the Company’s knowledge, based solely upon our review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2016, all Section 16(a) filing requirements applicable to its officers and directors were complied with.
 
Code of Ethics
 
The Company adopted a Code of Ethics on April 13, 2005 that applies to all of its directors, officers and employees, including principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics was attached as Exhibit 14.1 to the Company’s registration statement filed on Form SB-2 on May 2, 2005.
  
Nominating & Governance Committee.
 
The Nominating & Governance Committee identifies individuals qualified to become members of the Board, recommends director nominees for election at the next annual meeting of shareholders, subject to approval by the Board, develops and recommends to the Board a set of corporate governance principles applicable to the Company and oversees the evaluation of the Board and its dealings with management and appropriate committees of the Board.  Mr. McGrath, Mr. Sandberg, Mr. Snow and Mr. Pertierra are the current members of the Nominating & Governance Committee.  The Nominating & Governance Committee has a charter and it can be found on the Company’s website at http://www.cordblood-america.com/investors/charters/.  The Committee shall be comprised of Directors such that the Committee complies with all independence requirements under the “NASDAQ Rules for Determining Whether a Member of the Board of Directors is Independent”.
 
Selection of Nominees for the Board of Directors
 
One of the tasks of the Nominating & Governance Committee is to identify and recruit candidates to serve on the Board of Directors. The Committee is responsible for providing a list of nominees to the Board for nomination at each annual meeting of shareholders. This Committee will consider nominees for board membership suggested by its members and other Board members, as well as management and shareholders. The Committee may at its discretion retain a third-party executive search firm to identify potential nominees. The Committee will take into account many factors in evaluating a prospective nominee, including, among other things, having integrity and being accountable, being able to exercise informed judgment, being financially literate, having high performance standards, and adding to the Board’s diversity of backgrounds, experiences, skills, accomplishments, financial expertise, professional interests, personal qualities and other traits.
 
All shareholder nominating recommendations must be in writing, addressed to the Nominating & Governance Committee in care of the Company’s General Counsel, Cord Blood America, Inc., 1857 Helm Drive, Las Vegas, NV, 89119.  Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be considered. If a recommendation is submitted by a group of two or more shareholders, the information regarding recommending shareholders must be submitted with respect to each shareholder in the group. Acceptance of a recommendation for consideration does not imply that the Nominating & Governance Committee will nominate the recommended candidate.  In addition to proposing nominees for consideration to the Nominating & Governance Committee, shareholders may also directly propose nominees for consideration at an annual meeting of shareholders.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
The Company accrued or paid compensation to the Executive Officers as a group for services rendered to the Company in all capacities during the 2016 and 2015 fiscal years as shown in the following table.
 
 
21
 
 
SUMMARY COMPENSATION TABLE
 
Overview
 
The following is a discussion of the Company program for compensating its named Executive Officers and Directors.
 
Compensation Program Objectives and Philosophy
 
The primary goals of the Company policy of executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that its executives are compensated effectively in a manner consistent with Company strategy and competitive practice, and to align executive’s compensation with the achievement of the Company’s short and long term business objectives.
 
The Board of Directors considers a variety of factors in determining compensation of executives, including their particular background and circumstances, such as their training and prior relevant work experience, their success in attracting and retaining savvy and technically proficient managers and employees, increasing its revenues, broadening the Company product line offerings, managing costs and otherwise helping to lead the Company through a period of profitable growth.
 
The Company’s Board of Directors has formed a compensation committee charged with the oversight of executive compensation plans, policies and programs of the Company and with the full authority to determine and approve the compensation of the Company’s Interim President and also makes recommendations with respect to the compensation of other executive officers.
 
Elements of Compensation
 
The Company’s compensation program for the Named Executive Officers consists primarily of base salary. There is no retirement plan, long-term incentive plan or other such plans, although Mr. Morgan’s agreement has a bonus plan. The base salary provided is intended to equitably compensate the Named Executive Officers based upon their level of responsibility, complexity and importance of role, leadership and growth potential, and experience.
 
Base Salary
 
The Company’s Named Executive Officers receive base salaries commensurate with their roles and responsibilities, while considering the financial condition of the Company. Base salaries and subsequent adjustments, if any, are to be reviewed and approved by the Company’s Board of Directors, with the advice of the Compensation Committee, annually, based on an informal review of relevant market data and each executive’s performance for the prior year, as well as each executive’s experience, expertise and position. The base salaries paid to the Company’s Named Executive Officers in 2016 are reflected in the Summary Compensation Table below.
 
Stock-Based Awards under the Equity Incentive Plan
 
The Company previously provided equity awards as a component of compensation. No such awards were provided in 2016.
 
Employment Agreements
 
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.  In 2016, the Company paid Mr. Vicente $118,937 in connection with the severance, and the remaining amount payable as of December 31, 2016 is $166,511. 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.  In 2016, the Company paid Mr. Vicente $16,496 in connection with these payments, and as of December 31, 2016 has a remaining amount payable of $20,849. 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.
 
 
22
 
 
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.
 
Employment Agreements
 
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.  
 
Amended 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.
 
Perquisites
 
The Company did not provide its Named Executive Officers with any perquisites and other personal benefits. The Company does not view perquisites as a significant element of its compensation structure, but does believe that perquisites can be useful in attracting, motivating and retaining the executive talent for which it competes. It is expected that the current practice regarding perquisites will continue and will be subject to periodic review by its Compensation Committee and Board of Directors.
 
The following table sets forth the compensation paid to the Company’s President (former) and Interim President for each of its last two completed fiscal years. No other officer received compensation greater than $100,000 for either fiscal year.
 
Summary Compensation Table
 
Name and Principal Position
 
Year
 
 
 
Salary
($)
 
 
 
Bonus
($)
 
 
Option Awards
($)
 
 
 
All Other
Compensation ($)
 
 
 
Total
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joseph Vicente
2016
  16,875 
  11,407 
  0 
  0 
  28,282 
President and Principal Financial and Accounting Officer (former)
2015
  133,000 
  28,350 
  0 
  0 
  161,350 
 
    
    
    
    
    
Stephen Morgan
2016
  132,875 
  7,500 
  0 
  0 
  140,375 
Interim President, Corporate Secretary, and General Counsel
2015
  127,550 
  11,375 
  0 
  0 
  138,925 
 
 
 
23
 
 
Outstanding Equity Awards at Fiscal Year End.
 
