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2: EX-31.1 Certification of the Registrants Chief Executive HTML 22K
Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
3: EX-32.1 Certification of the Companys Chief Executive HTML 18K
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.
28: R1 Document and Entity Information HTML 55K
44: R2 Consolidated Balance Sheets HTML 84K
38: R3 Consolidated Balance Sheets (Parenthetical) HTML 42K
14: R4 Consolidated Statements of Operations and HTML 83K
Comprehensive Income (Loss) (Audited)
27: R5 Consolidated Statement of Changes in Stockholders' HTML 27K
Deficit
43: R6 Consolidated Statements of Cash Flows (Audited) HTML 87K
37: R7 1. Organization and Description of Business HTML 34K
15: R8 2. Summary of Significant Accounting Policies HTML 51K
26: R9 3. Discontinued Operations - Cord Blood and Cord HTML 39K
Tissue Stem Cell Storage Operations
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23: R11 5. Commitments and Contingencies HTML 25K
39: R12 6. Share Based Compensation HTML 31K
33: R13 7. Income Tax HTML 63K
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34: R17 11. Subsequent Events HTML 21K
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Securities
registered pursuant to Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Act:
Common Stock, Par Value $.0001
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
No ☑
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No ☑
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
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
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 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:
Large
Accelerated Filer
☐
Accelerated
Filer
☐
Non-accelerated
Filer
☑
Smaller
reporting company
☑
Emerging
growth company
☐
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, 2019 based on the closing price of
the common stock as reported by the Over the Counter Bulletin Board
on such date, was approximately $9.54 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 25, 2020.
List
hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated:
None
Some of
the information contained in this Annual Report may include
forward-looking statements. CBA Florida, Inc. (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.
CBA
Florida, Inc. ("CBAI" or the “Company”), formerly known
as Cord Blood America, Inc., was incorporated in the State of
Florida on October 12, 1999 as D&A Lending, Inc. CBAI's
wholly-owned subsidiaries include CBA Partners, Inc. which was
formerly Cord Partners, Inc., CBA Companies Inc. which was formerly
CorCell Companies, Inc., and CBA Sub Ltd. which was formerly
CorCell, Ltd., (CBA Partners, Inc., CBA Companies Inc. and CBA Sub
Ltd. are sometimes referred to herein collectively as
“Cord”), CBA Properties, Inc. ("Properties"), and
Career Channel, Inc. formerly D/B/A Rainmakers
International. As further described below, on May 17,2018, CBAI completed a sale of substantially all of the assets of
the Company and its wholly-owned subsidiaries. Prior to the sale of
substantially all of the assets, CBAI and its subsidiaries had
engaged in the following business activities:
●
CBAI and Cord
specialized in providing private cord blood and cord tissue stem
cell services. Additionally, the Company was in the business of
procuring birth tissue for organizations utilizing the tissue in
the transplantation and/or research of therapeutic
products.
●
Properties was
formed to hold corporate trademarks and other intellectual
property.
Material Reclassification, Merger, Consolidation, or Purchase or
Sale of Significant Assets
Sale of Assets to California Cryobank Stem Cell Services
LLC
On
February 7, 2018, the Company announced that it entered into an
Asset Purchase Agreement, dated as of February 6, 2018 (the
“Purchase Agreement”), with California Cryobank Stem
Cell Services LLC (“FamilyCord”). The sale of
substantially all of the Company’s assets pursuant to the
Purchase Agreement was completed on May 17, 2018.
Pursuant
to the terms of the Purchase Agreement, FamilyCord acquired from
CBAI substantially all of the assets of CBAI and its wholly-owned
subsidiaries and assumed certain liabilities of CBAI and its
wholly-owned subsidiaries. The sale did not include CBAI’s
cash and certain other excluded assets and liabilities. FamilyCord
agreed to pay a purchase price of $15,500,000 in cash at closing
with $3,000,000 of the purchase price deposited into escrow to
secure CBAI’s indemnification obligations under the Purchase
Agreement.
The
Purchase Agreement contained customary representations, warranties
and covenants for a transaction of this type and nature. Pursuant
to the terms of the Purchase Agreement, CBAI indemnified FamilyCord
for breaches of its representations and warranties, breaches of
covenants, losses related to excluded assets or excluded
liabilities and certain other matters. The representations and
warranties set forth in the Purchase Agreement generally survive
for two years following the closing.
CBAI previously disclosed that it anticipates distributing proceeds
from the FamilyCord sale to shareholders. On February 11,2020, the Company’s Board of Directors approved a plan of
dissolution (the “Plan”) that is subject to shareholder
approval. If the Company’s shareholders approve the Plan, the
Company presently intends to make an initial distribution of at
least $0.0048 per share of common stock as promptly as reasonably
possible thereafter. Based on the information
currently available to it, the Company is unable to estimate the
aggregate amount which will ultimately be distributed to its
shareholders. The actual amounts of any distributions may vary
substantially, depending on, among other things, whether the
Company becomes subject to any additional liabilities or claims,
including potential claims for indemnification relating to sales of
the Company’s assets, whether the Company incurs unexpected
or greater than expected losses with respect to contingent
liabilities, the extent to which the Company is able to monetize
any remaining non-cash assets and any future amounts received by
the Company in connection with, among other things, all future
amounts received by the Company, including the amount of FamilyCord
sale proceeds to be released from escrow upon the termination of
the escrow in May 2020 CBAI and its Board of Directors continue to
contemplate a distribution, given the Company’s expenses and
other contingencies the total proceeds ultimately paid out to
shareholders will be significantly less than the gross purchase
price the Company received from its Purchase Agreement with
FamilyCord.
BioCells Acquisition and Subsequent Sale
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
(“BioCells”), providing for the Company’s
acquisition of 50.004% of the outstanding shares of BioCells (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.
3
Under
the Agreement, the Purchaser was obligated to pay the total amount
of $705,000, as follows:
On
October 31, 2018, the Company entered into a settlement agreement
with the Purchaser whereby the Purchaser agreed to make a one-time
payment of $295,000 to the Company to settle all remaining payments
and obligations due under the Agreement. The Company received the
settlement payment on November 15, 2018 and wrote off the remaining
unpaid receivable of $89,609 remaining under the terms of the
Agreement.
VidaPlus
On
January 24, 2011, the Company entered into a Stock Purchase
Agreement to acquire up to 51% of the capital stock in VidaPlus, an
umbilical cord processing and storage company headquartered in
Madrid, Spain. The Agreement is organized into three tranches; the
first executed at closing with an initial investment of
approximately $204,000 (150,000 Euro) for an amount equivalent to
7% as follows; 1% of share capital in initial equity or
approximately $30,000 and 6% or an estimated $174,000 as a loan
convertible into equity within 12 months of closing. The initial
investment was secured by a Pledge Agreement on 270 VidaPlus
samples that were incurring annual storage fees. The second tranche
provided the opportunity for an additional 28% in share capital
through monthly investments based on the number of samples
processed in that month (up to a maximum of 550,000 EUR). In
connection with Tranche 2, the Company loaned VidaPlus $246,525.
