Attached files
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,
2017
☐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
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90-0613888
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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1857 Helm Drive, Las Vegas, NV
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89119
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(702) 914-7250
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(Issuer’s
Telephone Number, Including Area Code)
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Securities
registered pursuant to Section 12(b) of the Exchange
Act:
Title
of Each Class to be so Registered:
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Name of
each exchange on which registered
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None
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None
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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,
an accelerated filer, a non-accelerated filer, a small reporting
company, or an emerging growth company. See definitions of
“large accelerated filer”, “accelerated
filer”, “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check One):
Large
Accelerated Filer
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☐
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Accelerated
Filer
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☐
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Non-accelerated
Filer
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☐
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Smaller
reporting company
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☑
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Emerging
growth company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐No ☑
The
aggregate market value of the common equity held by non-affiliates
of the registrant as of June 30, 2017 based on the closing price of
the common stock as reported by the Over the Counter Bulletin Board
on such date, was approximately $4.45 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 30, 2018, 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.
2017 ANNUAL REPORT ON FORM 10-K
Table of Contents
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Page
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FORWARD
LOOKING STATEMENTS
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3
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PART I
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4
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Item
1.
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BUSINESS
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4
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Item
1A.
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RISK
FACTORS
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9
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Item
1B.
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UNRESOLVED
STAFF COMMENTS
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12
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Item
2.
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PROPERTIES
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13
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Item
3.
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LEGAL
PROCEEDINGS
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13
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Item
4.
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MINE
SAFETY DISCLOSURE
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13
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PART II
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13
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Item
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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13
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Item
6.
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SELECTED
FINANCIAL DATA
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14
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Item
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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14
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Item
7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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17
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Item
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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17
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Item
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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17
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Item
9A.
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CONTROLS
AND PROCEDURES
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18
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Item
9B.
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OTHER
INFORMATION
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18
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PART III
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19
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Item
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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19
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Item
11.
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EXECUTIVE
COMPENSATION
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21
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Item
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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23
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Item
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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24
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Item
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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24
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PART IV
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25
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Item
15.
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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25
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Item
16.
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FORM
10-K SUMMARY
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27
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SIGNATURES
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28
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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
Recent Developments
On February 7, 2018, Cord Blood America, Inc. (“CBAI”
or the “Company” or “We”) announced that it
entered into an Asset Purchase Agreement, dated as of February 6,
2018 (the “Purchase Agreement”), with California
Cryobank Stem Cell Services LLC
(“FamilyCord”).
Pursuant to the terms of the Purchase Agreement, FamilyCord agreed
to acquire from CBAI substantially all of the assets of CBAI and
its wholly-owned subsidiaries and to assume certain liabilities of
CBAI and its wholly-owned subsidiaries. The sale does not include
CBAI’s cash and certain other excluded assets and
liabilities. FamilyCord agreed to pay a purchase price of
$15,500,000 in cash at closing with $3,000,000 of the purchase
price deposited into escrow to secure CBAI’s indemnification
obligations under the Purchase Agreement. The sale, which is
subject to the closing conditions described below, is expected to
close as soon as practicable, but likely during the second quarter
of 2018.
The Purchase Agreement contains customary representations,
warranties and covenants for a transaction of this type and nature.
Pursuant to the terms of the Purchase Agreement, CBAI shall
indemnify FamilyCord for breaches of its representations and
warranties, breaches of covenants, losses related to excluded
assets or excluded liabilities and certain other matters. The
representations and warranties set forth in the Purchase Agreement
generally survive for two years following the closing.
In connection with the sale, the parties will also enter into a
transition services agreement designed to ensure a smooth
transition of CBAI’s business from CBAI to
FamilyCord.
The consummation of the sale is dependent upon the satisfaction or
waiver of a number of closing conditions, including among other
things, approval by CBAI’s shareholders, receipt of certain
third-party consents and FamilyCord obtaining external financing.
The Purchase Agreement may be terminated at any time prior to the
date of closing by mutual agreement of the parties, or by either
party under certain circumstances set forth in the Purchase
Agreement, including by either party if the closing has not
occurred within six months of the execution of the Purchase
Agreement, by FamilyCord for CBAI’s failure to obtain its
shareholders’ approval of the asset sale, by FamilyCord if
CBAI pursues an alternative superior transaction or by FamilyCord
if it is unable to obtain necessary financing. The Purchase
Agreement also sets forth termination fees that may be payable by
one party to the other under certain circumstances of
termination.
A copy of the Purchase Agreement was attached as Exhibit 2.1 to the
Form 8-K filed by the Company on February 8, 2018.
The Red
Oak Fund, LP, The Red Oak Long Fund, LP and Pinnacle Opportunities
Fund, LP (collectively, the “Shareholders”), which own
164,073,684, 76,226,316 and 140,752,632 shares of CBAI’s
common stock, respectively, or approximately 30.0% of CBAI’s
issued and outstanding common stock in the aggregate, and each of
which are affiliates of Red Oak Partners, LLC, entered into a
voting agreement (the “Voting Agreement”) with
FamilyCord and CBAI on February 6, 2018, pursuant to which the
Shareholders have agreed, among other things, to vote their shares
(the “Covered Shares”) in favor of the asset sale and
grant to FamilyCord an irrevocable proxy with respect to their
respective Covered Shares.
Assets
and liabilities included in the Purchase Agreement are now
classified as assets and liabilities held for sale and operations
related to these assets and liabilities are classified as
discontinued operations for all years presented.
Upon
closing of the transaction, the Company will have no or nominal
operations and no or nominal assets and will therefore considered
to be a “Shell Company” as that term is defined in Rule
12b-2 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
Overview
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:
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CBAI
and Cord specialize in providing private cord blood and cord tissue
stem cell services.
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Properties
was formed to hold corporate trademarks and other intellectual
property.
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4
Given
the pending sale of substantially all the Company’s assets,
we have classified the operations of CBAI and its wholly-owned
subsidiaries as discontinued operations. Despite this
classification, we have included the disclosure below under
“Business” as it describes our current business and the
closing of the sale of substantially all of our assets is subject
to satisfaction or waiver of closing conditions including
shareholder approval, of which there can be no
assurances.
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.
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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.
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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.
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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.
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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.
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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.
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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
Sale of Assets to California Cryobank Stem Cell Services
LLC
See
above.
6
China Stem Cell Ltd.
In
March 2010 the Company acquired, pursuant to a License Agreement, a
10% non-dilutive 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 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 will 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 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.
As of
December 31, 2017, Cord Blood has exercised this option in part,
and provided a total of $400,000 in additional capital to Cayman in
2011 and 2012, and received Cayman Secured Convertible Promissory
Notes for this sum along with 50 Cayman 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, which were exercisable at an option
exercise price of $0.05 per share per share, subject to certain
adjustments, expired unexercised on March 31, 2015. The Company
recorded a reserve for the entire carrying value of the receivable
of $458,706, including interest, as of December 31,
2017.
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).
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,
2017.
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.
7
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%.
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.
Patents, Trademarks, Licenses or Royalty Agreements.
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, 2017, the Company had eight full-time employees, and
one-part time employee. This includes the Company’s Interim
President, 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.
8
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 and Discontinued
Operations
We Have Not Determined The Amount Of Any Distributions Subsequent
To The Closing Of The Proposed Transaction With
FamilyCord.
In
connection with the closing of the Purchase Agreement, FamilyCord
has agreed to pay a purchase price of $15,500,000. Upon completion
of the transaction, CBAI presently estimates it will distribute a
portion of the sale proceeds to its shareholders. The initial
distribution amount will be determined by CBAI’s board of
directors and will be subject to such factors as taxes payable,
operating expenses, and other contingences and estimates.
Additional monies may be distributed over time based on cash
available and the release of known and unknown liabilities. Given
cash needed for the aforementioned expenses and contingencies,
total proceeds paid out to shareholders are expected to be
significantly less than the gross purchase price.
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;
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.
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 and regulatory obligations with respect to
its services. Failure to do any of these 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. If
the Company incurs significant liability with regards to any of the
foregoing, it would have a material adverse effect on our financial
condition and cash flows.
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.
Cyber Attacks And Breaches Could Cause Operational Disruptions,
Fraud Or Theft of Sensitive Information.
Aspects
of our operations are reliant upon internet-based activities, such
as ordering supplies and back-office functions such as accounting
and transaction processing, making and accepting payments,
processing payroll and other administrative functions, etc.
Although we have taken measures to protect our technology systems
and infrastructure, including employee education programs regarding
cybersecurity, a breach of the security surrounding these functions
could result in operational disruptions, theft or fraud, or
exposure of sensitive information to unauthorized parties. Such
events could result in additional costs related to operational
inefficiencies, or damages, claims or fines.
9
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.
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.
10
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.
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.
Trading In Our Common Stock Could Be Further Limited Upon The
Closing Of The Sale Of Substantially All Of Our Assets To
FamilyCord.
Upon
closing of the transaction with FamilyCord, the Company will have
no or nominal operations and no or nominal assets and will
therefore considered to be a “Shell Company” as that
term is defined in Rule 12b-2 of Exchange Act. Many states have
enacted statutes, rules and regulations limiting the sale of
securities of shell companies in their respective jurisdictions. In
addition, the ability to rely on Rule 144 of the Securities Act of
1933, as amended as an exemption from registration for the resale
of stock is prohibited while a Company is a shell company. Such
statutes, rules and regulations may make it more difficult to sell
our securities.
11
Risks Related to the Proposed Transaction with
FamilyCord
There Can Be No Assurance That The Proposed Transaction With
FamilyCord Will Be Consummated As Contemplated In Accordance With
The Definitive Merger Agreement.