The following table sets forth information with respect to the outstanding equity awards of the Company’s principal Executive Officers during 2016, and each person who served as an Executive Officer of CBAI as of December 31, 2016 (No grants were made during 2016):
 
2016 Grants of Plan-Based Awards
 
Name
 
Grant Date
 
 
All Other
Option Awards
(# of Cord
Shares)
 
 
Exercise Price of
Option Awards
($/Share)
 
 
Grant Date
Fair Value of
Option Awards
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joseph Vicente
 
 
 
 
 
 
 
 
 
 
 
 
Chairman and President (former)
  - 
  - 
 $- 
 $- 
 
    
    
    
    
Stephen Morgan
    
    
    
    
Interim President and General Counsel
  - 
  - 
 $- 
 $- 
 
Holdings of Previously Awarded Equity
 
2016 Outstanding Equity Awards at Fiscal Year-End
 
 
 
Option Awards
 
 
 
Number of Securities
Underlying Unexercised
Options (#)
 
 
Option
Exercise Price
 
 
Option
Expiration
Name
 
Exercisable
 
 
Un-exercisable
 
 
($)
 
 
Date
 
Joseph Vicente
 
 
 
 
 
 
 
 
 
 
President (former)
 
 
 
 
 
 
 
 
 
 
 
  75,000 
  - 
  1.00 
07/06/20
 
  150,685 
    
  .33 
07/13/17
 
  607,324 
    
  1.00 
12/31/19
 
  607,324 
    
  1.00 
12/31/19
 
  77,343 
    
  4.10 
07/01/20
 
  77,343 
    
  4.10 
07/01/20
 
COMPENSATION OF DIRECTORS
 
Director Compensation for year ending December 31, 2016
 
The following table sets forth with respect to the named Director, compensation information inclusive of equity awards and payments made in the year ended December 31, 2016.
 
Name
 
Fees Earned
or Paid in
Cash
($)
 
 
Stock
Awards
($)
 
 
Option
Awards
($)
 
 
Non-Equity
Incentive Plan
Compensation
($)
 
 
Nonqualified
Deferred
Compensation
Earnings
($)
 
 
All Other
Compensation
($)
 
 
Total
($)
 
(a)
 
(b)
 
 
(c)
 
 
(d)
 
 
(e)
 
 
(f)
 
 
(g)
 
 
(h)
 
Joseph R. Vicente
 $0 
 $0 
  0 
  0 
  0 
  0 
 $0 
Timothy McGrath
 $7,000 
 $0 
  0 
  0 
  0 
  0 
 $7,000 
David Sandberg
 $9,000 
 $0 
  0 
  0 
  0 
  0 
 $9,000 
Anthony Snow
 $8,000 
 $0 
  0 
  0 
  0 
  0 
 $8,000 
Adrian Pertierra
 $6,000 
 $0 
  0 
  0 
  0 
  0 
 $6,000 
 
On April 17, 2015, the Board established compensation for non-management Directors of $5,000 per year, plus $1,000 per year for the Chairman of the Nominating & Governance Committee (currently Adrian Pertierra), $2,000 per year for the Chairman of the Compensation Committee (currently Tim McGrath), $3,000 per year for the Chairman of the Audit Committee (currently Anthony Snow), and $4,000 per year for the Chairman of the Board (currently David Sandberg).
 
 
24
 
 
Compensation Committee Interlocks and Insider Participation
 
Mr. McGrath, Mr. Sandberg, Mr. Snow and Mr. Pertierra are the current members of the Compensation Committee.
During the fiscal year ended December 31, 2016, none of the Company’s Executive Officers served on the Board of Directors of any third party entities whose directors or officers serve on the Company’s Board of Directors.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
Beneficial Ownership
 
The following table sets forth information as of March 10, 2017, except as otherwise noted, with respect to the beneficial ownership of the Company’s common stock and is based on 1,272,066,146 shares of common stock issued and outstanding and entitled to vote as of said date as to:
 
Each person known by the Company to own beneficially more than five percent of our issued and outstanding common stock;
Each director and prospective director of the Company; and
The Company’s Interim President and each person who serves as an executive officer of the Company; and all executive officers and directors of the Company as a group.
 
Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned.
 
Title Of Class
Name And Address Of Beneficial Owner
 
 
Amount And Nature
Of Beneficial
Ownership
 
 
 
Approximate
Percent of
Class (%)
 
 
 
 
 
 
 
 
 
 
 
 
Common
 
Cryo-Cell International, Inc. (1)
  110,749,924 
  8.7%
     
700 Brooker Creek Boulevard, Suite 1800
    
    
     
Oldsmar, Florida 34677
    
    
 
    
    
 
Common
 
Red Oak Partners, LLC (2)
  381,052,632 
  30.0%
     
1969 SW 17th Street
    
    
     
Boca Raton, Florida 33486
    
    
 
Title Of Class
Name And Address Of Beneficial Owner (3)
 
 
Amount And Nature
Of Beneficial
Ownership
 
 
 
Approximate
Percent of
Class (%)
 
Common
Stephen Morgan, Interim President, Secretary and General Counsel
  100,000 
  *%
Common
Timothy G. McGrath, Director
  90,669 
  *%
Common
David Sandberg, Chairman of the Board
  381,052,632(2)
  30.0%
Common
Anthony Snow, Director
  0 
  *%
Common
Adrian Pertierra, Director
  0 
  *%
Common
All above executive officers and directors as a group (6 persons)
  381,243,301 
  30.1%
 
* Less than 1% of the outstanding common stock.

(1)
The amount shown and the following information is derived from an Amendment No. 2 to Schedule 13D filed by Cryo-Cell International, Inc., reporting beneficial ownership as of April 11, 2016.
(2)
Red Oak has shared voting power and shared dispositive power over the 381,052,632 shares. Red Oak is affiliated with the following entities and individual, that hold voting power and dispositive power over certain shares: (i) The Red Oak Fund, LP; (ii) The Red Oak Long Fund, LP; (iii) Pinnacle Opportunities Fund, LP; (iv) Pinnacle Capital Partners, LLC and (v) David Sandberg. Each of them disclaims beneficial ownership with respect to any shares other than shares owned directly by them.
(3)
Except as noted above, the address for the above identified officers and directors of the Company is c/o Cord Blood America, Inc., Helm Drive, Las Vegas, NV, 89119. Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, or convertible debt currently exercisable or convertible, or exercisable or convertible within 60 days of March 10, 2017 are deemed outstanding for computing the percentage of the person holding such option or warrant. Percentages are based on a total of 1,272,066,146shares of common stock outstanding on March 10, 2017 and shares issuable upon the exercise of options, warrants exercisable, and debt convertible on or within 60 days of March 10, 2017 as described above. The inclusion in the aforementioned table of those shares, however, does not constitute an admission that the named shareholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, to our knowledge based upon information produced by the persons and entities named in the table, each person or entity named in the table has sole voting power and investment power, or shares voting and/or investment power with his or her spouse, with respect to all shares of capital stock listed as owned by that person or entity.
 
 
25
 
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Certain Relationships and Related Transactions
 
China Stem Cells, Ltd.
 