Converting the investment from a loan into equity was to take place
within 24 months of the date the amount of shares due to the
Company pursuant to the second tranche is calculated. According to
the Stock Purchase Agreement, the third tranche follows a similar
loan to equity agreement as tranche two but for an additional 16%
equity at the option of the Company (up to a maximum of 550,000
EUR).
In
connection with the VidaPlus Stock Purchase Agreement entered into
on January 24, 2011, the Company was obligated to make monthly
loans to VidaPlus based on the number of new samples processed and
up to a maximum of 550,000 Euro for each of Tranche 2 and 3 of the
Agreement. Tranche 2 did contain provisions that provided the
Company an option to discontinue funding if certain performance
targets were not met.
In
January 2012, the Company exercised its right to convert its
Tranche 1 loan into 6% of the outstanding shares of VidaPlus, and
as a result, the Company owned a total of 7% of the outstanding
shares. At the time of the equity conversion, the Company no longer
maintained its Pledge on the 270 VidaPlus samples associated with
Tranche 1; however, the Company maintained a liquidation preference
in VidaPlus over the money invested by the Company in VidaPlus.
Additionally, the Company declined to make any further investment
(loan or otherwise) to VidaPlus under either Tranche 2, Tranche 3
or otherwise. Pursuant to the Agreement, CBAI held a pledge over
the umbilical cord blood maintenance and storage contracts between
VidaPlus and certain of its customers, and all rights contained
therein, including but not limited to the rights to administer
those contracts and the rights to collect the revenues derived from
those contracts, for 328 samples. CBAI held that pledge until such
time as it converted the monies paid to VidaPlus under Tranche 2 of
the Stock Purchase Agreement into equity into VidaPlus, in
accordance with the formulas set forth in the Stock Purchase
Agreement. CBAI was required to make that conversion within two
years of when the calculation was made as to the amount of shares
to which CBAI is entitled pursuant to Tranche 2, which meant that
such conversion would take place around or before February 2014.
CBAI also held a liquidation preference in VidaPlus for the money
the Company invested in VidaPlus. On February 14, 2014, CBAI
delivered to VidaPlus its election to convert its loan under
Tranche 2 into shares of stock in VidaPlus, including Anti-Dilution
shares. The Company is entitled to an additional
ownership stake of approximately 2.24% in connection with the
forgoing, bringing its total ownership percentage to approximately
9.24%.
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.
Sale of China Stem Cell Stock and Convertible Debt
The
Company entered into an Asset Purchase Agreement, dated June 19,2019, with Golden Sun Multi-Manager Fund LP (“Golden
Sun”), whereby the Company sold all shares and convertible
debt it held in China Stem Cells Ltd. (“China Stem
Cells”) to Golden Sun. The total proceeds from the sale was
$50,000. The Company previously wrote-off the entire value of the
China Stem Cells shares and convertible debt held by the Company,
and accrued a gain for the full value of sale proceeds received on
its statement of operations for the nine months ended September 30,2019.
The
Company makes available free of charge through its Internet
website, www.cbafloridainc.com, its annual
report on Form 10-K, quarterly reports on Form 10-Q, (both XBRL
compliant), current reports on Form 8-K and all amendments to those
reports as soon as reasonably practicable after such materials are
electronically filed with or furnished to the Securities and
Exchange Commission (SEC). The SEC maintains an Internet
website, www.sec.gov, which contains
reports, proxy and information statements, and other information
filed electronically with the SEC. Any materials that the Company
files with the SEC may also be read and copied at the SEC’s
Public Reference Room, 100 F Street, N.E., Room 1580, Washington,
D.C. 20549.
Information
on the operations of the Public Reference Room is available by
calling the SEC at 1-800-SEC-0330. The information provided on the
Company’s website is not part of this report and is not
incorporated herein by reference.
Risks Related to the Company’s Business and Discontinued
Operations
No Dividends Or Distributions Have Been Declared By Our Board of
Directors And There Can Be No Assurance As To The Amount Or Timing
Of Any Such Dividend or Distribution.
CBAI
estimated it will distribute a portion of the proceeds of the sale
of substantially all of its assets to its shareholders in 2020. On
February 11, 2020, the Company’s Board of Directors approved
a plan of dissolution that is subject to shareholder approval. If
the Company’s shareholders approve the Plan, the Company
presently intends to make an initial distribution of at least
$0.0048 per share of common stock as promptly as reasonably
possible thereafter. However, no distribution has yet been declared
by the Board of Directors and the initial distribution amount will
be determined by CBAI’s board of directors and will be
subject to such factors as taxes payable, indemnification
obligations under the Purchase Agreement with FamilyCord, 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 that the Company received under the Purchase
Agreement with FamilyCord. Accordingly, there can be no assurance
as to the amount or timing of any dividend or
distribution.
The Company May Be Liable For Services Previously Provided To Its
Past Customers.
While
the Company sold substantially all of its assets and has
effectively discontinued operations, it remains liable for any
claims which may arise in connection with services provided to
customers prior to the sale of substantially all of its assets. We
are unable to predict whether such claims will arise or, if they
do, the size of such claims. In the event that we are unable to
defend the Company against such claims, or if the costs of
defending such claims are significant, we could incur significant
losses, which could adversely affect our financial position and
results.
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, our Certificate of
Incorporation generally prohibits 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 could inhibit or prevent certain
transactions that would otherwise be beneficial to
stockholders.
We May Be Deemed An Investment Company Which Could Impose On Us
Burdensome Compliance Requirements And Restrict Our
Activities.
The
Investment Company Act of 1940, as amended (the “Investment
Company Act”), requires companies to register as an
investment company if they are engaged primarily in the business of
investing, reinvesting, owning, holding, or trading securities.
Generally, companies may be deemed investment companies under the
Investment Company Act if they are viewed as engaging in the
business of investing in securities or they own investment
securities having a value exceeding 40% of certain assets.
Depending on our future activities and operations, we may become
subject to the Investment Company Act. Although the Investment
Company Act provides certain exemptions, we may not qualify for any
of these exemptions. If we are deemed to be an investment company
we may be subject to certain restrictions that may make it
difficult for us to complete business combinations, including
restrictions on the nature of and custodial requirements for
holding our investments and restrictions on our issuance of
securities, which we may use as consideration in a business
combination. In addition, if we are deemed to be an investing
company we may have imposed upon us additional burdensome
requirements, including the following:
5
●
having to register
as an investment company;
●
adopting a specific
form of corporate structure; and
●
having to comply
with certain reporting, record keeping, voting, proxy, and
disclosure requirements.