There
can be no assurances that the proposed transaction with FamilyCord
will be consummated as originally contemplated, or that the Company
will realize any or all of the benefits that the management
expected to realize upon the consummation of the
transaction.
Failure To Complete The Transaction Could Negatively Affect The
Value Of The Company’s Common Stock And Its Future Business
And Financial Results.
There
can be no assurances that the transaction with FamilyCord will be
consummated as originally contemplated. If the transaction is
not completed, the Company’s ongoing business could be
adversely affected, and it would be subject to a variety of risks
associated with the failure to complete the transaction, including
the following:
●
being required,
under certain circumstances, to pay FamilyCord a termination
fee;
●
incurrence of
substantial costs in connection with the proposed transaction such
as legal, accounting, financial advisory, filing, printing and
mailing fees;
●
diversion of
management focus and resources from operational matters and other
strategic opportunities while working to implement the transaction;
and
●
reputational harm
due to the adverse perception of any failure to successfully
complete the transaction.
If the
transaction is not completed, these risks could materially affect
the Company’s business and financial results and the price of
its common stock.
The Pendency Of The Transaction With FamilyCord Could Adversely
Affect The Company’s Business And Operations.
Prior
to consummation of the transaction with FamilyCord, some of the
Company’s business relationships may delay, defer or
withdraw their business with the Company, which could negatively
affect revenues, earnings, cash flows and expenses, regardless of
whether the transaction with FamilyCord is completed.
Similarly, current and prospective employees may experience
uncertainty about their future roles with the Company, which may
materially adversely affect the Company’s ability to attract
and retain key personnel during the pendency of the transaction
with FamilyCord. In addition, due to operating restrictions in the
Purchase Agreement, the Company may be unable, during the pendency
of the transaction with FamilyCord to pursue strategic
transactions, undertake significant capital projects, undertake
certain significant financing transactions and otherwise pursue
other actions, even if such actions would prove
beneficial.
The Consummation Of The Transaction With FamilyCord Is Subject To A
Number Of Conditions Which, If Not Satisfied Or Waived In A Timely
Manner, Would Delay The Transaction Or Adversely Impact Our Ability
To Complete The Transactions.
The
completion of the proposed transaction with FamilyCord is subject
to certain conditions, including, among others, the receipt of the
approval of the Purchase Agreement by the affirmative vote of
the holders of a majority of shares of the Company’s common
stock outstanding and entitled to vote. While it is currently
anticipated that the Purchase Agreement will be completed in the
second quarter of 2018, there can be no assurance that such
conditions will be satisfied in a timely manner or at all, or that
an effect, event, development or change will not transpire that
could delay or prevent these conditions from being
satisfied.
Restrictions
on the transfer of our common stock could inhibit certain
transactions that may be beneficial to shareholders.
In
order to preserve our tax benefit carryforwards, we are seeking
shareholder approval of a proposed amendment to our Certificate of
Incorporation which would generally prohibit the transfer of our
common stock and other corporate securities if such a transfer
would result in (i) a party having an ownership interest of 4.9% or
greater in the Company or (ii) an increased ownership interest of a
party that already has an ownership interest of 4.9% or greater in
the Company. This restriction, if approved by our shareholders,
could inhibit or prevent certain transactions that would otherwise
be beneficial to stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
12
ITEM 2. PROPERTIES.
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 Company’s
monthly rent payments are approximately $15,822, 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
From time to time, the Company may become involved in various
lawsuits and legal proceedings, which arise in the ordinary course
of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm the Company’s
business.
On March 14, 2018, the Company entered into a settlement agreement
with regards to a lawsuit filed against the Company in 2017 in
Clark County, Nevada District Court relating to a claim over unpaid
compensation. As part of the settlement agreement, the Company made
an $80,000 payment to the party that filed the lawsuit which will
be reflected as an expense and a liability (until paid) in the
Company’s financial statements as of December 31,
2017.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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, 2017, and December 31, 2016. The
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual
transactions.
|
Common
Stock
|
|
Fiscal Year
2017
|
High
|
Low
|
First
Quarter
|
$0.0030
|
$0.0028
|
Second
Quarter
|
$0.0035
|
$0.0030
|
Third
Quarter
|
$0.0033
|
$0.0026
|
Fourth
Quarter
|
$0.0028
|
$0.0024
|
|
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
|
(b)
Holders. As of March 7, 2018, 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, provided, however, if the
closing of the Purchase Agreement is consummated, the Company
anticipates distributing a portion of the proceeds to its
shareholders. However, there can be no assurance as to the amount
of such distribution and any such distribution will be
significantly less than the gross purchase price paid in the
transaction with FamilyCord.
(d)
Securities Authorized for Issuance Under Equity Compensation
Plans.
13
Equity Compensation Plan Information
The
following table sets forth the information indicated with respect
to the Company's compensation plans as of December 31,
2017, 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
|
Repurchase of Shares
The
Company did not repurchase any of its shares during the year ended
December 31, 2017.
ITEM 6. SELECTED FINANCIAL DATA
Not
Applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
As
described under Item 1. Business – Recent Developments, the
Company has entered into an Asset Purchase Agreement with
FamilyCord relating to the sale of substantially all of the assets
of the Company.
Summary of the Business and Discontinued Operations
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.
●
|
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.
|
14
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.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” (ASU 2014-09) as
modified by ASU No. 2015-14, “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date,” ASU
2016-08, “Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net),” ASU No. 2016-10, “Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and
Licensing,” and ASU No. 2016-12, “Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients.” The revenue recognition principle in
ASU 2014-09 is that an entity should recognize revenue to depict
the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, new
and enhanced disclosures will be required. Companies may adopt the
new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a
cumulative effect upon adoption approach. The Company will adopt
the new standard effective January 1, 2018, using the full
retrospective approach. The adoption of ASU 2014-09 will not
have a material impact on the Company’s consolidated
financial position, results of operations, equity or cash
flows.
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.
15
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, 2016 and 2017, 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, 2017 Compared
to the Year Ended December 31, 2016
For the
year ended December 31, 2017, the Company's total revenue from
discontinued operations decreased to $2.99 million from $3.29
million over the same period of 2016, a decrease of 8.9%. Revenues
from discontinued operations are generated primarily from two
sources: new enrollment/processing fees; and recurring storage fees
(both from cord blood and cord tissue). Revenues generated from
services related to the procurement of birth tissue for
organizations utilized in the transplantation and/or research of
therapeutic products ceased in the first quarter of 2016. The
decrease in revenue is due to a $0.17 million decrease in revenue
from services related to the procurement of birth tissue and a
$0.12 million decrease in revenue related to a reduction in storage
and processing revenue from a previously terminated agreement with
a third party. Recurring storage revenue decreased approximately
3.2% to $2.62 million for the year ended December 31, 2017, versus
$2.71 million for the prior comparative year ended December 31,
2016. The decrease in recurring storage revenues is due to a $0.11
million decrease in revenue related to a reduction in storage
revenue from a previously terminated agreement with a third party
offset by growth in the Company’s core recurring storage
revenue. There were no revenues from the procurement of birth
tissue for the year ended December 31, 2017 compared to $0.17
million for the year ended December 31, 2016 due to the ceasing of
customer orders for birth tissue procurement services in the first
quarter of 2016.
Discontinued
operations cost of services as a percentage of revenue decreased
from 27.5% to 22.7% for the year ending December 31, 2017 versus
December 31, 2016. The cost of services includes 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 from
discontinued operations decreased by approximately $0.07 million or
2.9% to $2.31 million from year ending December 31, 2016 to year
ending December 31, 2017. The decline in gross profit is due to
reduction in revenue from birth tissue procurement services and
storage and processing revenue from a third party, offset by an
increase in gross profit from the core business.
Administrative
and selling expenses for the year ended December 31, 2017 were
$1.70 million as compared to $2.13 million for the comparative
period of 2016, representing a 20.3% decrease. These expenses are
primarily related to marketing/advertising, professional services,
allocated facility, including utilities, expenses, and wages for
personnel.
The
Company's net loss from continuing operations was $1.62 million for
the year ended December 31, 2017, an increase of $0.31 million from
a net loss from continuing operations of $1.92 million for the year
ended December 31, 2016.
The
Company’s net income from discontinued operations was $2.02
million for the year ended December 31, 2017, a decrease of $0.01
million from a net income from discontinued operations of $2.03
million for the year ended December 31, 2016.
Liquidity, Financial Position and Capital Resources
Total
assets at December 31, 2017 were $2.86 million, compared to $3.13
million at December 31, 2016. Total liabilities at
December 31, 2017 were $1.87 million consisting primarily of
Accounts payable and liabilities held for sale of $0.40 million and
$1.38 million respectively. The total liabilities at December 31,
2016 were $2.55 million consisting primarily of promissory note,
accounts payable and liabilities held for sale of $0.36 million,
$0.34 million, and $1.43 million respectively. Total liabilities
decreased by $0.68 million, primarily due to pay down of promissory
note offset by an increase in accounts payable. During fiscal 2017
there was no increase in notes payable for purposes of working
capital, and the Company paid off its note payable to Tonaquint,
Inc., as more fully described in Note 5. Notes and Loans Payable,
and Derivative Liabilities.
At
December 31, 2017, the Company had $1.07 million in cash, an
increase of $0.14 million or 15.5% from the prior comparative
period of 2016. For the year ended December 31, 2017, the Company
generated $0.39 million of cash flow from operating activities
compared to $0.58 million for the year ended December 31, 2016. For
the year ended December 31, 2017, cash flow used in operating
activities of continuing operations totaled $1.89 million compared
to $1.81 million for the year ended December 31, 2016. For the year
ended December 31, 2017, cash flow generated from discontinued
operations totaled $2.28 million compared to $2.39 million for the
year ended 2016.