In March of 2010 the Company acquired pursuant to a License Agreement, a 10% non dilutable interest in what became, in December 2010, China Stem Cells, Ltd., a Cayman Islands Company (hereinafter "Cayman"), which indirectly holds a 100% capital interest in AXM Shenyang, a company organized to conduct a Stem Cell Storage Business in China. In exchange for issuance of an equity interest in Cayman, under the terms of the Transfer of Technology Agreement the Company agreed to provide technology transfer, knowhow and training in the setup, marketing and operation of the China Stem Cell Storage business. In connection with the License Agreement, the Company is to receive royalties equal to 8.5% of "Net Revenues" realized from the China Stem Cell Storage business, over the 15 year term of the agreement, with certain minimum annual royalties’ payable beginning in 2011. The Company has not been paid any royalty balance due to date, and it remains doubtful that any such royalties will be collected.
 
In December of 2010 the Company also acquired the option to provide up to $750,000 of additional capital funding to Cayman through the purchase of Cayman Secured Convertible Promissory Notes and attached Cayman Warrants to acquire its Common Stock. Other Cayman shareholders were granted similar options, with the intent of raising the aggregate up to $1.5 million in additional capital for Cayman and its subsidiaries. CBAI has exercised this option in part, provided a total of $400,000 in additional capital to Cayman, and is to receive Cayman Secured Convertible Promissory Notes for this sum along with 80 Cayman (TBD) Warrants. The Secured Convertible Promissory Notes are convertible into Cayman stock at a conversion price of $1,500 per share, subject to certain adjustments. The Warrants have a five year term and are exercisable at an option exercise price of $0.05 per share per share, subject to certain adjustments. The Company has recorded a reserve for the entire carrying amount of the receivable, including interest. The Company’s former President, Joseph Vicente was appointed as a Director of China Stem Cells Ltd. in July 2012.
 
Director Independence
 
All of the directors are “independent” as defined in the applicable listing standards of the NASDAQ.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
The following table sets forth the fees billed by our principal independent accountants, RBSM LLP (“RBSM”), and its predecessor, De Joya Griffith, LLC (“De Joya”), for each of our last two fiscal years for the categories of services indicated:
 

 
RBSM
 
 
De Joya
 
 
RBSM
 
 
 
December 31, 2015
 
   December 31, 2016 
Audit Fees
 $25,970 
 $57,276 
 $108,248 
Audit Related Fees
  - 
  - 
  - 
Tax Fees
  - 
  16,000 
  16,000 
All Other Fees
  - 
  - 
  - 
 
 $25,970 
 $73,276 
 $124,248 
 
RBSM and De Joya did not perform any non-audit services for the Company in the years ended December 31, 2016 and 2015.
 
During the years ended December 31, 2016 and 2015, RBSM billed the Company for $124,248 and $25,970, respectively. During the years ended December 31, 2016 and 2015, De Joya billed the Company for $0 and $73,276, respectively.
 
 
26
 
 
Audit fees. Consists of fees billed for the audit of the Company’s annual financial statements, review of our Form 10-K, review of the Company’s interim financial statements included in the Company’s Form 10-Q and services that are normally provided by the accountant in connection with year-end statutory and regulatory filings or engagements.
 
Audit-related fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”, review of our Forms 8-K filings and services that are normally provided by the accountant in connection with non-year-end statutory and regulatory filings or engagements.
 
Tax fees. Consists of professional services rendered by a company aligned with the Company’s principal accountant for tax compliance, tax advice and tax planning.
 
Other fees. The services provided by the Company’s accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.
 
The Audit Committee pre-approves all audit and non-audit services performed by the Company’s auditors and the fees to be paid in connection with such services in order to assure that the provision of such services does not impair the auditor’s independence.
 
 
27
 
 
PART IV
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
The following documents are filed as a part of this report or incorporated herein by reference:
 
(1)
The Company’s Consolidated Financial Statements are listed on page F-3 of this Annual Report.
(2)
Financial Statement Schedules.
 
None
 
(3)
Exhibits
 
The following documents are included as exhibits to this Annual Report:
 
Exhibit No.
 
Description
2
 
Form of Common Stock Share Certificate of Cord Blood America, Inc. (1)
3.1(i)
 
Amended and Restated Articles of Incorporation of Cord Blood America, Inc. (1)
3.1(ii)
 
Articles of Amendment to Articles of Incorporation (5)
3.1(iii)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (6)
3.1(iv)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (12)
3.1(v)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (12)
3.1(vi)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (17)
3.1 (vii)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (31)
3.2(i)
 
Amended and Restated Bylaws of Cord Blood America, Inc. (1)
3.2(ii)
 
Second Amended and Restated Bylaws of Cord Blood America, Inc. (29)
10
 
Patent License Agreement dated as of January 1, 2004 between PharmaStem Therapeutics, Inc. and Cord Partners, Inc. (2)
10.1
 
Board Compensation Plan (3)
 
 
28
 
 
10.2
 
Employment Agreement between the Company and Joseph Vicente (22)
10.3
 
Lease for Las Vegas Facility (9)
10.4
 
2011 Flexible Stock Option Plan (17)
10.5
 
Compensatory Arrangement for Certain Officers Effective July 13, 2009, Stock Options (8)
10.6
 
Compensatory Arrangement for Certain Officers Effective December 31, 2009, Stock Options (9)
10.8
 
Compensatory Arrangement for Certain Officers Executed July 1, 2010, Stock Options (11)
10.9
 
Departure of Directors or Appointment Certain Officers; Election and of Directors, Appointment of Certain Officers on May 15, 2012 (15)
10.1
 
Employment Agreement between the Company and Stephen Morgan (23)
10.11
 
On May 20, 2013 Cord Blood America, Inc. announced a new service offering. (18)
10.12
 
On December 30, 2013, the Company engaged De Joya Griffith, LLC (the “New Accountant”) to serve as the Registrant’s independent registered public accountants for the fiscal year ended December 31, 2013. (19)
10.14
 
On September 29, 2014, the Company announced it had sold its ownership interest in Biocordcell Argentina S.A. (BioCells) to a current shareholder and President, Diego Rissola. (21)
10.15
 
On December 17, 2014, the Company entered into a Settlement Agreement with St. George Investments, LLC and Tonaquint (22)
10.16
 
On April 9, 2015, the Company announced it had executed a Purchase Agreement with Red Oak Partners, LLC and its affiliates for a preferred equity investment. (24)
10.17
 
On April 9, 2015, the Company entered into an Amendment to the Executive Employment Agreement with Joseph R. Vicente and Stephen Morgan. (25)
10.18
 
Effective April 15, 2015, pursuant to the Preferred Stock Red Oak Transaction, three (3) Directors were elected to the Board of the Company, David Sandberg, Anthony Snow and Adrian Pertierra. (26)
10.19
 
On April 17, 2015, the Company established compensation for non-management Directors. (27)
10.2
 
Effective May 22, 2015, the Board of Directors unanimously approved and adopted the Second Amended and Restated By-Laws of the Company. (29)
10.21
 
Reserved
10.22
 
On August 6, 2015, the Company shareholders approved an amendment to the Amended and Restated Articles of Incorporation (31)
10.23
 
The Company’s Audit Committee approved the change in the Company’s auditors to RBSM LLP.  The former auditor, De Joya Griffith resigned. (32)
10.24
 