Such
additional requirements would require us to incur additional costs
and have an adverse effect on our results of operations and our
ability to effectively carry out our business plan.
Cyber Attacks And Breaches Could Cause Operational Disruptions,
Fraud Or Theft of Sensitive Information.
Aspects
of our remaining 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.
The Company’s 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 the Company’s
information systems fail to perform as expected, or if the Company
suffers an interruption, malfunction or loss of information
processing capabilities, it could have a material adverse effect on
its business.
The Company 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 officer.
Trading Of The Company’s 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 SEC
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 SEC, 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.
We Will Continue To Incur Expenses That Will Reduce Any Amounts
Available For Distribution To Our Stockholders.
As a
result of the sale of substantially all our assets to FamilyCord,
we have no material operations and no material sources of revenue.
Claims, liabilities and expenses from operations, such as limited
operating costs, salaries, directors’ and officers’
insurance, payroll and local taxes, legal, accounting and
consulting fees and offices expenses will continue to be incurred
by us as we wind down. We cannot estimate what the aggregate of
these expenses will be, but they will reduce the amount of funds
available for distribution to our stockholders.
6
We Will Continue To Incur The Expense Of Complying With Public
Company Reporting Requirements Following The Sale Of Substantially
All Of Our Assets.
After
the sale of substantially all our assets to FamilyCord, we continue
to be required to comply with the applicable reporting requirements
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), even though compliance with such
reporting requirements is economically burdensome.
Following The Closing Of The Sale Of Substantially All Our Assets,
We Became A “Shell Company” Under The Federal
Securities Laws.
As a
result of the sale of substantially all our assets, we no longer
have an operating business, and accordingly, after the closing of
the sale of substantially all our assets, we became a shell company
as defined by Rule 405 of the Securities Act and Exchange Act Rule
12b-2. Applicable securities rules prohibit shell companies from
using a Form S-8 registration statement to register securities
pursuant to employee compensation plans and from utilizing Form S-3
for the registration of securities for so long as we are a shell
company and for 12 months thereafter.
Additionally,
Form 8-K requires shell companies to provide more detailed
disclosure upon completion of a transaction that causes it to cease
being a shell company. We do not currently anticipate the
acquisition of any assets, but to the extent that we were to
acquire any assets in the future, we would be required to file a
current report on Form 8-K containing the financial and other
information required in a registration statement on Form 10 within
four business days following completion of such a
transaction.
To
assist the SEC in the identification of shell companies, we are
required to check a box on our quarterly reports on Form 10-Q and
our annual reports on Form 10-K indicating that we are a shell
company.
Under
Rule 144 of the Securities Act, a holder of restricted securities
of a “shell company” is not allowed to resell their
securities in reliance upon Rule 144. The inability to utilize
registration statements on Forms S-8 and S-3 would likely increase
our costs to register securities in the future. Additionally, the
loss of the use of Rule 144 and Form S-8 might make the offering
and sale of our securities to employees, directors and others under
compensatory arrangements more expensive and less attractive to
recipients.
We Have Identified Significant Deficiencies In Our Internal Control
Over Financial Reporting, And We Cannot Assure You That Additional
Significant Deficiencies Will Not Occur In The Future. If Our
Internal Control Over Financial Reporting Or Our Disclosure
Controls And Procedures Are Not Effective, We May Not Be Able To
Accurately Report Our Financial Results, Which May Cause Investors
To Lose Confidence In Our Reported Financial Information And May
Lead To A Decline In Our Stock Price.
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. 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.
Our Executive Officers, Directors And 10% Stockholders Have
Significant Voting Power And May Vote Their Shares In A Manner That
Is Not In The Best Interest Of Other Stockholders.
Our
executive officers, directors and 10% stockholders control
approximately 41% of the voting power represented by our
outstanding common stock. If these stockholders act together, they
may be able to exert significant control over our management and
affairs requiring stockholder approval, such as the election of
directors or the dissolution of the Company. This concentration of
ownership may have the effect of delaying or preventing a change in
control and might adversely affect the market price of our common
stock. This concentration of ownership may not be in the best
interests of all our stockholders.
On
October 25, 2018, the Company entered into a sublease agreement
(“Sublease”) for its offices at 1857 Helm Drive, Las
Vegas, Nevada, pursuant to which a sub-tenant (the
“Sublessee”) occupied the offices in exchange for
payment of the rent for the offices to the landlord. The Sublease,
and the Company’s underlying lease for the offices, ended on
September 30, 2019 and the Sublessee vacated the
offices.
On
October 1, 2019, the Company moved to a new corporate headquarters
located at 3753 Howard Hughes Parkway, Suite 200 Office #258, Las
Vegas, Nevada. The new month-to-month lease for the Company’s
headquarters was entered into on August 21, 2019 and commenced on
October 1, 2019. The Company believes that it has adequate space
for its anticipated needs.
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.
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.
(b)
Holders. As of March 10, 2020, the Company’s common stock was
held by approximately 738 shareholders of record. The
Company’s transfer agent is Issuer Direct Corporation, with
offices at 1981 Murray Holladay Road, Suite 100, Salt Lake City,
Utah84117, 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 and Distributions. The Company has never
declared or paid a cash dividend. CBAI presently anticipates
it will distribute a portion of the sale proceeds to its
shareholders in 2020. The Company cannot predict with certainty the
amount of any distributions to its shareholders, and no
distribution has yet been declared by Company’s Board of
Directors. On February 11, 2020, the Company’s Board of
Directors approved a plan of dissolution that is subject to
shareholder approval. If the Company’s shareholders approve
the Plan, the Company presently intends to make an initial
distribution of at least $0.0048 per share of common stock as
promptly as reasonably possible thereafter. Based on the
information currently available to it, the Company is unable to
estimate the aggregate amount which will ultimately be distributed
to its shareholders. The actual amounts of any liquidating
distributions may vary substantially, depending on, among other
things, whether the Company becomes subject to any additional
liabilities or claims, including potential claims for
indemnification relating to sales of the Company’s assets,
whether the Company incurs unexpected or greater than expected
losses with respect to contingent liabilities, the extent to which
the Company is able to monetize any remaining non-cash assets and
any future amounts received by the Company in connection with,
among other things, all future amounts received by the Company,
including the amount of asset sale proceeds to be released from
escrow upon the termination of the escrow in May 2020.
(d)
Securities Authorized for Issuance Under Equity Compensation
Plans.
Equity Compensation Plan Information
The
following table sets forth the information indicated with respect
to the Company's compensation plans as of December 31,2019, 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
$0.53
664,058
Equity compensation
plans not approved by security holders
N/A
Total
664,058
$0.53
664,058
Repurchase of Shares
The
Company did not repurchase any of its shares during the year ended
December 31, 2019.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As
described under Item 1. Company Developments, on February 7, 2018,
the Company announced that it entered into the Purchase Agreement
with FamilyCord. The completion of the sale of substantially all of
the Company’s assets occurred on May 17, 2018.