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. 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. The Company had and has net
income and positive cash flow, primarily from the discontinued
operations, for the years ended December 31, 2016 and December 31,
2017. If the transaction to sell substantially all of the
Company’s assets to FamilyCord closes, the Company will have
sufficient cash on hand to meet the Company’s obligations
over the next 12 months. In the event the transaction does not
close, we anticipate that we will be able to satisfy the cash
requirements associated with, among other things, our working
capital needs, capital expenditures and lease commitments through
at least the next 12 months primarily with cash generated by
operations and existing cash balances.
16
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 May 2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” (ASU 2014-09) as
modified by ASU No. 2015-14, “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date,” ASU
2016-08, “Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net),” ASU No. 2016-10, “Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and
Licensing,” and ASU No. 2016-12, “Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients.” The revenue recognition principle in
ASU 2014-09 is that an entity should recognize revenue to depict
the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, new
and enhanced disclosures will be required. Companies may adopt the
new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a
cumulative effect upon adoption approach. The Company will adopt
the new standard effective January 1, 2018, using the full
retrospective approach. The adoption of ASU 2014-09 will not
have a material impact on the Company’s consolidated
financial position, results of operations, equity or cash
flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
and subsequently amended the guidance relating largely to
transition considerations under the standard in January 2017. The
objective of this update is to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. This ASU is effective for
fiscal years beginning after December 15, 2018, including interim
periods within those annual periods and is to be applied utilizing
a modified retrospective approach. The Company is currently
evaluating the new guidance to determine the impact it may have on
its financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash. The objective of this
ASU is to eliminate the diversity in practice related to the
classification of restricted cash or restricted cash equivalents in
the statement of cash flows. For public business entities, this ASU
is effective for annual and interim reporting periods beginning
after December 15, 2017, with early adoption permitted. The
amendments in this update should be applied retrospectively to all
periods presented. The Company will adopt this standard on January
1, 2018 and will not have a material impact on the Company’s
financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718): Scope of Modification Accounting
(ASU 2016-09), which provides guidance about which changes to
the terms or conditions of a share-based payment award require an
entity to apply modification accounting in Topic 718. This
pronouncement is effective for annual reporting periods beginning
after December 15, 2017. The Company will adopt this standard on
January 1, 2018 and will not have a material impact on the
Company’s financial statements.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
Company’s consolidated financial statements and notes thereto
as of December 31, 2017 and December 31, 2016, 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-22 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
17
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 Exchange Act. The Company’s management has
reviewed and evaluated the effectiveness of its disclosure controls
and procedures as of December 31, 2017. 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.
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, 2017. 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
(2013).
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, 2017, its internal control over
financial reporting was not effective.
Based
on its evaluation, the Company's Interim 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,
2017.
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.
18
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: Timothy McGrath will
continue until the 2020 annual meeting of shareholders; Adrian
Pertierra and Anthony Snow will continue until the 2018 annual
meeting of shareholders; David Sandberg was elected to continue
until the 2019 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
|
|
|
45
|
|
Chairman
and Director
|
Anthony
Snow
|
|
|
42
|
|
Interim
President, Corporate Secretary, Director
|
Adrian
Pertierra
|
|
|
46
|
|
Director
|
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 SMTC Corp. Mr. Sandberg has previously served as a
director of public companies Issuer Direct Corporation, Planar
Systems, Inc., RF Industries Ltd., and EDCI Holdings Inc., and 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 and currently serves as
Interim President and Corporate Secretary. 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 and Audit committees 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.
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.
|
19
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 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. Pertierra 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, 2017, 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, 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.
20
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 2017 and 2016 fiscal years as shown in the following
table.
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. 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 2017 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 2017.
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.
21
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 2017, the
Company paid Mr. Vicente $142,724 in connection with the
severance, and the remaining amount payable as of December 31, 2017
is $23,787. 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 2017, the Company paid Mr. Vicente $17,871
in connection with these payments, and as of December 31, 2017 has
a remaining amount payable of $2,977. Mr. Vicente is also entitled
to payment of his salary through the Separation Date, payment for
unused vacation days, payment for any unreimbursed expenses, and a
bonus payment for work performed in calendar year 2015, payable
within sixty (60) days of the Company completing its fiscal 2015
audit.
Mr. Vicente remains subject to the restrictive covenants contained
in the Vicente Employment Agreement, including a covenant not to
compete and a non-solicitation provision, and is subject to
additional restrictive covenants in the Separation
Agreement.
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 Interim President and former Interim President for
each of its last two completed fiscal years. No other officer
received compensation greater than $100,000 for 2017.
Summary Compensation Table
Name and
Principal Position
|
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)
|
All
Other
Compensation ($)
|
Total
($)
|
|
|
|
|
|
|
|
|
Anthony
Snow
|
|
2017
|
25,000
|
0
|
0
|
0
|
25,000
|
Interim President
and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Morgan
|
|
2017
|
84,528
|
7,500
|
0
|
0
|
92,028
|
Former Interim
President, Corporate Secretary, and General Counsel
|
|
2016
|
132,875
|
7,500
|
0
|
0
|
140,375
|
Outstanding Equity Awards at Fiscal Year End.
Neither
Mr. Morgan nor Mr. Snow held any equity awards as of December 31,
2017.
COMPENSATION OF DIRECTORS
Director Compensation for year ending December 31,
2017
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, 2017.
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)
|
Timothy
McGrath
|
$7,000
|
$0
|
0
|
0
|
0
|
0
|
$7,000
|
David
Sandberg
|
$9,000
|
$0
|
0
|
0
|
0
|
0
|
$9,000
|
Anthony
Snow
|
$4,667
|
$0
|
0
|
0
|
0
|
0
|
$4,667
|
|
$6,000
|
$0
|
0
|
0
|
0
|
0
|
$6,000
|
22
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 Adrian
Pertierra), and $4,000 per year for the Chairman of the Board
(currently David Sandberg).
Compensation Committee Interlocks and Insider
Participation
Mr. McGrath, Mr. Sandberg, and Mr. Pertierra are the current
members of the Compensation Committee.
During
the fiscal year ended December 31, 2017, 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 30, 2018,
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)
|
|
160,744,475
|
|
12.6
|
%
|
|
|
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
|
|
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)
|
|
381,143,301
|
|
30.1
|
%
|
*
|
Less
than 1% of the outstanding common stock.
|
(1)
|
The
amount shown and the following information is derived from
an Amendment No. 3 to Schedule 13D
filed by Cryo-Cell International, Inc., along with David I.
Portnoy, Mark L. Portnoy and George Gaines, all of whom are
affiliates of Cryo-Cell International, Inc., reporting beneficial
ownership as a group as of February 15, 2018 and a Form 4 filed by
the foregoing group on February 26, 2018.
|
|
|
(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 30, 2017 are
deemed outstanding for computing the percentage of the person
holding such option or warrant. Percentages are based on a total of
1,272,066,146 shares of
common stock outstanding on March 30, 2018. 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.
|
23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
None.
Director Independence
All of the directors, other than Mr. Snow, 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”), for each of
our last two fiscal years for the categories of services
indicated:
|
RBSM
December
31,
2016
|
RBSM
December
31,
2017
|
Audit
Fees
|
$108,248
|
$92,420
|
Audit Related
Fees
|
-
|
-
|
Tax
Fees
|
16,000
|
12,700
|
All Other
Fees
|
-
|
1,000
|
|
$124,248
|
$106,120
|
RBSM
did perform non-audit services for the Company totaling $1,000 in
the year ended December 31, 2017.
During the years ended December 31, 2017 and 2016, RBSM billed the
Company for $106,120 and $124,248, respectively.
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.
24
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
and tax 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.
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
|
|
DESCRIPTION
|
|
Form of
Common Stock Share Certificate of Cord Blood America, Inc.
(1)
|
|
|
Amended
and Restated Articles of Incorporation of Cord Blood America, Inc.
(1)
|
|
3.1(ii) |
|
Articles of Amendment to Articles of Incorporation (5) |
|
Articles
of Amendment to the Articles of Incorporation of Cord Blood
America, Inc. (6)
|
|
|
Articles
of Amendment to the Articles of Incorporation of Cord Blood
America, Inc. (12)
|
|
|
Articles
of Amendment to the Articles of Incorporation of Cord Blood
America, Inc. (12)
|
|
|
Articles
of Amendment to the Articles of Incorporation of Cord Blood
America, Inc. (17)
|
|
|
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) |
|
Second
Amended and Restated Bylaws of Cord Blood America, Inc.
(29)
|
|
|
Patent
License Agreement dated as of January 1, 2004 between PharmaStem
Therapeutics, Inc. and Cord Partners, Inc. (2)
|
|
|
Lease
for Las Vegas Facility (9)
|
|
|
2011 Flexible
Stock Option Plan (17)
|
|
|
Employment
Agreement between the Company and Stephen Morgan (23)
|
|
|
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)
|
|
|
On
April 9, 2015, the Company entered into an Amendment to the
Executive Employment Agreement with Joseph R. Vicente and Stephen
Morgan. (25)
|
|
|
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)
|
|
|
On
April 17, 2015, the Company established compensation for
non-management Directors. (27)
|
25
|
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
|
|
On
August 6, 2015, the Company shareholders approved an amendment to
the Amended and Restated Articles of Incorporation.
(31)
|
|
|
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) |
|
Effective
March 31, 2017, the Company and Stephen Morgan entered into a Third
Amendment to Executive Employment Agreement. (34)
|
|
|
On
February 6, 2018, the Company entered into an asset purchase
agreement with California Cryobank Stem Cell Services LLC.
(35)
|
|
|
List of
Subsidiaries (4)
|
|
|
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)
|
|
|
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.
|
(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)
Reserved
(4)
Filed as an exhibit to Current Report on Form 10-K filed on April
2, 2018.