On February 12, 2016, the Company and Stephen Morgan entered into a Second Amendment to Executive Employment Agreement. (33)
10.25
 
On February 12, 2016, the Company and Joseph Vicente entered into a Mutual Separation Agreement. (33)
10.26
 
Effective March 31, 2017, the Company and Stephen Morgan entered into a Third Amendment to Executive Employment Agreement (34)
21
 
List of Subsidiaries (4)
31.1
 
Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed Herewith)
32.1
 
Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
29
 
 
(1) Filed as an exhibit to Registration Statement on Form 10-SB filed on May 6, 2004
(2) Filed as an exhibit to Amendment No. 1 to Form 10-SB filed on August 23, 2004
(3) Filed as an exhibit to Current Report on Form 8-K filed on February 8, 2006
(4) Filed as an exhibit to Current Report on Form 8-K filed on June 13, 2008
(5) Filed as an exhibit to Current Report on Form 8-K filed on August 29, 2008
(6) Filed as an exhibit to the Current Report on Form 8-K filed on March 31, 2009  
(7) Reserved
(8) Filed as an exhibit to Current Report on Form 8-K filed on January 7, 2010
(9) Filed as an exhibit to Current Report on Form 10-K filed on March 31, 2010
(10) Reserved
(11) Filed as an exhibit to Current Report on Form 8-K filed on July 7, 2010
(12) Filed as an exhibit to Current Report on Form 10Q filed on May 23, 2011
(13) Reserved
(14) Reserved
(15) Filed as an exhibit to Current Report on Form 8-K filed on May 15, 2012
(16) Reserved
(17) Filed as an exhibit to Current Report on Form 8K filed on September 27, 2012
(18) Filed as an exhibit to Current Report on Form 8K filed on May 20, 2013.
(19) Filed as an exhibit to Current Report on Form 8K filed on January 10, 2014
(20) Reserved
(21) Filed as an exhibit to Current Report on Form 8K filed on October 3, 2014
(22) Filed as an exhibit to Current Report on Form 8K filed on December 23, 2014
(23) Filed as an exhibit to Current Report on Form 10K filed on March 31, 2015
(24) Filed as an exhibit to the Current Report on Form 8K filed on April 14, 2015
(25)  Filed as an exhibit to the Current Report on Form 8K filed on April 14, 2015
(26) Filed as an exhibit to the Current Report on Form 8K filed on April 16, 2015
(27) Filed as an exhibit to the Current Report on Form 8K filed on April 22, 2015
(28) Filed as an exhibit to the Current Report on Form 8K filed on May 13, 2015
(29) Filed as an exhibit to the Current Report on Form 8K filed on May 29, 2015
(30) Reserved
(31) Filed as an exhibit to the Current Report on Form 8K filed on August 10, 2015
(32) Filed as an exhibit to the Current Report on Form 8K filed on August 13, 2015
(33) Filed as an exhibit to the Current Report on Form 8K filed on February 19, 2016
(34) Filed as an exhibit to the Current Report on Form 8K filed on March 21, 2017.
 
 
30
 
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 28th day of March, 2017.
 
 
CORD BLOOD AMERICA, INC.    
 
 
 
 
 
By:
/s/Stephen Morgan
 
 
 
Interim President
 
 
 
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
 
 
 
 
 
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
/s/Stephen Morgan
 
 
Interim President
(Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer)
 
March 28, 2017
 
 
 
/s/David Sandberg
 
 
Chairman and Director
 
March 28, 2017
 
/s/Anthony Snow
 
 
Director
 
March 28, 2017
 
/s/Timothy McGrath
 
 
Director
 
March 28, 2017
 
/s/Adrian Pertierra
 
 
Director
 
March 28, 2017
 
 
 
 
 
 
31
 
FINANCIAL STATEMENTS
 
Index to Financial Statements
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm
F-2
 
 
Consolidated Balance Sheets
F-3
 
 
Consolidated Statements of Operations
F-4
 
 
Consolidated Statement of Stockholders’ Equity (Deficit)
F-5
 
 
Consolidated Statements of Cash Flows
F-6
 
 
Notes to the Consolidated Financial Statements
F-7
 
 
 
 
F-1
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and Stockholders of
Cord Blood America, Inc.
 
 
We have audited the consolidated balance sheets of Cord Blood America, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2016. Cord Blood America, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cord Blood America, Inc. and subsidiaries as of December 31, 2016 and 2015 and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
 
 
RBSM, LLP
 
Henderson, Nevada
March 27, 2017
 
 
 
F-2
 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AUDITED)
 
 
 
December 31,
2016
 
 
December 31,
2015
 
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
    Cash
 $926,209 
 $789,046 
    Accounts receivable, net of allowance for doubtful accounts of $78,123 and $105,037, respectively
  113,316 
  349,859 
    Note receivable – Banco Vida (current portion)
  -- 
  58,709 
    Receivable - Biocells net of discount $27,541 and $28,105, respectively (current portion)
  27,459 
  16,895 
    Prepaid expenses
  175,065 
  151,874 
    Inventory
  58,376 
  107,060 
    Total current assets
  1,300,425 
  1,473,443 
 
    
    
Property and equipment, net of accumulated depreciation and amortization of $743,200 and $695,335, respectively
  66,628 
  119,189 
Customer contracts and relationships, net of accumulated amortization $4,232,982 and $4,040,983, respectively
  1,322,056 
  1,637,409 
Other assets
  19,292 
  19,292 
Note receivable – Banco Vida (long term portion)
  -- 
  4,432 
Receivable – Biocells net of discount $140,041 and $167,231, respectively (long term portion)
  419,959 
  447,769 
    Total assets
 $3,128,360 
 $3,701,534 
 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    
Current liabilities:
    
    
    Accounts payable
 $151,305 
 $152,805 
    Accrued expenses
  112,020 
  204,939 
    Severance payable
  187,360 
  - 
    Deferred revenue (current portion)
  1,158,578 
  1,297,244 
    Derivative liability (current portion)
  109,731 
  182,213 
Interest on promissory notes
  204,494 
  128,607 
Promissory convertible notes payable, net of unamortized discount of $43,432 and $159,407, respectively (current portion)
  356,568 
  292,298 
    Total current liabilities
  2,280,056 
  2,258,106 
 
    
    
Deferred revenue (long term portion)
  271,628 
  304,188 
Derivative liability (long term portion)
  -- 
  255,290 
Promissory convertible note payable, net of amortized discount of $0 and $159,407, respectively (long term portion)
  -- 
  409,517 
    Total liabilities
  2,551,684 
  3,227,101 
 
    
    
Stockholders' equity:
    
    
    Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares outstanding
  -- 
  -- 
    Common stock, $.0001 par value, 2,890,000,000 shares authorized, 1,272,066,146 outstanding
  127,207 
  127,207 
    Additional paid-in capital
  53,954,510 
  53,954,510 
    Common stock held in treasury stock, 20,000 shares
  (599,833)
  (599,833)
    Accumulated deficit
  (52,905,208)
  (53,007,451)
    Total stockholders’ equity
  576,676 
  474,433 
    Total liabilities and stockholders’ equity
 $3,128,360 
 $3,701,534 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-3
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 
(AUDITED)
 