9
Pursuant
to the terms of the Purchase Agreement, FamilyCord acquired from
CBAI substantially all of the assets of CBAI and its wholly-owned
subsidiaries and assumed certain liabilities of CBAI and its
wholly-owned subsidiaries. The sale did not include CBAI’s
cash and certain other excluded assets and liabilities. FamilyCord
agreed to pay a purchase price of $15,500,000 in cash at closing
with $3,000,000 of the purchase price deposited into escrow to
secure CBAI’s indemnification obligations under the Purchase
Agreement.
Prior
to the sale of substantially all of the Company’s assets, the
Company and its subsidiaries engaged in the following business
activities:
●
CBAI and Cord
specialized in providing private cord blood and cord tissue stem
cell services. Additionally, the Company was in the business of
procuring birth tissue for organizations utilizing the tissue in
the transplantation and/or research of therapeutic
products.
●
Properties was
formed to hold corporate trademarks and other intellectual
property.
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 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
recognized revenue from both enrollment fees and processing fees
upon the completion of processing while revenue from storage fees
were recognized ratably over the contractual storage period. The
Company had no revenue from continuing operations for the years
ended December 31, 2019 and 2018.
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, 2018 and 2019, 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.
For the
year ended December 31, 2019, the Company had no revenue from
discontinued operations, compared to $1.11 million over the same
period of 2018. 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). The
Company had no recurring storage revenue for the year ended
December 31, 2019, compared to $1.11 million for the prior year
ended December 31, 2018.
The
Company had no discontinued operations cost of services as a
percentage of revenue for the year ended December 31, 2019 compared
to 43% in the same period of 2018. 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.
The Company had no gross profit for the year ended December 31,2019 compared to $0.66 million for the comparable period of
2018.
Administrative
and selling expenses for the year ended December 31, 2019 were
$0.64 million as compared to $3.88 million for the comparable
period of 2018, representing an 84% decrease. These expenses were
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 $0.32 million for
the year ended December 31, 2019, a decrease of $2.74 million from
a net loss from continuing operations of $3.06 million for the year
ended December 31, 2018.
The
Company had no net income from discontinued operations for the year
ended December 31, 2019 compared to net income of $16.23 million
for the year ended 2018 which included gains from the sale of
essentially all of the Company’s assets to
FamilyCord.
Liquidity, Financial Position and Capital Resources
Total
assets at December 31, 2019 were $14.78 million, compared to $15.57
million at December 31, 2018. Total liabilities at December31, 2019 were $0.66 million consisting primarily of deferred tax
liability and income tax payable of $0.60 million. At December 31,2018, total liabilities were $1.41 million consisting primarily of
deferred tax liability, income tax payable and sale tax payable of
$1.24 million.
At
December 31, 2019, the Company had $11.53 million in cash, a
decrease of $0.88 million from the December 31, 2018 cash balance
of $12.41 million. For the year ended December 31, 2019, cash flow
used in operating activities of continuing operations totaled $0.88
million compared to $4.80 million for the year ended December 31,2018. At December 31, 2019 and 2018, the Company had $3.00 million
deposited in escrow to secure CBAI’s indemnification
obligations under the Purchase Agreement. For the year ended
December 31, 2019, the Company had no cash flow generated from
discontinued operations compared to $15.79 million for the year
ended 2018.
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 a net loss and negative cash flow
for the year ended December 31, 2019 compared to net income and
positive cash flow, primarily from discontinued operations, for the
comparative period of 2018. The Company believes it has sufficient
cash on hand from the sale of substantially all its assets to meet
the Company’s obligations over the next 12
months.
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, ASU
2014-09 requires new and enhanced disclosures. Companies may adopt
the new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a
cumulative effect upon adoption approach. The Company adopted ASC
606 effective January 1, 2018 using the full retrospective
approach. The adoption of ASU 2014-09 did not have any material
impact on the Company’s consolidated financial position,
results of operations, equity or cash flows.
11
In
August 2016, the FASB issued ASU
No. 2016-15, Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, in an effort to reduce the diversity of how
certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The amendments of this
ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted. There has been no impact as a
result of adopting this ASU on our financial statements and related
disclosures.
In
January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business.
This new standard clarifies the definition of a business and
provides a screen to determine when an integrated set of assets and
activities is not a business. The screen requires that when
substantially all of the fair value of the gross assets acquired
(or disposed of) is concentrated in a single identifiable asset or
a group of similar identifiable assets, the set is not a business.
This new standard was effective for the Company on January 1,2018, and there was no impact as a result of adopting this ASU on
our financial statements and related disclosures.
In February 2016, the FASB issued ASU No.
2016-02, Leases
(Topic 842), under the new guidance,
lessor accounting is largely unchanged. Certain targeted
improvements were made to align, where necessary, lessor accounting
with the lessee accounting model and Topic 606, Revenue from
Contracts with Customers. The amendments of this ASU
are effective for fiscal years beginning after December 15,2018, and interim periods within those fiscal years. Early adoption
is permitted. The Company determined that there was no impact by
this ASU on the consolidated financial statements and related
disclosures, as the Company had no long-term operating leases as of
the date of adoption of this ASU.
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, 2019 and December 31, 2018, 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-21 of this Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
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, 2019. 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.
As the Company has effectively discontinued operations, it believes
the risk of the foregoing deficiency to be significantly reduced as
the Company’s accounting needs have become much more
limited.
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.
12
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, 2019. 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, 2019, its internal control over
financial reporting was not effective.
Based
on its evaluation, the Company's President and Principal
Financial Officer identified a major deficiency that existed in the
design or operation of its internal control over financial
reporting that it considers to be a “material
weakness”. The Public Company Accounting Oversight Board has
defined a material weakness as a “significant deficiency or
combination of significant deficiencies that results in more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or
detected.” The material weakness was first identified at the
beginning of 2007 and remained unchanged through December 31,2019.
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. As the Company
has effectively discontinued operations, it believes the risk of
the foregoing deficiency to be significantly reduced as the
Company’s accounting needs have become much more
limited.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
AND CORPORATE GOVERNANCE.
Pursuant
to Paragraph G(3) of the General Instructions to Form 10-K, the
information required by Part III (Items 10, 11,12, 13, and 14) is
being incorporated by reference to the applicable information in
the Company’s definitive proxy statement (or an amendment to
the Company’s Annual Report on Form 10-K) to be filed with
the Securities and Exchange Commission within 120 days after the
end of the fiscal year ended December 31, 2019 in connection with
the Company’s annual meeting of shareholders to be held in
2020.