(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)
Reserved
(9)
Filed as an exhibit to Current Report on Form 10-K filed on March
31, 2010
(10)
Reserved
(11)
Reserved
(12)
Filed as an exhibit to Current Report on Form 10Q filed on May 23,
2011
(13)
Reserved
(14) Reserved
(16) Reserved
(17)
Filed as an exhibit to Registration Statement on Form S-8 filed on
June 3, 2011.
(18)
Reserved
(19)
Reserved
(20)
Reserved
(21)
Reserved
26
(22)
Reserved
(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)
Reserved
(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.
(35)
Filed as an exhibit to the Current Report on Form 8K filed on
February 8, 2018.
ITEM 16. FORM 10-K SUMMARY.
Not
applicable.
27
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 2nd day of
April, 2018.
|
CORD BLOOD AMERICA, INC.
|
|
|
|
|
|
|
|
By:
|
/s/Anthony
Snow
|
|
|
|
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/Anthony
Snow
|
|
|
Interim
President
(Principal
Executive Officer,
Principal
Financial Officer,
Principal
Accounting Officer)
|
|
April
2, 2018
|
|
|
|
/s/David
Sandberg
|
|
|
Chairman
and Director
|
|
April
2, 2018
|
/s/Anthony
Snow
|
|
|
Director
|
|
April
2, 2018
|
/s/Timothy
McGrath
|
|
|
Director
|
|
April
2, 2018
|
/s/Adrian
Pertierra
|
|
|
Director
|
|
April
2, 2018
|
|
|
|
28
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
|
|
|
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. and Subsidiaries
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Cord Blood
America, Inc. and Subsidiaries (the Company) as of December 31,
2017 and 2016, 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, 2017, and the
related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the
consolidated results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2017 and
2016, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, 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.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/RBSM
LLP
|
|
|
|
We have
served as the Company’s auditor since 2015.
|
|
|
|
Henderson,
NV
|
|
|
|
April
2, 2018
|
|
F-2
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
December
31,
2017
|
December
31,
2016
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$1,069,917
|
$926,209
|
Accounts
receivable, net of allowance for doubtful accounts of $26,429 and
$78,123, respectively
|
61,698
|
113,316
|
Receivable
- Biocells net of discount $26,044 and $27,541, respectively
(current portion)
|
28,956
|
27,459
|
Prepaid
expenses
|
146,478
|
175,065
|
Assets
held for sale
|
1,130,032
|
1,432,600
|
Total
current assets
|
2,437,081
|
2,674,649
|
|
|
|
Property and
equipment, net of accumulated depreciation and amortization of
$761,685 and $743,200, respectively
|
9,092
|
14,460
|
Other
assets
|
19,292
|
19,292
|
Receivable –
Biocells net of discount $113,996 and $140,041, respectively (long
term portion)
|
391,004
|
419,959
|
Total
assets
|
$2,856,469
|
$3,128,360
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$371,169
|
$151,305
|
Accrued
expenses
|
93,233
|
112,020
|
Severance
payable
|
26,764
|
187,360
|
Derivative
liability
|
--
|
109,731
|
Interest on
promissory notes
|
--
|
204,494
|
Promissory
convertible notes payable, net of unamortized discount of $0 and
$43,432, respectively
|
--
|
356,568
|
Liabilities
held for sale
|
1,381,215
|
1,430,206
|
Total
current liabilities
|
1,872,382
|
2,551,684
|
|
|
|
Total
liabilities
|
1,872,382
|
2,551,684
|
|
|
|
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
|
(52,497,796)
|
(52,905,208)
|
Total
stockholders’ equity
|
984,088
|
576,676
|
Total
liabilities and stockholders’ equity
|
$2,856,469
|
$3,128,360
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-3
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Year
Ended
|
Year
Ended
|
|
December
31,
2017
|
December
31,
2016
|
Revenue
|
$--
|
$--
|
Cost of
services
|
--
|
--
|
Gross
profit
|
--
|
--
|
Administrative
and selling expenses
|
(1,699,346)
|
(2,131,793)
|
Loss
from operations
|
(1,699,346)
|
(2,131,793)
|
|
|
|
Interest expense
and change in derivative liability
|
55,243
|
22,132
|
Gain on settlement
with Banco Vida
|
--
|
151,951
|
Other
income
|
27,542
|
34,417
|
Loss
from continuing operations before income taxes
|
(1,616,561)
|
(1,923,293)
|
Income
taxes
|
--
|
--
|
Net loss from
continuing operations
|
(1,616,561)
|
(1,923,293)
|
Net income from
discontinued operations, net of tax
|
2,023,973
|
2,025,535
|
Net
income
|
$407,412
|
$102,242
|
|
|
|
Basic
loss from continuing operations per share
|
$0.00
|
$0.00
|
Diluted
loss from continuing operations per share
|
$0.00
|
$0.00
|
|
|
|
Basic
earnings from discontinued operations per share
|
$0.00
|
$0.00
|
Diluted
earnings from discontinued operations per share
|
$0.00
|
$0.00
|
|
|
|
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
YEARS ENDED DECEMBER 31, 2017 AND 2016
|
Preferred Stock
|
Common
Stock
|
|
|
|
|
||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional Paid in Capital
|
Treasury Stock
|
Accumulated Deficit
|
Total
|
Ending
Balance December 31, 2015
|
-
|
$-
|
1,272,066,146
|
$127,207
|
$53,954,510
|
$(599,833)
|
$(53,007,451)
|
$474,433
|
|
|
|
|
|
|
|
|
|
Issance of
Preferred Stock for Cash
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Issuance of
Common Stock for Conversion of Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Issuance of
Common Stock for Employee
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
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
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
407,412
|
407,412
|
|
|
|
|
|
|
|
|
|
Ending
Balance December 31,2017
|
-
|
$-
|
1,272,066,146
|
$127,207
|
$53,954,510
|
$(599,833)
|
$(52,497,796)
|
$984,088
|
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
|
Year
Ended
|
Year
Ended
|
|
December
31,
2017
|
December
31,
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net loss from
continuing operations
|
$(1,616,561)
|
$(1,923,293)
|
Adjustments to
reconcile net income to net cash used in operating
activities:
|
|
|
Amortization of
loan discount
|
(56,568)
|
229,754
|
Amortization of
loan receivable discount
|
(27,542)
|
(28,104)
|
Depreciation and
amortization
|
5,368
|
5,324
|
Change in value of
derivative liability
|
(109,731)
|
(327,772)
|
Bad
debt
|
13,298
|
48,554
|
Gain on settlement
with Banco Vida
|
--
|
(151,951)
|
Other income from
loan receivable
|
--
|
(6,313)
|
Net change in
operating assets and liabilities
|
|
|
Changes
in accounts receivable
|
38,320
|
196,521
|
Changes
in prepaid
|
28,587
|
(23,191)
|
Changes
in accounts payable
|
219,864
|
(1,500)
|
Changes
in accrued expenses
|
(18,787)
|
(92,920)
|
Changes
in severance payable
|
(160,596)
|
187,360
|
Changes
in accrued interest
|
(204,494)
|
75,887
|
NET CASH USED
IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS
|
(1,888,842)
|
(1,811,644)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
Payment
to loan receivable - Banco Vida
|
--
|
69,454
|
Payments from loan receivable – Biocordcell
|
55,000
|
45,350
|
Payment
from sales of equipment
|
--
|
20,000
|
NET CASH PROVIDED
BY INVESTNG ACTIVITIES OF CONTINUING OPERATIONS
|
55,000
|
134,804
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
Repayment
of convertible note payable
|
(300,000)
|
(575,000)
|
NET CASH USED IN
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
|
(300,000)
|
(575,000)
|
|
|
|
Change in cash
– continuing operations
|
(2,133,842)
|
(2,251,840)
|
|
|
|
CASH FLOWS FROM
DISCONTINUED OPERATIONS
|
|
|
Net
Cash provided by operating activities
|
2,277,550
|
2,389,003
|
Net
Cash provided by investing activities
|
--
|
--
|
Net
Cash provided by financing activities
|
--
|
--
|
NET CASH PROVIDED
BY DISCONTINUED OPERATIONS
|
2,277,550
|
2,389,003
|
|
|
|
NET INCREASE IN
CASH
|
143,708
|
137,163
|
|
|
|
Cash balance at
beginning of year
|
$926,209
|
$789,046
|
Cash balance at end
of year
|
$1,069,917
|
$926,209
|
|
|
|
Non-Cash Investing
and Financing Activities
|
|
|
Cash
paid for interest
|
$214,147
|
$--
|
Cash
paid for tax
|
$--
|
$--
|
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, 2017
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 – Sale of Assets
On February 7, 2018, the Company announced that it entered into an
Asset Purchase Agreement, dated as of February 6, 2018 (the
“Purchase Agreement”), with California Cryobank Stem
Cell Services LLC (“FamilyCord”).
Pursuant to the terms of the Purchase Agreement, FamilyCord agreed
to acquire from CBAI substantially all of the assets of CBAI and
its wholly-owned subsidiaries and to assume certain liabilities of
CBAI and its wholly-owned subsidiaries. The sale does not include
CBAI’s cash and certain other excluded assets and
liabilities. FamilyCord agreed to pay a purchase price of
$15,500,000 in cash at closing with $3,000,000 of the purchase
price deposited into escrow to secure CBAI’s indemnification
obligations under the Purchase Agreement. The sale, which is
subject to the closing conditions described below, is expected to
close as soon as practicable, but likely during the second quarter
of 2018.
The Purchase Agreement contains customary representations,
warranties and covenants for a transaction of this type and nature.