 
 
YEAR  
 
 
YEAR    
 
 
 
ENDED  
 
 
ENDED    
 
 
 
DECEMBER 31,
2016  
 
 
DECEMBER 31,
2015    
 
 
 
 
 
 
 
 
Revenue
 $3,288,291 
 $5,227,776 
Cost of services
  (904,863)
  (1,864,500)
    Gross profit
  2,383,428 
  3,363,276 
Administrative and selling expenses
  (2,489,686)
  (3,005,140)
   Income (loss) from operations
  (106,258)
  358,136 
 
    
    
Interest expense and change in derivative liability
  22,132 
  (305,224)
Gain or loss on BV Settlement
  151,951 
  -- 
Other income
  34,417 
  27,406 
Gain on recovery of loan receivable
  -- 
  40,000 
Gain on settlement of payable
  -- 
  346,269 
Loss on legal settlement
  -- 
  (28,652)
 
    
    
Income before provision for income taxes
  102,243 
  437,935 
 
    
    
Income taxes
  -- 
  -- 
Net income
 $102,243 
 $437,935 
 
    
    
Basic earnings per share
 $0.00 
 $0.00 
Diluted earnings per share
 $0.00 
 $0.00 
Weighted average common shares outstanding
    
    
    Basic weighted average common shares outstanding
  1,272,066,146 
  1,272,066,146 
    Diluted weighted average common shares outstanding
  1,272,066,146 
  1,272,066,146 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4
 
 
 
 CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2016 AND 2015
(AUDITED)
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock
 
 
Common Stock
 
 
Paid In
 
 
Treasury
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Stock
 
 
Deficit
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance December 31, 2014
  - 
 $- 
  890,000,000 
 $89,000 
 $53,264,971 
 $(599,833)
 $(53,445,386)
 $(691,248)
 
    
    
    
    
    
    
    
    
Issance of Preferred Stock for Cash
  724,000 
  72 
  - 
  - 
  723,928 
  - 
  - 
  724,000 
Issuance of Common Stock fo Conversion of Preferred Stock
  (724,000)
  (72)
  381,052,632 
  38,207 
  (38,135)
  - 
  - 
  - 
Issuance of Common Stock for Employee
    
  - 
  1,013,514 
  - 
  3,746 
  - 
  - 
  3,746 
Net Income
  - 
  - 
  - 
  - 
  - 
  - 
  437,935 
  437,935 
 
    
    
    
    
    
    
    
    
Ending Balance December 31, 2015
  - 
 $- 
  1,272,066,146 
 $127,207 
 $53,954,510 
 $(599,833)
 $(53,007,451)
 $474,433 
 
    
    
    
    
    
    
    
    
Net Income
  - 
  - 
  - 
  - 
  - 
  - 
  102,243 
  102,243 
 
    
    
    
    
    
    
    
    
Ending Balance December 31, 2016
  - 
 $- 
  1,272,066,146 
 $127,207 
 $53,954,510 
 $(599,833)
 $(52,905,208)
 $576,676 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5
 
 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(AUDITED)
 
 
 
YEAR-ENDED
 
 
YEAR-ENDED
 
 
 
DECEMBER 31,
2016
 
 
DECEMBER 31,
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net income
 $102,243 
 $437,935 
Adjustments to reconcile net income to net cash provided by operating activities:
    
    
Amortization of loan discount
  229,754 
  777,900 
Depreciation and amortization
  363,218 
  399,910 
Change in value of derivative liability
  (327,772)
  (594,127)
Amortization of loan receivable discount
  (28,104)
  (20,655)
Gain on recovery of loan receivable
  -- 
  (40,000)
Gain on settlement of payable
  -- 
  (346,269)
Gain on settlement with Banco Vida
  (151,951)
  -- 
Other income from loan receivable
  (6,313)
  -- 
Bad debt
  48,554 
  59,311 
Net change in operating assets and liabilities
    
    
     Changes in accounts receivable
  196,521 
  (106,577)
     Changes in other current assets
  -- 
  (24,783)
     Changes in Inventory
  45,433 
  -- 
     Changes in prepaid
  (23,191)
  (72,217)
     Changes in accounts payable
  (1,500)
  15,995 
     Changes in accrued expenses
  (92,920)
  17,366 
     Changes in severance payable
  187,360 
  -- 
     Changes in accrued interest
  75,887 
  121,451 
     Changes in deferred revenue
  (39,860)
  108,795 
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS
  577,359 
  734,035 
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
     Payments for purchase of property and equipment
  -- 
  (46,734)
     Payment to loan receivable - Banco Vida
  69,454 
  11,859 
     Payments from loan receivable – Biocordcell
  45,350 
  40,000 
     Payment from sales of equipment
  20,000 
  -- 
NET CASH PROVIDED BY INVESTNG ACTIVITIES OF CONTINUING OPERATIONS
  134,804 
  5,125 
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
     Proceeds from share issuance
  -- 
  724,000 
     Repayment of convertible note payable
  (575,000)
  (1,425,000)
NET CASH USED IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS
  (575,000)
  (701,000)
 
    
    
NET INCREASE IN CASH
  137,163 
  38,160 
 
    
    
Cash balance at beginning of year
 $789,046 
 $750,886 
Cash balance at end of year
 $926,209 
 $789,046 
 
    
    
Non-Cash Investing and Financing Activities
    
    
     Cash paid for interest
 $-- 
 $-- 
     Cash paid for tax
 $-- 
 $-- 
     Shares issued for settlement payment
 $-- 
 $3,750 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-6
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
 
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.
 
Company Developments – Banco Vida
 
On August 17, 2015, the Company received a notice of termination from Cord Blood Caribbean, Inc. d/b/a Banco Vida (“Banco Vida”) with regards to both the Tissue Agreement and the Storage and Processing Agreement between the two companies, effective February 2016.  The Company reached an amendment to the Tissue Agreement extending the agreement through February 7, 2018, and with automatic renewals for consecutive two (2) year terms, in perpetuity unless terminated prior to a renewal term or otherwise in accordance with the amendment.  Although the parties had not yet reached an agreement regarding the Storage and Processing Agreement between the two companies, Banco Vida continued to store samples with the Company until December 2016. In December 2016, the Company and Banco Vida entered a Release Agreement, pursuant to which the storage relationship between them ceased. In connection with the Release Agreement, Banco Vida paid the Company $20,000, and Banco Vida received from the Company equipment used in the storage of samples. The Company recorded a gain on settlement of $151,951 relating to release of deferred revenue and sales of equipment in connection with the transaction.
 
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.
 
 
F-7
 
 
Property and Equipment
 
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Routine maintenance and repairs are charged to expense as incurred while major replacement and improvements are capitalized as additions to the related assets. Sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the related asset and accumulated depreciation accounts with any gain or loss credited or charged to income upon disposition.
 