Code of Ethics
The
Company adopted a Code of Ethics (“Ethics Code”) 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. The
Ethics Code contains general guidelines for conducting our business
consistent with standards of business ethics and compliance with
applicable law, and is intended to qualify as a “code of
ethics” within the meaning of Section 406 of the
Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K.
Day-to-day compliance with the Ethics Code is overseen by the
Company’s Board of Directors. If the Company makes any
substantive amendments to the Ethics Code or grants any waiver from
a provision of the Ethics Code to any director or executive
officer, the Company will promptly disclose the nature of the
amendment or waiver on its website at www.cbafloridainc.com.
Amended
and Restated Articles of Incorporation of Cord Blood America, Inc.
(filed as Exhibit 3.0 to the Company’s Registration Statement
on Form 10-SB filed with the SEC on May 6, 2004 and incorporated
herein by reference)
Articles
of Amendment to the Articles of Incorporation of CBA Florida, Inc.
(filed as Exhibit 3.1 to the Company’s Current Report on Form
8-K filed with the SEC on May 25, 2018 and incorporated herein by
reference)
Articles
of Amendment to the Articles of Incorporation of CBA Florida, Inc.
(filed as Exhibit 3.1 to the Company’s Current Report on Form
8-K filed with the SEC on May 31, 2018 and incorporated herein by
reference)
Amended
and Restated Bylaws of Cord Blood America, Inc. (filed as Exhibit
3.1 to the Company’s Registration Statement on Form 10-SB
filed with the SEC on May 6, 2004 and incorporated herein by
reference)
Second
Amended and Restated Bylaws of Cord Blood America, Inc. (filed as
Exhibit 3 to the Company’s Current Report on Form 8-K filed
with the SEC on May 29, 2015 and incorporated herein by
reference)
Form of
Common Stock Share Certificate of Cord Blood America, Inc. (filed
as Exhibit 4.0 to the Company’s Registration Statement on
Form 10-SB filed with the SEC on May 6, 2004 and incorporated
herein by reference)
Tax
Benefits Preservation Plan, dated as of April 25, 2018, by and
between Cord Blood America, Inc. and Issuer Direct Corporation, as
rights agent (filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed with the SEC on April 26, 2018 and
incorporated herein by reference)
2011
Flexible Stock Option Plan (filed as Exhibit 4.1 to the
Company’s Registration Statement on Form S-8 filed with the
SEC on June 3, 2011 and incorporated herein by
reference)
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.
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 25th day of
March, 2020.
CBA FLORIDA, INC.
By:
/s/Anthony
Snow
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
CBA
Florida, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of CBA
Florida, Inc. (the Company) as of December 31, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of
its operations and its cash flows for each of the years in the
two-year period ended December 31, 2019, in conformity with
accounting principles generally accepted in the United States of
America.
Explanatory Paragraph – Change in Accounting
Principle
As
discussed in Note 2 to the financial statements, the Company
changed its method of accounting for leases in 2019 due to the
adoption of ASU No. 2016-02, Leases (Topic 842), as amended,
effective January 1, 2019.
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.
CBA
Florida, Inc. ("CBAI" or the “Company”), formerly known
as Cord Blood America, Inc., was incorporated in the State of
Florida on October 12, 1999 as D&A Lending, Inc. CBAI's
wholly-owned subsidiaries include CBA Partners, Inc. which was
formerly Cord Partners, Inc., CBA Companies Inc. which was formerly
CorCell Companies, Inc., and CBA Sub Ltd. which was formerly
CorCell, Ltd., (CBA Partners, Inc., CBA Companies Inc. and CBA Sub
Ltd. are sometimes referred to herein collectively as
“Cord”), CBA Properties, Inc. ("Properties"), and
Career Channel, Inc. formerly D/B/A Rainmakers
International. As further described below, on May 17,2018, CBAI completed a sale of substantially all of the assets of
the Company and its wholly-owned subsidiaries. Prior to the sale of
substantially all of the assets and related liabilities, CBAI and
its subsidiaries had engaged in the following business
activities:
●
CBAI and Cord
specialized in providing private cord blood and cord tissue stem
cell services. Additionally, the Company was in the business of
procuring birth tissue for organizations utilizing the tissue in
the transplantation and/or research of therapeutic
products.
●
Properties was
formed to hold corporate trademarks and other intellectual
property.
Company Developments – Sale of Assets
On
February 7, 2018, the Company announced that it entered into an
Asset Purchase Agreement, dated as of February 6, 2018 (the
“Purchase Agreement”), with California Cryobank Stem
Cell Services LLC (“FamilyCord”). The sale of
substantially all of the Company’s assets pursuant to the
Purchase Agreement was completed on May 17, 2018.
Pursuant
to the terms of the Purchase Agreement, FamilyCord acquired from
CBAI substantially all of the assets of CBAI and its wholly-owned
subsidiaries and assumed certain liabilities of CBAI and its
wholly-owned subsidiaries. The sale did not include CBAI’s
cash and certain other excluded assets and liabilities. FamilyCord
agreed to pay a purchase price of $15,500,000 in cash at closing
with $3,000,000 of the purchase price deposited into escrow to
secure CBAI’s indemnification obligations under the Purchase
Agreement.
The
Purchase Agreement contained customary representations, warranties
and covenants for a transaction of this type and nature. Pursuant
to the terms of the Purchase Agreement, CBAI indemnified FamilyCord
for breaches of its representations and warranties, breaches of
covenants, losses related to excluded assets or excluded
liabilities and certain other matters. The representations and
warranties set forth in the Purchase Agreement generally survive
for two years following the closing.
CBAI previously disclosed that it anticipates distributing proceeds
from the FamilyCord sale to shareholders. On February 11,2020, the Company’s Board of Directors approved a plan of
dissolution (the “Plan”) that is subject to shareholder
approval. If the Company’s shareholders approve the Plan, the
Company presently intends to make an initial distribution of at
least $0.0048 per share of common stock as promptly as reasonably
possible thereafter. Based on the information
currently available to it, the Company is unable to estimate the
aggregate amount which will ultimately be distributed to its
shareholders. The actual amounts of any distributions may vary
substantially, depending on, among other things, whether the
Company becomes subject to any additional liabilities or claims,
including potential claims for indemnification relating to sales of
the Company’s assets, whether the Company incurs unexpected
or greater than expected losses with respect to contingent
liabilities, the extent to which the Company is able to monetize
any remaining non-cash assets and any future amounts received by
the Company in connection with, among other things, all future
amounts received by the Company, including the amount of FamilyCord
sale proceeds to be released from escrow upon the termination of
the escrow in May 2020 CBAI and its Board of Directors continue to
contemplate a distribution, given the Company’s expenses and
other contingencies the total proceeds ultimately paid out to
shareholders will be significantly less than the gross purchase
price the Company received from its Purchase Agreement with
FamilyCord.
