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CBA Florida, Inc. – ‘10-K’ for 12/31/19

On:  Wednesday, 3/25/20, at 4:31pm ET   ·   For:  12/31/19   ·   Accession #:  1654954-20-3226   ·   File #:  0-50746

Previous ‘10-K’:  ‘10-K’ on 4/1/19 for 12/31/18   ·   Latest ‘10-K’:  This Filing

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/25/20  CBA Florida, Inc.                 10-K       12/31/19   48:2.5M                                   Blueprint/FA

Annual Report   —   Form 10-K   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML    374K 
 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                              
12: R10         4. Property and Equipment                           HTML     31K 
23: R11         5. Commitments and Contingencies                    HTML     25K 
39: R12         6. Share Based Compensation                         HTML     31K 
33: R13         7. Income Tax                                       HTML     63K 
13: R14         8. Other                                            HTML     25K 
24: R15         9. Tax Estimates and Tax Expense                    HTML     17K 
40: R16         10. Stockholder's Equity                            HTML     20K 
34: R17         11. Subsequent Events                               HTML     21K 
11: R18         2. Summary of Significant Accounting Policies       HTML    108K 
                (Policies)                                                       
25: R19         3. Discontinued Operations - Cord Blood and Cord    HTML     35K 
                Tissue Stem Cell Storage Operations (Tables)                     
46: R20         4. Property And Equipment (Tables)                  HTML     31K 
31: R21         6. Share Based Compensation (Tables)                HTML     32K 
16: R22         7. Income Tax (Tables)                              HTML     52K 
19: R23         2. Summary of Significant Accounting Policies       HTML     20K 
                (Details Narrative)                                              
47: R24         3. Discontinued Operations - Cord Blood and Cord    HTML     46K 
                Tissue Stem Cell Storage Operations (Details)                    
32: R25         3. Discontinued Operations - Cord Blood and Cord    HTML     33K 
                Tissue Stem Cell Storage Operations (Details 1)                  
17: R26         3. Discontinued Operations - Cord Blood and Cord    HTML     52K 
                Tissue Stem Cell Storage Operations (Details 2)                  
20: R27         4. Property and Equipment (Details)                 HTML     55K 
48: R28         4. Property and Equipment (Details Narrative)       HTML     20K 
30: R29         5. Commitments and Contingencies (Details           HTML     18K 
                Narrative)                                                       
36: R30         6. Share Based Compensation (Details)               HTML     50K 
42: R31         6. Share Based Compensation (Details 1)             HTML     33K 
22: R32         7. Income Tax (Details)                             HTML     26K 
10: R33         7. Income Tax (Details 1)                           HTML     29K 
35: R34         7. Income Tax (Details 2)                           HTML     42K 
41: R35         7. Income Tax (Details 3)                           HTML     28K 
21: R36         10. Stockholders Equity (Details Narrative)         HTML     26K 
29: XML         IDEA XML File -- Filing Summary                      XML     84K 
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18: ZIP         XBRL Zipped Folder -- 0001654954-20-003226-xbrl      Zip     68K 


‘10-K’   —   Annual Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Item 1
"Business
"Item 1A
"Risk Factors
"Item 1B
"Unresolved Staff Comments
"Item 2
"Properties
"Item 3
"Legal Proceedings
"Item 4
"Mine Safety Disclosure
"Item 5
"Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
"Item 6
"Selected Financial Data
"Item 7
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 7A
"Quantitative and Qualitative Disclosures About Market Risk
"Item 8
"Financial Statements and Supplementary Data
"Item 9
"Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"Item 9A
"Controls and Procedures
"Item 9B
"Other Information
"Item 10
"Directors, Executive Officers and Corporate Governance
"Item 11
"Executive Compensation
"Item 12
"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
"Item 13
"Certain Relationships and Related Transactions, and Director Independence
"Item 14
"Principal Accountant Fees and Services
"Item 15
"Exhibits and Financial Statement Schedules
"Signatures
"Report of Independent Registered Public Accounting Firm
"Consolidated Balance Sheets
"Consolidated Statements of Operations
"Consolidated Statement of Stockholders' Equity
"Consolidated Statements of Cash Flows
"Notes to the Consolidated Financial Statements

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-K
(MARK ONE)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File No. 000-50746
 
CBA FLORIDA, Inc.
(Exact Name of registrant as specified in its charter)
 
Florida
 
90-0613888
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
3753 Howard Hughes Parkway, Suite 200 Office #258, Las Vegas, NV
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
(702) 914-7293
(Issuer’s Telephone Number, Including Area Code)
 
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
 

 
 
 
CBA FLORIDA, INC.
2019 ANNUAL REPORT ON FORM 10-K
 
Table of Contents
 
 
 
 
Page
FORWARD LOOKING STATEMENTS
 
2
 
 
 
 
PART I
 
3
 
 
 
 
 
3
 
5
 
8
 
8
 
8
 
8
 
 
 
 
PART II
 
9
 
 
 
 
 
9
 
9
 
9
 
12
 
12
 
12
 
12
 
13
 
 
 
 
PART III
 
14
 
 
 
 
 
14
 
14
 
14
 
14
 
14
 
 
 
 
PART IV
 
15
 
 
 
 
 
15
 
 
16
  
 
1
 
 
FORWARD LOOKING STATEMENTS
 
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.
 