Intangible Assets
 
Intangible assets consist primarily of customer contracts and relationships as part of the acquisition of the CorCell and CureSource assets in 2007. During 2011 the Company also foreclosed and acquired assets from NeoCells, a subsidiary of ViviCells, as satisfaction of outstanding receivables from Vivicells. Intangible assets are stated at cost. Amortization of intangible assets is computed using the sum of the years’ digits method, over an estimated useful life of 18 years. Amortization expense for the years ended December 31, 2016 and 2015 was $295,486 and $345,348 respectively.
 
Impairment of Long-Lived Assets
 
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. The Company reviews goodwill for impairment at least annually or whenever events or circumstances are more likely than not to reduce the fair value of goodwill below its carrying amount.
 
Inventory
 
Inventory, comprised principally of finished goods, is stated at the lower of cost or market 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.
 
Notes Receivable
 
Notes receivable consists of the notes due from Biocordcell Argentina S.A. (BioCells) and Banco Vida. The notes receivable are recorded at 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 December 31, 2016 and December 31, 2015, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statements of operations.
 
 
F-8
 
 
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, 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.
 
Income Taxes
 
The Company follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the portion of tax benefits that more likely than not will not be realized. There was a valuation allowance equal to 100% of deferred tax assets as of December 31, 2016 and 2015.
 
The Company follows guidance issued by the FASB with regard to its accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the years ended December 31, 2016 and 2015. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state jurisdictions.
 
Accounting for Stock Option Plan
 
The Company’s share-based employee compensation plans are described in Note 11. On January 1, 2006, the Company adopted the provisions of ASC 718 , “Accounting for Stock-based Compensation (Revised 2004)” (“123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options.
 
Earnings (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.  The Company’s common equivalent shares are excluded from the computation of diluted EPS if the effect is anti-dilutive. The diluted weighted average common shares outstanding are 1,272,066,146 and 1,272,066,146 as of December 31, 2016 and 2015, respectively.
 
Concentration of Risk
 
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet their contractual obligations to be similarly affected by changes in economic or other conditions described below.
 
Relationships and agreements which could potentially expose the Company to concentrations of credit risk consist of the use of one source for the processing and storage of all umbilical cord blood and one source for the development and maintenance of a website. The Company believes that alternative sources are available for each of these concentrations.
 
Financial instruments that subject the Company to credit risk could consist of cash balances maintained in excess of federal depository insurance limits. The Company maintains its cash and cash equivalent balances with high credit quality financial institutions. At times, cash and cash equivalent balances may be in excess of Federal Deposit Insurance Corporation limits, and as of December 31, 2016, such excess was less than $250,000. To date, the Company has not experienced any such losses. 
 
 
F-9
 
 
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.
 
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:
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liability
 $-- 
 $-- 
 $109,731 
 $109,731 
 
Derivative liability was valued under the Binomial model with the following assumptions:
 
Risk free interest rate 
0.12% to 0.47%
Expected life 
0 to 0.75 years
Dividend Yield 
0%
Volatility 
0% to 109%
 
The following table summarizes fair value measurements by level at December 31, 2015 for assets and liabilities measured at fair value on a recurring basis:
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liability$
  -- 
 $-- 
 $(437,503
 $(437,503
 
Derivative liability was valued under the Binomial model, with the following assumptions:
 
Risk free interest rate 
0.12% to 0.63%
Expected life 
0 to 1.75 years
Dividend Yield 
0%
Volatility 
0% to 103%
  
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 April 2015, the FASB issued an accounting standard update on simplifying the presentation of debt issuance costs.  The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.  Updates are effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
 
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 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, determiningthe 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 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.
 
 
F-10
 
 
Note 3. Property and Equipment
 
At December 31, 2016 and 2015, property and equipment consists of:
 
 
 
Useful Life
(Years)
 
 
2016  
 
 
 2015  
 
 
 
 
 
 
 
 
 
 
 
Furniture and fixtures
  1-5 
 $23,030 
 $23,030 
Computer equipment
  5 
  217,805 
  217,364 
Laboratory Equipment
  1-5 
  98,188 
  100,844 
Freezer equipment
  7-15 
  364,225 
  370,424 
Leasehold Improvements
  5 
  102,862 
  102,862 
 
    
  806,110 
  814,524 
Less: accumulated depreciation and amortization
    
  (739,482
  (695,335
 
    
 $66,628 
 $119,189 
 
For the years ended December 31, 2016 and 2015, depreciation expense totaled $47,865 and $54,562, respectively.
 
Note 4. Notes and Loans Payable, and Derivative Liabilities
 
At December 31, 2016 and 2015, notes and loans payable consist of:
 
 
 
December 31,
2016
 
 
December 31,
2015
 
 
 
 
 
 
 
 
Secured Convertible Promissory Note to Tonaquint, Inc. 7.5% per annum; due on or before September 17, 2017.
  400,000 
  975,000 
 
    
    
 
    
    
Less: Unamortized Discount
  (43,432)
  (273,185)
 
 $356,568 
 $701,815 
 
The total interest expense was $305,640 and $23,539 during the years ended December 31, 2016 and 2015, respectively. The gains from changes in derivative liability were $327,772 and $228,404 during the years ended December 31, 2016 and 2015, respectively.
 
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.
 
 
F-11
 
 
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, 2015, the principal balance on the Tonaquint note was $975,000, and there was $128,607 of accrued interest. As of December 31, 2016, the principal balance on the Tonaquint note was $400,000, and there was $204,494 of accrued interest.
 
 
Note 5. Investment and Notes Receivable, Related Parties
 
At December 31, 2016 and 2015, notes receivable consist of:
 
 
 
2016
 
 
2015
 
Effective August 14, 2014, Company entered into a Secured Promissory Note with Banco Vida which carries 8% interest per annum.  Interest only payments for first 12 months; thereafter principal and interest on standard amortization schedule due on or before February 1, 2017.
 $-- 
 $63,141 
 
    
    
On September 29, 2014, the Company closed a transaction selling its stake in BioCells to Diego Rissola; current President.  Payments are to be annually, after June of 2015, and the last payment due on or before June 1, 2025.
  615,000 
  660,000 
 
    
    
Unamortized discount on BioCells note receivable
  (167,582)
  (195,336)
 
    
    
 
    
    
 
 $447,418 
 $527,805 
 
Under the Agreement with Purchaser of BioCells, BioCells is to make payments as follows: $5,000 on or before October 12, 2014; $10,000 on or before December 1, 2014; $15,000 on or before March 1, 2015; $15,000 on or before June 1, 2015; $45,000 on or before June 1, 2016; $55,000 on or before June 1, 2017; $55,000 on or before June 1, 2018; $55,000 on or before June 1, 2019; $65,000 on or before June 1, 2020; $75,000 on or before June 1, 2021; $75,000 on or before June 1, 2022; $75,000 on or before June 1, 2023; $80,000 on or before June 1, 2024; $80,000 on or before June 1, 2025. As of December 31, 2016, the Purchaser is current on all payments.
 