BioCells Acquisition and Subsequent Sale
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
(“BioCells”), providing for the Company’s
acquisition of 50.004% of the outstanding shares of BioCells (the
“Shares).
F-7
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 was obligated to pay the total amount
of $705,000, as follows:
On
October 31, 2018, the Company entered into a settlement agreement
with the Purchaser whereby the Purchaser agreed to make a one-time
payment of $294,988 to the Company to settle all remaining payments
and obligations due under the Agreement. The Company received the
settlement payment on November 6, 2019, and wrote off the remaining
unpaid receivable of $89,597 remaining under the terms of the
Agreement.
Sale of China Stem Cell Stock and Convertible Debt
The
Company entered into an Asset Purchase Agreement, dated June 19,2019, with Golden Sun Multi-Manager Fund LP (“Golden
Sun”), whereby the Company sold all shares and convertible
debt it held in China Stem Cells Ltd. (“China Stem
Cells”) to Golden Sun. The total proceeds from the sale was
$50,000. The Company previously wrote-off the entire value of the
China Stem Cells shares and convertible debt held by the Company,
and accrued a gain for the full value of sale proceeds received on
its statement of operations for the nine months ended September 30,2019.
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 accounting standard codification (“ASC”)
205-20, Presentation of Financial Statements, and ASC 360-10-45-9
to 14, Property, Plant and Equipment, regarding when the results of
operations of a component of an entity that is classified as held
for sale would be reported as a discontinued operation in the
financial statements of the entity. The Company determined that it
met the threshold for reporting discontinued operations due to a
strategic business shift having a major effect on an entity's
operations and financial results.
On
February 7, 2018, the Company announced that it entered into the
Purchase Agreement with FamilyCord. The sale of substantially all
of the Company’s assets occurred on May 17, 2018. For this
reason, the results of operations for the cord blood and cord
tissue stem cell operations have been reclassified into
discontinued operations.
Basis of Consolidation
The
consolidated financial statements include the accounts of CBAI and
its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated upon
consolidation.
Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during
the reporting periods. Actual results could differ materially from
those estimates.
Cash
Cash
and cash equivalents include cash on hand, deposits in banks with
maturities of three months or less, and all highly liquid
investments which are unrestricted as to withdrawal or use, and
which have original maturities of three months or less at the time
of purchase.
The
Company maintains cash and cash equivalents at several financial
institutions. The value of cash and cash equivalents held by the
Company at a bank in excess of federally insured limits was
$11,282,312 during the period ended December 31, 2019.
F-8
Accounts Receivable
Accounts
receivable consist of the amounts due for facilitating the
processing and storage of umbilical cord blood and cord tissue, and
birth tissue procurement services. Accounts
receivable relating to deferred revenues are netted against
deferred revenue for presentation purposes. The allowance for
doubtful accounts is estimated based upon historical experience.
The allowance is reviewed quarterly and adjusted for accounts
deemed uncollectible by management. Amounts are written off when
all collection efforts have failed. The Company wrote off $0.00 and
$10,220 in bad debt expense during the years ended December 31,2019 and 2018, respectively.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Routine maintenance and
repairs are charged to expense as incurred while major replacement
and improvements are capitalized as additions to the related
assets. Sales and disposals of assets are recorded by removing the
cost and accumulated depreciation from the related asset and
accumulated depreciation accounts with any gain or loss credited or
charged to income upon disposition.
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, 2019 and 2018 was $0.00
and $27,345 respectively.
Notes Receivable (related to cord blood and cord tissue stem cell
storage business)
Notes
receivable consists of the notes due from Biocordcell Argentina
S.A. (BioCells). 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 BioCells 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, 2019 and December 31, 2018, 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)
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09, Revenue from Contracts with Customers (Topic
606). Under the provisions of Accounting Standards Update
(“ASU”) 2014-09, entities 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, ASU
2014-09 requires new and enhanced disclosures. Companies may adopt
the new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a
cumulative effect upon adoption approach. The Company adopted ASC
606 effective January 1, 2018 using the full retrospective
approach. The adoption of ASU 2014-09 did not have any material
impact on the Company’s consolidated financial position,
results of operations, equity or cash flows.
Cost of Services
Costs
are incurred as umbilical cord blood, cord tissue and birth
tissue are collected. These costs include the transportation
of the umbilical cord blood, cord tissue and birthing tissue from
the hospital, direct material and labor, costs for processing and
cryogenic storage of new samples by a third party laboratory,
collection kit materials and allocated rent, utility and general
administrative expenses. The Company expenses costs in the period
incurred.
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, 2019 and 2018. The Company files
income tax returns with the Internal Revenue Service
(“IRS”) and various state jurisdictions.
Accounting for Stock Option Plan
The
Company follows the provisions of Accounting Standards Codification
(“ASC”) 718, “Accounting for Stock-based
Compensation”), which requires recognition in the
consolidated financial statements of the cost of employee and
director services received in exchange for an award of equity
instruments over the period the employee or director is required to
perform the services in exchange for the award (presumptively, the
vesting period). ASC 718 also requires measurement of the cost of
employee and director services received in exchange for an award
based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and
other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the
vesting period of the award. Until the measurement date is reached,
the total amount of compensation expense remains uncertain. The
Company initially records compensation expense based on the fair
value of the award at the reporting date.
Earnings (Loss) Per Share
Basic
earnings per share (EPS) is computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding. Diluted EPS is similar to
basic EPS except that the weighted average number of common shares
outstanding is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential
common shares had been exercised. 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, 2019 and
2018, 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, 2019, this was the case. To date, the Company has not
experienced any such losses.
Fair Value Measurements
Assets
and liabilities recorded at fair value in the consolidated balance
sheets are categorized based upon the level of judgment associated
with the inputs used to measure the fair value. Level inputs, as
defined by ASC 820, are as follows:
●
Level 1 –
quoted prices in active markets for identical assets or
liabilities.
F-10
●
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.
There
were no financial instruments measured on a recurring basis as of
December 31, 2019 and 2018 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.
Comprehensive Income and Loss
The
Company had no items that would be classified as other
comprehensive income or loss for the years ended December 31, 2019
and 2018.
Recently Issued Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2014-09,
“Revenue from Contracts with Customers (Topic 606)”
(ASU 2014-09) as modified by ASU No. 2015-14, “Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date,” ASU 2016-08, “Revenue from Contracts with
Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net),” ASU No. 2016-10,
“Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing,” and ASU
No. 2016-12, “Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients.”
The revenue recognition principle in ASU 2014-09 is that an entity
should recognize revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. In addition, new and enhanced disclosures will
be required. Companies may adopt the new standard either using the
full retrospective approach, a modified retrospective approach with
practical expedients, or a cumulative effect upon adoption
approach. The Company adopted ASC 606 effective January 1, 2018
using the full retrospective approach. The adoption of ASU 2014-09
did not have any material impact on the Company’s
consolidated financial position, results of operations, equity or
cash flows.