Pursuant to the terms of the Purchase Agreement, CBAI shall
indemnify FamilyCord for breaches of its representations and
warranties, breaches of covenants, losses related to excluded
assets or excluded liabilities and certain other matters. The
representations and warranties set forth in the Purchase Agreement
generally survive for two years following the closing.
In connection with the sale, the parties will also enter into a
transition services agreement designed to ensure a smooth
transition of CBAI’s business from CBAI to
FamilyCord.
The consummation of the sale is dependent upon the satisfaction or
waiver of a number of closing conditions, including among other
things, approval by CBAI’s shareholders, receipt of certain
third-party consents and FamilyCord obtaining external financing.
The Purchase Agreement may be terminated at any time prior to the
date of closing by mutual agreement of the parties, or by either
party under certain circumstances set forth in the Purchase
Agreement, including by either party if the closing has not
occurred within six months of the execution of the Purchase
Agreement, by FamilyCord for CBAI’s failure to obtain its
shareholders’ approval of the asset sale, by FamilyCord if
CBAI pursues an alternative superior transaction or by FamilyCord
if it is unable to obtain necessary financing. The Purchase
Agreement also sets forth termination fees that may be payable by
one party to the other under certain circumstances of
termination.
Upon completion of the transaction, CBAI presently estimates it
will distribute a portion of the sale proceeds to its shareholders.
The initial distribution amount will be determined by CBAI’s
board of directors and will be subject to such factors as taxes
payable, operating expenses and other contingencies and estimates.
Additional monies may be distributed over time based on cash
available and the release of known and unknown liabilities. Given
cash needed for the aforementioned expenses and contingencies,
total proceeds paid out to shareholders are expected to be
significantly less than the gross purchase price.
A copy of the Purchase Agreement was attached as Exhibit 2.1 to the
Form 8-K filed February 8, 2018.
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.
F-7
Note 2. Summary of Significant Accounting Policies
Financial Statement Presentation
The
preparation of the financial statements in conformity with U.S.
generally accepted accounting principles (U.S. GAAP) requires
management to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results could differ from
these estimates. Certain prior year amounts have been reclassified
to conform to current year presentation.
Pursuant
to guidance in ASC 205-20, Presentation of Financial Statements,
and ASC 360-10-45-9 to 14, Property, Plant and Equipment, regarding
when the results of operations of a component of an entity that is
classified as held for sale would be reported as a discontinued
operation in the financial statements of the entity. The Company
determined that it met the threshold for reporting discontinued
operations due to a strategic business shift having a major effect
on an entity's operations and financial results. In February 2018,
the Company announced strategic repositioning actions which
resulted in agreements to sell cord blood and stem cell storage
business. For this reason, the results of operations for the cord
blood and cord tissue stem cell operations have been reclassified
into discontinued operations and the related assets and liabilities
are reflected as held-for-sale for all periods presented. See Note
3.
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.
Accounts Receivable
Accounts
receivable consist of the amounts due for facilitating the
processing and storage of umbilical cord blood and cord tissue, and
birth tissue procurement services. Accounts
receivable relating to deferred revenues are netted against
deferred revenue for presentation purposes. The allowance for
doubtful accounts is estimated based upon historical experience.
The allowance is reviewed quarterly and adjusted for accounts
deemed uncollectible by management. Amounts are written off when
all collection efforts have failed.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Routine maintenance and
repairs are charged to expense as incurred while major replacement
and improvements are capitalized as additions to the related
assets. Sales and disposals of assets are recorded by removing the
cost and accumulated depreciation from the related asset and
accumulated depreciation accounts with any gain or loss credited or
charged to income upon disposition.
Intangible Assets (related to cord blood and cord tissue stem cell
storage business)
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 included in
the discontinued operations for the years ended December 31, 2017
and 2016 was $295,486 and $345,348 respectively.
F-8
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 net realized value using the first-in, first-out
(“FIFO”) method. This policy requires the Company to
make estimates regarding the market value of its inventory,
including an assessment of excess or obsolete inventory. The
Company determines excess and obsolete inventory based on an
estimate of the future demand and estimated selling prices for its
products.
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 (related to
cord blood and cord tissue
stem cell storage business)
Deferred
revenue consists of payments for enrollment in the program and
processing of umbilical cord blood and cord tissue by customers
whose samples have not yet been collected, as well as the pro-rata
share of annual storage fees for customers whose samples were
stored during the year.
Valuation of Derivative Instruments
ASC
815-40 requires that embedded derivative instruments be bifurcated
and assessed, along with free-standing derivative instruments such
as warrants, on their issuance date and in accordance with ASC
815-40-15 to determine whether they should be considered a
derivative liability and measured at their fair value for
accounting purposes. In determining the appropriate fair value, the
Company uses the Binomial option pricing formula and present value
pricing. At December 31, 2017 and December 31, 2016, the Company
adjusted its derivative liability to its fair value, and reflected
the change in fair value, in its consolidated statements of
operations.
Revenue Recognition (related to
cord blood and cord tissue
stem cell storage business)
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.
F-9
Income Taxes
The
Company follows the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that
included the enactment date. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance based on the
portion of tax benefits that more likely than not will not be
realized.
The
Company follows guidance issued by the FASB with regard to its
accounting for uncertainty in income taxes recognized in the
financial statements. Such guidance prescribes a recognition
threshold of more likely than not and a measurement process for
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. In making this
assessment, a company must determine whether it is more likely than
not that a tax position will be sustained upon examination, based
solely on the technical merits of the position and must assume that
the tax position will be examined by taxing authorities. Our policy
is to include interest and penalties related to unrecognized tax
benefits in income tax expense. Interest and penalties totaled $0
for the years ended December 31, 2017 and 2016. 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 9. On January 1, 2006, the Company adopted
the provisions of ASC 718, “Accounting for Stock-based
Compensation (Revised 2004)” (“123(R)”), which
requires the fair value 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, 2017
and 2016, 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, 2017, this was the case. To date, the Company has not
experienced any such losses.
Fair Value Measurements
Assets
and liabilities recorded at fair value in the consolidated balance
sheets are categorized based upon the level of judgment associated
with the inputs used to measure the fair value. Level inputs, as
defined by ASC 820, are as follows:
●
|
Level 1
– quoted prices in active markets for identical assets or
liabilities.
|
●
|
Level 2
– other significant observable inputs for the assets or
liabilities through corroboration with market data at the
measurement date.
|
●
|
Level 3
– significant unobservable inputs that reflect
management’s best estimate of what market participants would
use to price the assets or liabilities at the measurement
date.
|
F-10
The
following table summarizes fair value measurements by level at
December 31, 2017 for assets and liabilities measured at fair value
on a recurring basis:
|
Level
1
|
Level
2
|
Level
3
|
Total
|
Derivative
liability
|
$--
|
$--
|
$--
|
$--
|
Derivative
liability was valued under the Binomial model with the following
assumptions:
Risk free interest
rate
|
0%
|
Expected
life
|
0
years
|
Dividend
Yield
|
0%
|
Volatility
|
0%
|
The
following table summarizes fair value measurements by level at
December 31, 2016 for assets and liabilities measured at fair value
on a recurring basis:
|
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 provides a roll-forward of the Company’s
derivative liabilities measured at fair value on a recurring basis
using unobservable level 3 inputs:
|
2017
|
2016
|
Balance
as of beginning of period
|
$109,731
|
$182,213
|
Change
in fair value of derivative
|
—
|
(72,482)
|
Reversal
of derivative liability associated with payoff of the convertible
note payable
|
(109,731)
|
—
|
Balance
as of end of period
|
$—
|
$109,731
|
There
were no financial instruments measured on a recurring basis as of
December 31, 2017 and 2016 and on a non-recurring basis for any of
the periods presented.
For
certain of the Company’s financial instruments, including
cash, accounts receivable, prepaid expenses and other assets,
accounts payable and accrued expenses, and deferred revenues, the
carrying amounts approximate fair value due to their short
maturities. The carrying amounts of the Company’s notes
receivable and notes payable approximates fair value based on the
prevailing interest rates.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” (ASU 2014-09) as
modified by ASU No. 2015-14, “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date,” ASU
2016-08, “Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net),” ASU No. 2016-10, “Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and
Licensing,” and ASU No. 2016-12, “Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients.” The revenue recognition principle in
ASU 2014-09 is that an entity should recognize revenue to depict
the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, new
and enhanced disclosures will be required. Companies may adopt the
new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a
cumulative effect upon adoption approach. The Company will adopt
the new standard effective January 1, 2018, using the full
retrospective approach. The adoption of ASU 2014-09 will not
have a material impact on the Company’s consolidated
financial position, results of operations, equity or cash
flows.
F-11
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
and subsequently amended the guidance relating largely to
transition considerations under the standard in January 2017. The
objective of this update is to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. This ASU is effective for
fiscal years beginning after December 15, 2018, including interim
periods within those annual periods and is to be applied utilizing
a modified retrospective approach. The Company is currently
evaluating the new guidance to determine the impact it may have on
its financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash. The objective of this
ASU is to eliminate the diversity in practice related to the
classification of restricted cash or restricted cash equivalents in
the statement of cash flows. For public business entities, this ASU
is effective for annual and interim reporting periods beginning
after December 15, 2017, with early adoption permitted. The
amendments in this update should be applied retrospectively to all
periods presented. The Company will adopt this standard on January
1, 2018 and will not have a material impact on the Company’s
financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718): Scope of Modification Accounting
(ASU 2016-09), which provides guidance about which changes to
the terms or conditions of a share-based payment award require an
entity to apply modification accounting in Topic 718. This
pronouncement is effective for annual reporting periods beginning
after December 15, 2017. The Company will adopt this standard on
January 1, 2018 and will not have a material impact on the
Company’s financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting
Bulletin 118 (SAB 118), which provides guidance on
accounting for the tax effects of the Tax Cuts and Jobs Act (the
TCJA). SAB 118 provides a measurement period that should
not extend beyond one year from the enactment date for companies to
complete the accounting under ASC 740. In accordance with SAB
118, a company must reflect the income tax effects of those aspects
of the TCJA for which the accounting under ASC 740 is
complete. To the extent that a company’s accounting for
certain income tax effects of the TCJA is incomplete but for
which they are able to determine a reasonable estimate, it must
record a provisional amount in the financial
statements. Provisional treatment is proper in light of
anticipated additional guidance from various taxing authorities,
the SEC, the FASB, and even the Joint Committee on
Taxation. If a company cannot determine a provisional amount
to be included in the financial statements, it should continue to
apply ASC 740 on the basis of the provisions of the tax laws that
were in effect immediately before the enactment of the TCJA.