 
F-12
 
 
This loan receivable is secured, non-interest bearing, and subject to a 6% discount rate. As of December 31, 2015, the receivable has a balance of $464,664, net of unamortized discount of $195,336 and allowance of doubtful accounts of $0. As of December 31, 2016, the receivable has a balance of $447,418, net of unamortized discount of $167,582 and allowance of doubtful accounts of $0.   The Purchaser is current with payments as of December 31, 2016. The Company incurred interest income from the amortized discount of $28,104 and $20,655 during the years ended December 31, 2016 and 2015, respectively.
 
Note 6. Commitments and Contingencies
 
VidaPlus
 
On January 24, 2011, the Company entered into a Stock Purchase Agreement to acquire up to 51% of the capital stock in VidaPlus, an umbilical cord processing and storage company headquartered in Madrid, Spain. The Agreement is organized into three tranches; the first executed at closing with an initial investment of approximately $204,000 (150,000 Euro) for an amount equivalent to 7% as follows; 1% of share capital in initial equity or approximately $30,000 and 6% or an estimated $174,000 as a loan convertible into equity within 12 months of closing. The initial investment was secured by a Pledge Agreement on 270 VidaPlus samples that were incurring annual storage fees. The second tranche provided the opportunity for an additional 28% in share capital through monthly investments based on the number of samples processed in that month (up to a maximum of 550,000 EUR). In connection with Tranche 2, the Company loaned VidaPlus $246,525. Converting the investment from a loan into equity was to take place within 24 months of the date the amount of shares due to the Company pursuant to the second tranche is calculated. According to the Stock Purchase Agreement, the third tranche follows a similar loan to equity agreement as tranche two but for an additional 16% equity at the option of the Company (up to a maximum of 550,000 EUR).
 
In connection with the VidaPlus Stock Purchase Agreement entered into on January 24, 2011, the Company was obligated to make monthly loans to VidaPlus based on the number of new samples processed and up to a maximum of 550,000 Euro for each of Tranche 2 and 3 of the Agreement. Tranche 2 did contain provisions that provided the Company an option to discontinue funding if certain performance targets were not met.
 
In January 2012, the Company exercised its right to convert its Tranche 1 loan into 6% of the outstanding shares of VidaPlus, and as a result, the Company owned a total of 7% of the outstanding shares. At the time of the equity conversion, the Company no longer maintained its Pledge on the 270 VidaPlus samples associated with Tranche 1; however, the Company maintained a liquidation preference in VidaPlus over the money invested by the Company in VidaPlus. Additionally, the Company declined to make any further investment (loan or otherwise) to VidaPlus under either Tranche 2, Tranche 3 or otherwise. Pursuant to the Agreement, CBAI held a pledge over the umbilical cord blood maintenance and storage contracts between VidaPlus and certain of its customers, and all rights contained therein, including but not limited to the rights to administer those contracts and the rights to collect the revenues derived from those contracts, for 328 samples. CBAI held that pledge until such time as it converted the monies paid to VidaPlus under Tranche 2 of the Stock Purchase Agreement into equity into VidaPlus, in accordance with the formulas set forth in the Stock Purchase Agreement. CBAI was required to make that conversion within two years of when the calculation was made as to the amount of shares to which CBAI is entitled pursuant to Tranche 2, which meant that such conversion would take place around or before February 2014. CBAI also holds a liquidation preference in VidaPlus for the money the Company invested in VidaPlus. On February 14, 2014, CBAI delivered to VidaPlus its election to convert its loan under Tranche 2 into shares of stock in VidaPlus, including Anti-Dilution shares.  The Company is entitled to an additional ownership stake of approximately 2.24% in connection with the forgoing, bringing its total ownership percentage to approximately 9.24%.
 
The Company holds approximately 9.24% of the outstanding shares of VidaPlus, and has a balance of convertible loans receivable amounting to $246,525. During the year ended December 31, 2012, the Company reviewed the recoverability of the equity investment and loans receivable and the carrying amount exceeds the fair value of the investment as a result of recurring and continued operating losses at VidaPlus. Fair value of the loans receivable is determined based on the discounted future net cash flows expected to be generated by assets pledged against the loans. The Company recorded an impairment of 100% of the book value of the equity investment and convertible loan receivable.
 
Patent License Agreement
 
PharmaStem Therapeutics claimed to hold certain patents relating to the storage, expansion and use of hematopoietic stem cells. Previously, PharmaStem commenced suit against numerous companies involved in cord blood collection and preservation alleging infringement of its patents. In October 2003, after a jury trial, judgment was entered against certain of the Company’s competitors and in favor of PharmaStem in one of those suits. In February 2004, PharmaStem commenced suit against Cord Partners and certain of its competitors alleging infringement of its patents. Management of Cord Partners determined to settle, rather than to litigate, this matter. As a result, PharmaStem and Cord Partners entered into a Patent License Agreement in March 2004. Pursuant to the Patent License Agreement, Cord Partners could, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem’s claimed technology and processes allegedly covered by its patents for so long as the patents may remain in effect. Most of the patents at issue expired in 2010. PharmaStem could claim, arguendo, Cord Partners is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by Cord Partners from the collection and storage of cord blood on and after January 1, 2004. Other than potential royalties, which would be disputed by Cord, no amount is payable by Cord Partners to PharmaStem. All litigation between the parties was dismissed and all prior claims were released. As of 2008, Cord ceased paying all royalties to PharmaStem. The patents have been declared void under a final decision on appeal, and as such, there is no pending litigation in this matter. As of December 31, 2014, the Company included approximately $226,000 in accounts payable and $120,000 included in accrued expenses to account for this liability since 2008, though the Company disputes that it owes any royalties to Pharmastem. As of September 30, 2015, the Company made a one-time adjustment of the previously held amount of approximately $226,000 in accounts payable and $120,000 in accrued expenses, to its income statement as a gain on a settlement payable of $346,269.
 
 
F-13
 
 
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.  
 
Amended 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.
 
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.
 
 
F-14
 
 
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. The Company’s monthly rent payments are approximately $15,451, which includes Common Area Maintenance (CAM) charges.  
 
 
Commitments for future minimum rental payments, by year, and in the aggregate, to be paid under such operating lease as of December 31, 2016, are as follows:
 
 
 
Rent  
 
 
 
to be paid  
 
2017
  186,518 
2018
  191,006 
2019
  145,835 
Total
 $523,358 
 
The Company’s rent expense was $177,394 and $160,478 during the year ended December 31, 2016 and 2015, respectively.
 