In
August 2016, the FASB issued ASU
No. 2016-15, Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, in an effort to reduce the diversity of how
certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The amendments of this
ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted. There has been no impact as a
result of adopting this ASU on our financial statements and related
disclosures.
In
January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business.
This new standard clarifies the definition of a business and
provides a screen to determine when an integrated set of assets and
activities is not a business. The screen requires that when
substantially all of the fair value of the gross assets acquired
(or disposed of) is concentrated in a single identifiable asset or
a group of similar identifiable assets, the set is not a business.
This new standard was effective for the Company on January 1,2018, and there was no impact as a result of adopting this ASU on
our financial statements and related disclosures.
In February 2016, the FASB issued ASU No.
2016-02, Leases
(Topic 842), under the new guidance,
lessor accounting is largely unchanged. Certain targeted
improvements were made to align, where necessary, lessor accounting
with the lessee accounting model and Topic 606, Revenue from
Contracts with Customers. The amendments of this ASU
are effective for fiscal years beginning after December 15,2018, and interim periods within those fiscal years. Early adoption
is permitted. The Company determined that there no impact this ASU
on the consolidated financial statements and related disclosures.
The Company has no long-term operating leases on the date of
adoption.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement. This new
standard removes, adds and modifies certain disclosure
requirements for fair value measurements in Topic
820. The Company will no longer be required to disclose the
amount of and reasons for transfers between Level 1 and Level 2 of
the fair value hierarchy, and the valuation processes of Level 3
fair value measurements. However, the Company will be required to
additionally disclose the changes in unrealized gains and losses
included in other comprehensive income for recurring Level 3 fair
value measurements, and the range and weighted average of
assumptions used to develop significant unobservable inputs for
Level 3 fair value measurements. The ASU is effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. The amendments relating to
additional disclosure requirements will be applied prospectively
for only the most recent interim or annual period presented in the
initial year of adoption. All other amendments will be applied
retrospectively to all periods presented upon their effective date.
The Company is permitted to early adopt either the entire ASU
or only the provisions that eliminate or modify the
requirements. The Company evaluated the impact of this
pronouncement and concluded that the guidance does not have a
material impact on its financial position and results of
operations.
F-11
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income
Taxes, which is intended to simplify the accounting standard
and improve the usefulness of information provided in the financial
statements. The Company intends to implement this new accounting
guidance effective January 1, 2021, however early adoption is
permitted. The Company is currently assessing the impact this new
accounting guidance will have on its financial
statements.
On
February 7, 2018, the Company announced that it entered into the
Purchase Agreement with FamilyCord. The sale of substantially all
of the Company’s assets to FamilyCord was completed on May17, 2018.
Discontinued Operations
On May17, 2018, the Company divested its Cord Blood and Cord Tissue Stem
Cell Storage Operations (CBCTS) to FamilyCord $15.5 million in cash
and the assumption of net liabilities of $473,538. The sale
resulted in the recognition of an after-tax income of $13.9
million, which is reflected as net income from discontinued
operations in the Consolidated Statements of
Operations.
The
Company has classified the CBCTS assets and liabilities as
held-for-sale as of December 31, 2017 in the Consolidated Balance
Sheets and has classified the CBCTS operating results, net of tax,
as discontinued operations in the accompanying Consolidated
Statement of Operations for all periods presented. Previously,
CBCTS represented the sole operations of the Company.
Background
Pursuant
to the terms of the Purchase Agreement, FamilyCord agreed to
acquire from CBAI substantially all of the assets of CBAI and its
wholly-owned subsidiaries and to assume certain liabilities of CBAI
and its wholly-owned subsidiaries. FamilyCord agreed to pay a
purchase price of $15,500,000 in cash at closing with $3,000,000 of
the purchase price deposited into escrow to secure CBAI’s
indemnification obligations under the Purchase Agreement. The sale,
which was completed on May 17, 2018, did not include CBAI’s
cash, accounts receivables, and certain other excluded assets and
liabilities.
The
assets sold and liabilities transferred in the transaction were
previously the sole revenue generating assets of the Company. The
results of operations associated with the assets sold have been
reclassified into discontinued operations for periods prior to the
completion of the transaction.
The
following is a summary of assets and liabilities sold, and gain
recognized, in connection with the sale of assets to FamilyCord
during the year ended December 31, 2018:
Other current
assets
$45,391
Total current
assets
45,391
Customer contracts
and relationships, net of amortization
953,490
Property, plant
& equipment, less accumulated depreciation
23,685
Total
assets
$1,022,566
Deferred
revenue
$1,496,104
Total
liabilities
$1,496,104
The gain on sale of
assets was reported during the period was determined as
follows:
Total assets
sold
$1,022,566
Total liability
sold
1,496,104
Net liability
sold
473,538
Cash
received
12,500,000
Cash in
escrow
3,000,000
Total
consideration
15,500,000
Net gain from sales
of assets
$15,973,537
Additionally,
the operating results and cash flows related to assets sold on May17, 2018 are included in discontinued operations in the
Consolidated Statements of Operations and Consolidated Statements
of Cash Flows for the years ended December 31, 2019 and December31, 2018.
F-12
Income From Discontinued Operations
The
sale of the majority of the assets 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, 2019 and
December 31, 2018:
The
following is a summary of net cash provided by operating activities
and investing activities for the years ended December 31, 2019 and
December 31, 2018:
For the
years ended December 31, 2019 and 2018, depreciation expense
totaled $0.00 and $5,066, respectively, for continuing operations
and $0.00 and $5,862, respectively, for discontinued
operations.
F-13
Note 5. Commitments and Contingencies
Operating Leases
On
January 21, 2014, the Company entered a First Amendment to Lease
(the “Amendment”), which extended its lease at the
property located at 1857 Helm Drive, Las Vegas (the
“Property”), Nevada through September 30,2019. In connection with the Amendment, the Company
received an abatement of the entire amount of its rent for January
2014, except for common area maintenance (“CAM”)
charges. In addition, as of October 1, 2014, the
Company’s monthly lease payments reverted back to their rates
as they existed in June 2009, other than CAM charges, with annual
adjustments thereafter as set forth in the Amendment.