The Company has applied this guidance to its financial
statement
Note 3. Assets Held for Sale -
Cord Blood and Cord Tissue Stem Cell Storage
Operations
Background
Pursuant to the terms of the Purchase Agreement dated as of
February 6, 2018, FamilyCord agreed to acquire from CBAI
substantially all of the assets of CBAI and its wholly-owned
subsidiaries and to assume certain liabilities of CBAI and its
wholly-owned subsidiaries. FamilyCord agreed to pay a purchase
price of $15,500,000 in cash at closing with $3,000,000 of the
purchase price deposited into escrow to secure CBAI’s
indemnification obligations under the Purchase Agreement. The sale,
which is subject to the closing conditions described below, is
expected to close as soon as practicable, but likely during the
second quarter of 2018. The sale does not include CBAI’s
cash, accounts receivables, and certain other excluded assets and
liabilities.
The consummation of the sale is dependent upon the satisfaction or
waiver of a number of closing conditions, including among other
things, approval by CBAI’s shareholders, receipt of certain
third-party consents and FamilyCord obtaining external financing.
The Purchase Agreement may be terminated at any time prior to the
date of closing by mutual agreement of the parties, or by either
party under certain circumstances set forth in the Purchase
Agreement, including by either party if the closing has not
occurred within six months of the execution of the Purchase
Agreement, by FamilyCord for CBAI’s failure to obtain its
shareholders’ approval of the asset sale, by FamilyCord if
CBAI pursues an alternative superior transaction or by FamilyCord
if it is unable to obtain necessary financing. The Purchase
Agreement also sets forth termination fees that may be payable by
one party to the other under certain circumstances of
termination.
The assets sold in the transaction are the sole revenue generating
assets of the Company. The results of operations associated with
the assets sold have been reclassified into discontinued operations
and the assets and liabilities are reflected as held-for-sale
(current and long-term) for all periods presented.
Assets and groups of assets and liabilities which comprise disposal
groups are classified as “held for sale” when all of
the following criteria are met: a decision has been made to sell,
the assets are available for sale immediately, the assets are being
actively marketed at a reasonable price in relation to the current
fair value, a sale has been or is expected to be concluded within
twelve months of the balance sheet date, and significant changes to
the plan to sell are not expected. Assets held for sale are not
depreciated.
F-12
Additionally, the operating results and cash flows related to these
assets and liabilities are included in discontinued operations in
the consolidated statements of operations and consolidated
statements of cash flows for the years ended December 31, 2017 and
December 31, 2016.
The following is summary of aggregate carrying amounts of the major
classes of assets and liabilities classified as held-for-sale as of
December 31, 2017 and 2016:
|
December
31,
2017
|
December
31,
2016
|
ASSETS
|
|
|
Inventory
|
$45,762
|
$58,376
|
Property and
equipment, net of accumulated depreciation
|
35,152
|
52,168
|
Customer contracts
and relationships, net of accumulated amortization
|
1,049,118
|
1,322,056
|
Total
assets
|
$1,130,032
|
$1,432,600
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Deferred
revenue
|
$1,381,215
|
$1,430,206
|
Total
liabilities
|
$1,381,215
|
$1,430,206
|
Income / (Loss) of Discontinued Operations
The proposed sale of majority of the assets and liabilities related
to the cord blood and cord tissue stem cell operation represents a
strategic shift in the Company’s business. For this reason,
the results of operations related to the assets and liabilities
held for sale for all periods are classified as discontinued
operations.
The
following is a summary of the results of operations related to the
assets held for sale for the years ended December 31, 2017 and
2016:
|
Year
Ended
|
Year Ended
|
|
December
31,
2017
|
December
31,
2016
|
Revenue
|
$2,994,676
|
$3,288,291
|
Cost of
services
|
(680,750)
|
(904,863)
|
Gross
profit
|
2,313,926
|
2,383,428
|
Depreciation and
Amortization
|
(289,953)
|
(357,893)
|
Net income from
discontinued operations
|
$2,023,973
|
$2,025,535
|
The
following is a summary of net cash provided by operating activities
for the assets held for sale for the years ended December 31, 2017
and 2016:
|
Year
Ended
|
Year
Ended
|
|
December
31,
2017
|
December
31,
2016
|
Cash provided by
operating activities
|
$2,277,550
|
$2,389,003
|
F-13
Note 4. Property and Equipment
At
December 31, 2017 and 2016, property and equipment consist
of:
|
Useful
Life
(Years)
|
2017
|
2016
|
Furniture and
fixtures
|
1-5
|
$17,597
|
$17,597
|
Computer
equipment
|
5
|
124,466
|
124,466
|
Laboratory
Equipment
|
1-5
|
5,837
|
5,837
|
Freezer
equipment
|
7-15
|
34,699
|
34,699
|
Leasehold
Improvements
|
5
|
102,862
|
102,862
|
|
|
285,461
|
285,461
|
Less: accumulated
depreciation and amortization
|
|
(276,369)
|
(271,001)
|
|
|
$9,092
|
$14,460
|
Assets
held for sale:
|
|
|
|
Furniture
and fixtures
|
1-5
|
$5,432
|
$5,432
|
Computer
equipment
|
5
|
93,339
|
93,339
|
Laboratory
Equipment
|
1-5
|
92,351
|
92,351
|
Freezer
equipment
|
7-15
|
329,526
|
329,526
|
|
|
520,648
|
520,648
|
Less: accumulated
depreciation and amortization
|
|
(485,496)
|
(468,480)
|
|
|
$35,152
|
$52,168
|
For the
years ended December 31, 2017 and 2016, depreciation expense
totaled $5,368 and $5,324, respectively for continuing operations
and $22,383 and $47,865, respectively for discontinued
operations.
F-14
Note 5. Notes and Loans Payable, and Derivative
Liabilities
At
December 31, 2017 and 2016, notes and loans payable consist
of:
|
December
31,
2017
|
December
31,
2016
|
|
|
|
Secured Convertible
Promissory Note to Tonaquint, Inc. 7.5% per annum; due on or before
September 17, 2017.
|
--
|
400,000
|
|
|
|
|
|
|
Less: Unamortized
Discount
|
--
|
(43,432)
|
|
$--
|
$356,568
|
Total
interest expense was $54,488 and $305,640 during the years ended
December 31, 2017 and 2016, respectively. The gains from changes in
derivative liability were $109,731 and $327,772 during the years
ended December 31, 2017 and 2016, 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-15
For
each monthly payment, the Company may elect to designate all or any
portion of the Installment Amount then due as a conversion
eligible amount (hereafter “Conversion Eligible
Amount”); provided that the total outstanding Conversion
Eligible Amount that has not been converted by Tonaquint, as set
forth below, at any given time may not exceed one hundred thousand
dollars ($100,000) without Tonaquint’s prior written consent
and subject to additional restrictions set forth in the Company
Note. In the event the Company designates any portion of any
monthly payment amount as a Conversion Eligible Amount, the
applicable monthly payment shall be reduced by an amount equal to
the portion thereof designated as a Conversion Eligible Amount. The
Conversion Eligible Amount shall continue to be included in and be
deemed to be a part of the Outstanding Balance (defined in the
Company Note) of the Company Note unless and until such amount is
either paid in cash by the Company or converted into Common Stock
by Tonaquint. The Company may pay the Conversion Eligible Amount in
cash, provided that no prepayments of cash shall reduce the
Conversion Eligible Amount until the Outstanding Balance is equal
to or less than the Conversion Eligible Amount.
Once
the Company has designated amounts as Conversion Eligible Amount,
Tonaquint may convert all or any portion of that amount into
shares of the Company's Common Stock. In the event of a conversion
by Tonaquint of a Conversion Eligible Amount, the number of Common
Stock shares delivered to Tonaquint upon conversion will be
calculated by dividing the amount of the Company Note that is being
converted by 70% of the average of the three (3) lowest Closing Bid
Prices of the Common Stock (as defined in the Company Note) in the
twenty (20) Trading Days immediately preceding the applicable
Conversion.
The
Company records debt discounts in connection with the issuance of
convertible debt and the initial valuation of the derivative
liability. The discounts are amortized to non-cash interest expense
over the life of the debt.
The
Company Note has an interest rate of 7.5%, compounding daily, which
would increase to a rate of 15.0% on the happening of certain
Events of Default (defined in the Company Note) that are not
considered a Payment Default (defined in the Company Note),
provided that the Company may cure the default in accordance with
and subject to the terms set forth in the Company Note. Where a
Payment Default occurs, including where (i) Borrower shall fail to
pay any principal, interest, fees, charges, or any other amount
when due and payable under that Company Note; or (ii) Borrower
shall fail to deliver any Conversion Shares in accordance with the
terms of the Company Note, late fees shall accrue as set forth in
the Company Note, and in addition, the Company shall have ninety
(90) days from delivery of notice of default from Tonaquint to cure
the default, as set forth in more detail in the Company Note. If
the Company fails to cure the Payment Default, Tonaquint may
accelerate the Company Note by written notice to the Company, with
the Outstanding Balance becoming immediately due and payable in
cash at the Mandatory Default Amount (defined in the Company Note)
equal to (i) the Outstanding Balance as of the date of acceleration
(which Outstanding Balance, for the avoidance of doubt, will
include all Late Fees that accrue until any applicable Payment
Default is cured) multiplied by (ii) two hundred fifty percent
(250%), along with other remedies, as set forth in the Company
Note.