Convertible Promissory Note to Tonaquint
 
Commitments for future minimum principal payments, by year, and in the aggregate, to be paid under such convertible note as of December 31, 2016, are as follows:
 
 
 
Principal  
 
 
 
to be paid  
 
2017
  400,000 
Total
 $400,000 
 
Note 7. Related Party Transactions and Commitments
 
Related Party Transactions
 
VidaPlus
 
The Company is entitled to approximately 9.24% of the outstanding shares of VidaPlus, and has a balance of convertible loans receivable amounting to $246,525. During the year ended December 31, 2012, the Company reviewed the recoverability of the equity investment and loans receivable and the carrying amount exceeds the fair value of the investment as a result of recurring and continued operating losses at VidaPlus. Fair value of the loans receivable is determined based on the discounted future net cash flows expected to be generated by assets pledged against the loans. The Company recorded an impairment of 100% of the book value of the equity investment and convertible loan receivable.
 
 
 
 
Note 8. Stock Option Plan
 
Stock Option Plan
 
The Company's Stock Option Plan permits the granting of stock options to its employees, directors, consultants and independent contractors for up to 8.0 million shares of its common stock. The Company believes that such awards encourage employees to remain employed by the Company and also to attract persons of exceptional ability to become employees of the Company. On July 13, 2009, the Company registered its 2009 Flexible Stock Plan, which increases the total shares available to 4 million common shares. The agreement allows the Company to issue either stock options or common shares from this Plan.
 
On June 3, 2011, the Company registered its 2011 Flexible Stock Option plan, and reserved 1,000,000 shares of the Company's common stock for future issuance under the Plan. The Company canceled the Company's 2010 Flexible Stock Plan, and returned 501,991 reserved but unused common shares back to its treasury.
 
Stock options that vest at the end of a one-year period are amortized over the vesting period using the straight-line method. For stock options awarded using graded vesting, the expense is recorded at the beginning of each year in which a percentage of the options vests. The Company did not issue any stock options for the years ended December 31, 2016 and 2015.
 
The Company’s stock option activity was as follows:
 
 
 
Stock
Options
 
 
Weighted Average Exercise Price
 
 
Weighted Avg. Contractual
Remaining Life
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2014
  5,106,775 
  1.01 
  4.41 
Granted
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
Forfeited/Expired
  497,411 
  - 
  - 
Outstanding, December 31, 2015
  4,609,364 
  0.67 
  3.87 
Exercisable at December 31, 2015
  4,609,364 
  0.67 
  3.87 
 
Granted
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
Forfeited/Expired
  150,685 
  - 
  - 
Outstanding, December 31, 2016
  4,458,679 
  0.68 
  2.98 
Exercisable, December 31, 2016
  4,458,679 
  0.68 
  2.98 
 
 
F-16
 
 
The following table summarizes significant ranges of outstanding stock options under the stock option plan at December 31, 2016:
 
 
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 
  2.98 
 $0.68 
  4,458,679 
 $0.68 
 
  4,458,679 
  2.98 
 $0.68 
  4,458,679 
 $0.68 
 
Note 9. Warrant Agreements
 
As part of the Settlement and Exchange Agreement entered into on December 17, 2014 between the Company and St. George, the Warrant to Purchase Shares of Common Stock issued by the Company to St. George on or around March 10, 2011, was terminated, cancelled or otherwise extinguished.  
 
The Company has not issued any warrants since January 1, 2012. There are no warrants outstanding and exercisable at December 31, 2016 and 2015.
 
Note 10. Income Tax
 
For the years ended December 31, 2016 and 2015, the Company incurred a net profit of $102,243 and $437,945, respectively.  The net deferred tax asset generated by the loss carry-forward has been fully reserved.  Based upon management’s evaluation, a valuation allowance of 100% has been establish, since it is more likely than not that the deferred tax assets will not be realized. The cumulative net operating loss carry-forward is $39,311,214 as of December 31, 2016 and will expire beginning in the year 2033.The provision for income tax consists of the following:
 
 
 
December 31, 2016
 
 
December 31, 2015
 
 
 
 Tax Loss (Gain)
 
 
 Deferred Assets
 
 
 Tax Loss (Gain)
 
 
 Deferred Assets
 
 Net income (loss)
 $102,243 
 $35,785 
 $437,935 
 $153,277 
 
    
    
    
    
 NOL
  (40,867,272)
    
  (42,827,184)
    
 Bad debt expense
  48,554 
  16,994 
  59,311 
  20,759 
 Accounts payable
  151,305 
  52,957 
  152,804 
  53,481 
 Accrued expenses
  112,020 
  39,207 
  204,939 
  71,729 
 Deferred revenue
  1,430,206 
  500,572 
  1,601,432 
  560,501 
 Accounts receivable
  (113,316)
  (39,661)
  (349,859)
  (122,451)
 Prepaid expense
  (175,065)
  (61,273)
  (151,874)
  (53,156)
 Stock-based compensation
  - 
    
  (3,649)
  (1,277)
Meals & entertainment (50%)
  112 
  39 
  8,873 
  3,106 
 
    
    
    
    
 Tax loss (gain) for the year
 $(39,311,214)
 $544,620 
 $(40,867,272)
 $685,969 
 
The cumulative tax effect at the expected rate of 35% of significant items comprising our net deferred tax amount is as follows:
 
 
December 31, 2016
 
 
December 31, 2015
 
Deferred tax asset attributable to:
 
 
 
 
 
 
Net operating loss carryover
 $(13,758,925)
 $(14,303,545)
Non-deductible entertainment
  39 
  3,106 
Bad debt expenses
  16,994 
  20,759 
Deferred revenue
  500,572 
  560,501 
Stock-based compensation
  - 
  (1,277)
Others
  (8,770)
  (50,397)
Valuation allowance
  13,250,089 
  13,770,853 
Net deferred tax asset
 $- 
 $- 
 
The Company has their tax years 2015 to 2013 open by statute for Federal, State and Local purposes.
 
 
 
Note 11. Stockholders’ Equity
 
Preferred Stock
 
The Company has 5,000,000 shares of $0.0001 par value preferred stock authorized. The Company issued 724,000 shares of Series A Convertible Preferred Stock in connection with the Red Oak investment of cash proceeds of $724,000 in accordance with the Agreement set forth in detail in Item 5. On May 7, 2015, per the terms of the Red Oak Agreement, the 724,000 shares of Preferred Stock held by Red Oak automatically converted into 381,052,632 common shares of the Company equivalent to 29.98% ownership in the Company.
 
Common Stock
 
On May 7, 2015, the Company’s shareholders approved an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the authorized common stock to 2,890,000,000 shares, par value $0.0001, up from 890,000,000. This amendment was adopted by the Company’s Board of Directors on January 21, 2015.
 
During the year ended December 31, 2015, the Company issued 381,052,632 shares of common stock to Red Oak as described above under the heading Preferred Stock.
 
During the year ended December 31, 2015, the Company issued 1,013,514 shares of common stock to employees as employee compensation fair value at $3,649.
 
As of December 31, 2016, the Company had 1,272,066,146 shares outstanding. 20,000 shares remain in the Company’s treasury.
 
Note 12. Subsequent Events
 
Amendment to Employment Agreement
 
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.
 
 
 
F-18