Moreover, the landlord had the option to lease a portion of the
premises then occupied by the Company to a third party, and if this
portion is leased to a third party, the Company’s monthly
rent amount was to be reduced pro rata with the portion of the
space leased to a third party. If the landlord was
unable to or elected not to lease a portion of the premises to a
third party by November 30, 2015 and each subsequent anniversary
thereof, the Company was to receive an additional abatement of one
month rent, excluding CAM charges, in December 2015, December 2016
and December 2017, respectively and as applicable. Effective
May 15, 2016, the Company entered a Second Amendment to Lease. The
Second Amendment to Lease sets forth that the square footage of the
Property has been reduced by 380 square feet, such that the
Property now consists of 16,523 square feet, confirms the
abatements set forth in the First Amendment to Lease, sets forth
that the Company’s CAM expenses and home owner association
costs shall be calculated based on the reduced square footage
amount, and confirms that the Company’s monthly rent amounts
will remain unchanged from the First Amendment to Lease. All lease
payments due for the Second Amendment Lease for the three and nine
months ended September 30, 2019, were paid by September 30, 2019.
On October 25, 2018, the Company entered into a sublease agreement
(“Sublease”) for its offices at 1857 Helm Drive, Las
Vegas, Nevada, pursuant to which a sub-tenant (the
“Sublessee”) occupied the offices in exchange for
payment of the rent for the offices to the landlord. The Sublease,
and the Company’s underlying lease for the offices, ended on
September 30, 2019 and the Sublessee vacated the
offices.
On
October 1, 2019, the Company moved to a new corporate headquarters
located at 3753 Howard Hughes Parkway, Suite 200, Office #258, Las
Vegas, Nevada. The new month-to-month lease for the Company’s
headquarters was entered into on August 21, 2019 and commenced on
October 1, 2019. The Company believes that it has adequate space
for its anticipated needs.
The
Company’s rent expense was $18,211 and $166,558 during the
years ended December 31, 2019 and 2018, respectively.
Note 6. Share Based Compensation
Stock Option Plan
The
Company's Stock Option Plan permits the granting of stock options
to its employees, directors, consultants and independent
contractors for up to 8.0 million shares of its common stock. On
July 13, 2009, the Company also registered its 2009 Flexible Stock
Plan (the “Plan”), which increased the total shares
available to 4 million common shares. The Plan allows the Company
to issue either stock options or common shares.
On June3, 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 such plan. The Company also 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, 2019 and 2018.
The
Company’s stock option activity was as follows:
For
the year ended December 31, 2019, income from discontinued
operations included a $279,951 tax benefit for federal and state
income taxes arising from a 2014 asset sale that had originally
been treated as a capital gain when it should have been treated as
a capital loss.
Income
tax expense (benefit) consists of the following:
The Company has realized an income tax benefit from continuing
operations of $86,176 as a consequence of the utilization of
federal and state net operating loss
offsets.
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, 2019 and 2018 were as
follows:
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.
The
Company has evaluated the positive and negative evidence bearing
upon the realization of its deferred tax assets and
liabilities. Under applicable accounting standards,
management has considered the Company’s operational history
and concluded that it is more likely than not the Company will
recognize partial benefits of its deferred tax assets for 2019 and
2018. Accordingly, a valuation allowance of $56,193 and
$60,876 was established at December 31, 2019 and 2018,
respectively, to offset the net deferred tax assets. The decrease
in valuation allowance by $4,683 to $56,193 for the year ending
December 31, 2019 was primarily related to the utilization of net
operating loss carryforwards to offset current year income and also
the write-off of net operating losses due to Section 382 limitation
analysis.
The
Company has U.S. federal net operating loss (“NOL”)
carryforwards available at December 31, 2019 of approximately
$688,340 that will begin to expire in 2025. The 2019 NOLs of
$376,155 will have an indefinite life and will not expire under the
Tax Cuts and Jobs Act (the “TCJA”). 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 NOL 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 NOL credit carryforwards and other deferred tax assets
may be subject to limitations.
On
December 22, 2017, President Trump signed into law the 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 NOLs, 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 was no impact to the Company’s
income statement for the year ended December 31, 2017 from the
reduction in federal income tax rates. We previously provided a
provisional estimate of the effect of the Tax Act in our financial
statements. In the fourth quarter of 2018, we completed our
analysis to determine there was no additional effect of the Tax Act
as of December 31, 2018.
For the
years ending December 31, 2019 and 2018, 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, 2019, and 2018, the Company had no accrued interest or
penalties recorded related to uncertain tax positions.
The tax
years 2014 through 2019 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.
Note 8. Other
Certain U.S. Federal Income Tax Consequences of the Sale of
Assets
The
sale of assets to FamilyCord was 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.
Our
shareholders will not be subject to U.S. federal income tax on the
sale. However, as discussed below, our shareholders will be subject
to U.S. federal income tax upon the receipt of any distribution of
sale proceeds made by the Company to our shareholders.
F-16
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 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.
On
February 11, 2020, the Company’s Board of Directors approved
a plan of dissolution (the “Plan”) that is subject to
shareholder approval. If the Company’s shareholders approve
the Plan, the Company presently intends to make an initial
distribution of at least $0.0048 per share of common stock as
promptly as reasonably possible thereafter. Based on the
information currently available to it, the Company is unable to
estimate the aggregate amount which will ultimately be distributed
to its shareholders.
Note 9. Tax Estimates and Tax Expense
For the
year ended December 31, 2019, income from discontinued operations
included a $279,951 tax benefit for federal and state income
taxes arising from a 2014 asset sale that had originally been
treated as a capital gain when it should have been treated as a
capital loss. In addition, we have realized an income tax
benefit from continuing operations of $86,176 as a consequence of
the utilization of federal and state net operating loss
offsets.
Note 10. Stockholders’ Equity
Preferred Stock
The
Company has 5,000,000 shares of $0.0001 par value preferred stock
authorized, which includes 1,500,000 shares of Series A Preferred
Stock. As of December 31, 2019 and 2018, the Company had no
preferred stock issued and outstanding.
On
February 11, 2020, the Company’s Board of Directors approved
a Plan of Dissolution of the Company (the “Plan of
Dissolution”) for the orderly liquidation and wind-up of the
Company (the “Dissolution”). The Plan and the
Dissolution are contingent on approval of the Plan by the
Company’s shareholders. If the Company’s
shareholders approve the Plan, the Company presently intends to
make an initial distribution of at least $0.0048 per share of
common stock as promptly as reasonably possible thereafter. Based
on the information currently available to it, the Company is unable
to estimate the aggregate amount which will ultimately be
distributed to its shareholders. The actual amounts of any
liquidating distributions may vary substantially, depending on,
among other things, whether the Company becomes subject to any
additional liabilities or claims, including potential claims for
indemnification relating to sales of the Company’s assets,
whether the Company incurs unexpected or greater than expected
losses with respect to contingent liabilities, the extent to which
the Company is able to monetize any remaining non-cash assets and
any future amounts received by the Company in connection with,
among other things, all future amounts received by the Company,
including the amount of asset sale proceeds to be released from
escrow upon the termination of the escrow in May 2020.
F-17
Dates Referenced Herein and Documents Incorporated by Reference