As of December 31, 2016, the principal balance on the Tonaquint
note was $400,000, and there was $204,494 of accrued
interest. As of
December 31, 2017, the principal balance on the Tonaquint note was
$0, and there was $0 of accrued
interest.
Note 6. Investment and Notes Receivable, Related
Parties
At
December 31, 2017 and 2016, notes receivable consists
of:
|
2017
|
2016
|
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.
|
560,000
|
615,000
|
|
|
|
Unamortized
discount on BioCells note receivable
|
(140,040)
|
(167,582)
|
|
$419,960
|
$447,418
|
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, 2017, the Purchaser is current on all
payments.
F-16
This
loan receivable is secured, non-interest bearing, and subject to a
6% discount rate. 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. As of December 31, 2017,
the receivable has a balance of $419,960, net of unamortized
discount of $140,040 and allowance of doubtful accounts of
$0. The Purchaser is current with payments as of
December 31, 2017. The Company incurred interest income from the
amortized discount of $27,542 and $28,104 during the years ended
December 31, 2017 and 2016, respectively.
Note 7. Commitments and Contingencies
VidaPlus
On
January 24, 2011, the Company entered into a Stock Purchase
Agreement to acquire up to 51% of the capital stock in VidaPlus, an
umbilical cord processing and storage company headquartered in
Madrid, Spain. The Agreement is organized into three tranches; the
first executed at closing with an initial investment of
approximately $204,000 (150,000 Euro) for an amount equivalent to
7% as follows; 1% of share capital in initial equity or
approximately $30,000 and 6% or an estimated $174,000 as a loan
convertible into equity within 12 months of closing. The initial
investment was secured by a Pledge Agreement on 270 VidaPlus
samples that 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.
Employment Agreement
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”).
F-17
The
Vicente Employment Agreement provided for a base salary equal to $135,000, as well as an
annual bonus opportunity, payable at the discretion of the Board of
Directors, equal to 30% of Mr. Vicente’s base salary for
that calendar year. Mr. Vicente had the option to receive any
portion of his salary and bonus in stock of the Company, which was
amended effective April 9, 2015 pursuant to an Amendment to
Executive Employment Agreement whereby Mr. Vicente no longer had
the option in his sole discretion to receive his salary and bonus
amounts in stock. The Vicente Employment Agreement includes
two-year restrictions on competition and solicitation of customers
following termination of the agreement.
Effective February 12, 2016 (the “Separation Date”),
the Company entered a Mutual Separation Agreement with Mr. Vicente
(the “Separation Agreement”). Pursuant to
the Separation Agreement, Mr. Vicente stepped down from his
positions as President and as a member of the
Board. Under the Separation Agreement, Mr. Vicente is
entitled to receive a severance, payable in equal monthly
installments over the twenty four month period post separation, in
an amount equal to all compensation paid by the Company to Mr.
Vicente for the 24 months preceding the termination, including
salary and bonus received by Mr. Vicente. Additionally,
the Company will pay for the value of his health insurance
premiums, in monthly installments, until the earlier of twenty-four
months after the Separation Date or until Mr. Vicente or his
dependents become eligible for group health insurance coverage
through a new employer. Mr. Vicente is also entitled to
payment of his salary through the Separation Date, payment for
unused vacation days, payment for any unreimbursed expenses, and a
bonus payment for work performed in calendar year 2015, payable
within sixty (60) days of the Company completing its fiscal 2015
audit.
Mr. Vicente remains subject to the restrictive covenants contained
in the Vicente Employment Agreement, including a covenant not to
compete and a non-solicitation provision, and is subject to
additional restrictive covenants in the Separation Agreement. In
2017, the Company paid Mr. Vicente $142,724 in connection
with the severance, and the remaining amount payable as of December
31, 2017 is $23,787.
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, 2017, are
as follows:
|
Rent
|
|
to be
paid
|
2018
|
191,006
|
2019
|
145,835
|
Total
|
$336,841
|
The
Company’s rent expense was $162,899 and $177,394 during the
years ended December 31, 2017 and 2016, respectively.
F-18
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, 2017 and 2016.
The
Company’s stock option activity was as follows:
|
Stock
Options
|
Weighted
Average Exercise Price
|
Weighted Avg.
Contractual
Remaining
Life
|
Outstanding,
December 31, 2016
|
4,458,679
|
0.68
|
2.98
|
Granted
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
Forfeited/Expired
|
150,685
|
0.33
|
-
|
Outstanding,
December 31, 2017
|
4,307,994
|
0.69
|
2.06
|
Exercisable at
December 31, 2017
|
4,307,994
|
0.69
|
2.06
|
The
following table summarizes significant ranges of outstanding stock
options under the stock option plan at December 31,
2017:
Range
of
Exercise
Prices
|
Number
of
Options
|
Weighted
Average
Remaining
Contractual
Life
(years)
|
Weighted
Average
Exercise
Price
|
Number
of
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
$0.53 — 1.11
|
4,307,994
|
2.06
|
$0.69
|
4,307,994
|
$0.69
|
|
4,307,994
|
2.06
|
$0.69
|
4,307,994
|
$0.69
|
Note 9. Income Tax
The
components of income (loss) consists of the following:
|
Years Ended December 31,
|
|
|
2017
|
2016
|
Loss
from continuing operations
|
$(1,616,561)
|
$(1,923,293)
|
Income
from discontinued operations
|
2,023,973
|
2,025,535
|
Income
before taxes
|
$407,412
|
$102,242
|
The
difference between the provision for income taxes (benefit) and the
amount computed by applying the U.S. federal income tax rate for
the years ended December 31, 2017 and 2016 are as
follows:
|
Years Ended December 31,
|
|
|
2017
|
2016
|
Federal
income tax benefit/expense at statutory rate (34%)
|
34.0%
|
34.0%
|
State
income tax, net of federal benefit
|
--
|
--
|
Permanent
differences
|
2.1
|
(42.0)
|
Federal rate
reduction under tax reform
|
1,314.0
|
--
|
Other
|
(220.5)
|
(76.0)
|
Change in valuation
allowance
|
(1,129.6)
|
84.0
|
Effective income
tax rate
|
0.0%
|
0.0%
|
F-19
The
major components of the Company’s deferred tax assets as of
December 31, 2017 and 2016 are shown below.
|
2017
|
2016
|
Net
operating loss carryforwards
|
$9,016,972
|
$13,365,813
|
Other
deferred tax assets
|
22,350
|
475,280
|
Deferred
tax liabilities, long-lived assets
|
(391,532)
|
(591,003)
|
Valuation
allowance
|
(8,647,790)
|
(13,250,090)
|
Net
deferred tax assets
|
$—
|
$—
|
The
Company has evaluated the positive and negative evidence bearing
upon the realizability of its deferred tax assets. Under
applicable accounting standards, management has considered the
Company’s operational history and concluded that it is more
likely than not the Company will not recognize the benefits of its
deferred tax assets. Accordingly, a valuation allowance
of $8,647,790 and $13,250,090 was established at December 31, 2017
and 2016 respectively, to offset the net deferred tax assets. When
and if management determines that it is more likely than not that
the Company will be able to utilize a portion of the deferred tax
assets prior to their expiration, the valuation allowance may be
reduced or eliminated. The decrease in valuation allowance to
$204,578 for the year ending December 31, 2017 is primarily related
to the use of net operating loss carryforwards to offset current
year income. Additionally, the valuation allowance had a
reduction as a result of deferred tax assets revalued at the
reduced federal tax rate under the U.S. Tax Cuts and Jobs Act
enacted in December of 2017.
The
Company has U.S. federal net operation loss, or NOL, carryforwards
available at December 31, 2017 of approximately $42,937,966 that
will begin to expire in 2025. The Company has its operations in the
state of Nevada, which does not have state income taxes. The State
of Nevada has a gross receipts tax, which is included as a
component of operating expenses.
Utilization
of the net operating loss and research and development credit
carryforwards may be subject to a substantial annual limitation
under Section 382 of the Internal Revenue Code of 1986 due to
ownership change limitations that could occur in the
future. These future ownership changes may limit the
amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income and tax,
respectively. To the extent an ownership change may
occur, the net operating loss, credit carryforwards and other
deferred tax assets may be subject to limitations.
On
December 22, 2017, President Trump signed into law the “Tax
Cuts and Jobs Act,” or TCJA, which significantly reforms the
Internal Revenue Code of 1986, as amended. The TCJA, among other
things, includes changes to U.S. federal tax rates, imposes
significant additional limitations on the deductibility of interest
and net operating loss carryforwards, allows for the expensing of
capital expenditures, and puts into effect the migration from a
“worldwide” system of taxation to a territorial
system.
The
TCJA permanently lowers the corporate federal income tax rate to
21% from the existing maximum rate of 35%, effective for tax years
including or commencing on January 1, 2018. As a result
of the reduction of the corporate federal income tax rate to 21%,
U.S. GAAP requires companies to revalue their deferred tax assets
and deferred tax liabilities as of the date of enactment, with the
resulting tax effects accounted for in the reporting period of
enactment. This revaluation resulted in a provision of
$4,602,300 to income tax expense in continuing operations and a
corresponding reduction of the Company’s valuation
allowance. As a result of the offsetting valuation
allowance, there is no impact to the Company’s income
statement for the year ended December 31, 2017 from the reduction
in federal income tax rates. The Company’s
preliminary estimate of the TCJA and the remeasurement of its
deferred tax assets and liabilities is subject to the finalization
of management’s analysis related to certain matters, such as
developing interpretations of the provisions of the TCJA, changes
to certain estimates and the filing of its tax
returns. U.S. Treasury regulations, administrative
interpretations or court decisions interpreting TCJA may require
further adjustments and changes to the Company’s
estimates. The final determination of TCJA and the
remeasurement of the Company’s deferred tax assets and
liabilities will be completed as additional information becomes
available, but no later than one year from the enactment of the
TCJA.
For the
years ending December 31, 2017 and 2016, the Company is not aware
of any uncertain tax positions or benefits. The Company’s
policy is to record estimated interest and penalties related to
uncertain tax benefits as income tax expense. As of
December 31, 2017, and 2016, the Company had no accrued interest or
penalties recorded related to uncertain tax positions.
The tax
years 2013 through 2017 remain open to examination by major taxing
jurisdictions to which the Company is subject, which are primarily
in the U.S. The statute of limitations for U.S. net operating
losses utilized in future years will remain open beginning in the
year of utilization.
Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted income tax rates in effect
for the year the temporary differences are expected to be recovered
or settled. Tax rate changes affecting deferred tax assets and
liabilities are recognized in the statement of operations at the
enactment date.
F-20
In 2017
and 2016, the Company incurred a tax effected net income of
$407,412 and $102,242, respectively. At that time, the
Company neither had nor anticipated sufficient income to absorb the
benefits from net operating loss carryforwards, and established a
full valuation allowance. In 2018, if the sale of assets is
consummated, the portion of valuation allowance released related
due to a capital gain resulting from the sale of the cord blood and
stem cell operations would be a benefit and will be recorded in
continuing operations.
The
Company recognizes interest and/or penalties related to uncertain
tax positions in income tax expense. There were no uncertain tax
positions as of December 31, 2017 and 2016, and as such, no
interest or penalties were recorded to income tax
expense.
The tax
reform bill that Congress voted to approve December 20, 2017, also
known as the “Tax Cuts and Jobs Act”, made sweeping
modifications to the Internal Revenue Code, including a much lower
corporate tax rate, changes to credits and deductions, and a move
to a territorial system for corporations that have overseas
earnings.
The act
replaced the prior-law graduated corporate tax rate, which taxed
income over $10 million at 34%, with a flat rate of
21%.
The
Company files a U.S. federal income tax return and gross
receipts tax return in Nevada. The U.S. federal income tax returns
for years 2013 and prior are not subject to further examination by
the U.S. Internal Revenue Service. With few exceptions, the
Company is no longer subject to state and local or non-U.S. income
tax examinations by tax authorities for years before
2013.
Note 10. Other
Certain U.S. Federal Income Tax Consequences of the Sale of
Assets
The proposed sale of assets to FamilyCord will be a transaction
taxable to the Company for United States federal income tax
purposes. In general, the Company will recognize taxable gain in an
amount equal to the difference, if any, between (i) the total
amount realized by the Company on the Sale and (ii) the
Company’s aggregate adjusted tax basis in the assets sold.
The total amount realized by the Company on the Sale will equal the
cash the Company receives in exchange for the assets sold, plus the
amount of related liabilities assumed by the Buyer or cancelled in
the transaction. The Company expects that a portion of the taxable
gain recognized on the Sale will be offset by current year losses
from operations and available net operating loss carry forwards, as
currently reflected on our consolidated U.S. federal income tax
returns. However, the Company believes that a significant portion
of its net operating loss carryforwards will never be fully
utilized and will expire unused.
Shareholders will not be subject to U.S. federal income tax on the
Sale. However, as discussed below, Shareholders will be subject to
U.S. federal income tax upon the receipt of any distribution of
Sale proceeds made by the Company to the Shareholders.
Certain U.S. Federal Income Tax Consequences of the Sale of Assets
to U.S. Shareholders
For purposes of this discussion, a “U.S. shareholder”
is a beneficial owner of shares of Company stock who or that is,
for U.S. federal income tax purposes:
●
an
individual who is a citizen or resident of the United
States;
●
corporation,
or any other entity taxable as a corporation, created or organized
in or under the laws of the United States, any state thereof or the
District of Columbia;
●
an
estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
●
any
trust (i) if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons (as defined in the United States
Internal Revenue Code of 1986) have the authority to control all
substantial decisions of the trust, or (ii) if a valid election is
in place to treat the person as a United States
person.
Pursuant to the Asset Purchase Agreement, the Company may not
dissolve or liquidate for at least two years following closing of
the transaction. Therefore, prior to the Company’s adoption
of a plan of liquidation, each distribution made by the Company to
a U.S. shareholder is characterized as a dividend to the extent of
the Company’s current and accumulated earnings and profits
(as determined under U.S. federal income tax principles). Provided
that certain holding period requirements are satisfied, a dividend
received by a U.S. shareholder who is an individual, trust or
estate may qualify as “qualified dividend income” that
is currently subject to U.S. federal income tax at a maximum rate
of 20%. Dividends received by corporate U.S. shareholders may be
eligible for a dividend received deduction (subject to applicable
exceptions and limitations). Any portion of a distribution that
exceeds the Company’s current and accumulated earnings and
profits is treated as a non-taxable return of capital, reducing
such U.S. shareholder’s adjusted tax basis in its shares of
Company stock and, thereafter as gain from the sale or exchange of
Company stock.
If the Company adopts of a plan of liquidation in the future, the
tax consequences of each distribution to a U.S. shareholder will
change. The Company will provide an additional discussion of U.S.
federal income tax considerations if the Company adopts of a plan
of liquidation in the future.
F-21
Note 11. Stockholders’ Equity
Preferred Stock
The
Company has 5,000,000 shares of $0.0001 par value preferred stock
authorized. As of December 31, 2017 and 2016, the Company had no
preferred stock issued and outstanding.
Common Stock
As of
December 31, 2017 the Company had 2,890,000,000 shares of $$0.0001
par value common stock authorized. As of December 31, 2017 and
2016, the Company had 1,272,066,146 shares of common stock issued
and outstanding, and 20,000 shares remain in the Company’s
treasury.
Note 12. Subsequent Events
On February 7, 2018, Cord Blood America, Inc. (“CBAI”
or the “Company” or “We”) announced that it
entered into an Asset Purchase Agreement, dated as of February 6,
2018 (the “Purchase Agreement”), with California
Cryobank Stem Cell Services LLC
(“FamilyCord”).
Pursuant to the terms of the Purchase Agreement, FamilyCord agreed
to acquire from CBAI substantially all of the assets of CBAI and
its wholly-owned subsidiaries and to assume certain liabilities of
CBAI and its wholly-owned subsidiaries. The sale does not include
CBAI’s cash and certain other excluded assets and
liabilities. FamilyCord agreed to pay a purchase price of
$15,500,000 in cash at closing with $3,000,000 of the purchase
price deposited into escrow to secure CBAI’s indemnification
obligations under the Purchase Agreement. The sale, which is
subject to the closing conditions described below, is expected to
close as soon as practicable, but likely during the second quarter
of 2018.
The Purchase Agreement contains customary representations,
warranties and covenants for a transaction of this type and nature.
Pursuant to the terms of the Purchase Agreement, CBAI shall
indemnify FamilyCord for breaches of its representations and
warranties, breaches of covenants, losses related to excluded
assets or excluded liabilities and certain other matters. The
representations and warranties set forth in the Purchase Agreement
generally survive for two years following the closing.
In connection with the sale, the parties will also enter into a
transition services agreement designed to ensure a smooth
transition of CBAI’s business from CBAI to
FamilyCord.
The consummation of the sale is dependent upon the satisfaction or
waiver of a number of closing conditions, including among other
things, approval by CBAI’s shareholders, receipt of certain
third-party consents and FamilyCord obtaining external financing.
The Purchase Agreement may be terminated at any time prior to the
date of closing by mutual agreement of the parties, or by either
party under certain circumstances set forth in the Purchase
Agreement, including by either party if the closing has not
occurred within six months of the execution of the Purchase
Agreement, by FamilyCord for CBAI’s failure to obtain its
shareholders’ approval of the asset sale, by FamilyCord if
CBAI pursues an alternative superior transaction or by FamilyCord
if it is unable to obtain necessary financing. The Purchase
Agreement also sets forth termination fees that may be payable by
one party to the other under certain circumstances of
termination.
A copy of the Purchase Agreement was attached as Exhibit 2.1 to the
Form 8-K filed by the Company on February 8, 2018.
The Red
Oak Fund, LP, The Red Oak Long Fund, LP and Pinnacle Opportunities
Fund, LP (collectively, the “Shareholders”), which own
164,073,684, 76,226,316 and 140,752,632 shares of CBAI’s
common stock, respectively, or approximately 30.0% of CBAI’s
issued and outstanding common stock in the aggregate, and each of
which are affiliates of Red Oak Partners, LLC, entered into a
voting agreement (the “Voting Agreement”) with
FamilyCord and CBAI on February 6, 2018, pursuant to which the
Shareholders have agreed, among other things, to vote their shares
(the “Covered Shares”) in favor of the asset sale and
grant to FamilyCord an irrevocable proxy with respect to their
respective Covered Shares.
Assets
and liabilities included in the Purchase Agreement are now
classified as assets and liabilities held for sale and operations
related to these assets and liabilities are classified as
discontinued operations for all years presented.
Upon
closing of the transaction, the Company will have no or nominal
operations and no or nominal assets and will therefore considered
to be a “Shell Company” as that term is defined in Rule
12b-2 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
F-22