 
 
 
 
2
 
  
PART I
ITEM 1. BUSINESS
 
Overview
 
CBA Florida, Inc. ("CBAI" or the “Company”), formerly known as Cord Blood America, Inc., was incorporated in the State of Florida on October 12, 1999 as D&A Lending, Inc. CBAI's wholly-owned subsidiaries include CBA Partners, Inc. which was formerly Cord Partners, Inc., CBA Companies Inc. which was formerly CorCell Companies, Inc., and CBA Sub Ltd. which was formerly CorCell, Ltd., (CBA Partners, Inc., CBA Companies Inc. and CBA Sub Ltd. are sometimes referred to herein collectively as “Cord”), CBA Properties, Inc. ("Properties"), and Career Channel, Inc. formerly D/B/A Rainmakers International.  As further described below, on May 17, 2018, CBAI completed a sale of substantially all of the assets of the Company and its wholly-owned subsidiaries. Prior to the sale of substantially all of the assets, CBAI and its subsidiaries had engaged in the following business activities:
 
CBAI and Cord specialized in providing private cord blood and cord tissue stem cell services. Additionally, the Company was in the business of procuring birth tissue for organizations utilizing the tissue in the transplantation and/or research of therapeutic products.
 
Properties was formed to hold corporate trademarks and other intellectual property.
 
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:
 
$5,000 on or before October 12, 2014; $10,000 on or before December 1, 2014; $15,000 on or before March 1, 2015; $15,000 on or before June 1, 2015; $45,000 on or before June 1, 2016; $55,000 on or before June 1, 2017; $55,000 on or before June 1, 2018; $55,000 on or before June 1, 2019; $65,000 on or before June 1, 2020; $75,000 on or before June 1, 2021; $75,000 on or before June 1, 2022; $75,000 on or before June 1, 2023; $80,000 on or before June 1, 2024; $80,000 on or before June 1, 2025.
 
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.
 
 
4
 
 
Employees
 
As of December 31, 2019, the Company has two full-time employees. This included the Company’s President, who is the Company’s principal executive officer and principal accounting officer.
 
Exchange Act Reports
 
The Company makes available free of charge through its Internet websitewww.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 websitewww.sec.gov, which contains reports, proxy and information statements, and other information filed electronically with the SEC. Any materials that the Company files with the SEC may also be read and copied at the SEC’s Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
 
Information on the operations of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The information provided on the Company’s website is not part of this report and is not incorporated herein by reference.
 
ITEM 1A. RISK FACTORS
 
Risks Related to the Company’s Business 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.
 
 
7
 
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None
 
ITEM 2. PROPERTIES.
 
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.
 
ITEM 3. LEGAL PROCEEDINGS
 
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. 
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not Applicable.
 
 
 
8
 
 
PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
(a) Market Information. The Company Common Stock is traded on the OTC Bulletin Board, under the symbol CBAI.OB.
 
(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, Utah 84117, phone number (801) 272-9294. The transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares of stock.
 
(c) Dividends 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 6. SELECTED FINANCIAL DATA
 
Not Applicable.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
As described under Item 1. 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.
 
 
10
 
 
Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
 
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 December 31, 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 7AQUANTITATIVE 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.
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the 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 9B. OTHER INFORMATION
 
Not applicable.
 
 
13
 
 
PART III
 
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.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
See Item 10.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
See Item 10. 
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
See Item 10.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
See Item 10.
 
 
14
 
 
PART IV
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
The following documents are filed as a part of this report or incorporated herein by reference:
 
(1)             The Company’s Consolidated Financial Statements are listed on page F-3 of this Annual Report.
        
(2)             Financial Statement Schedules.
 
None
 
(3)            
Exhibits
 
The following documents are included as exhibits to this Annual Report:
 
EXHIBIT
 
DESCRIPTION
 
Asset Purchase Agreement by and between California Cryobank Stem Cell Services LLC and Cord Blood America, Inc., dated February 6, 2018 (incorporated herein by reference to Exhibit 2.1 to Current Report on Form 8-K of the Company dated February 8, 2018)
 
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 Articles of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 29, 2008 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.01 to the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2009 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.1(IV) to the Company’s Quarterly Report on Form 8-K filed with the SEC on May 23, 2011 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.1(V) to the Company’s Quarterly Report on Form 8-K filed with the SEC on May 23, 2011 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2012 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.(i) to the Company’s Current Report on Form 8-K filed with the SEC on August 10, 2015 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2018 and incorporated herein by reference)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 17, 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 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)
21*
 
List of Subsidiaries
23.1*
 
Consent of RBSM LLP
 
Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
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.
 
* Filed herewith.
 
 
15
 
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 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.
 
/s/ Anthony Snow
 
 
President
(Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer)
 
 
 
 
/s/ David Sandberg
 
 
Chairman and Director
 
 
/s/ Anthony Snow
 
 
Director
 
 
/s/ Timothy McGrath
 
 
Director
 
 
/s/ Adrian Pertierra
 
 
Director
 
 
 
 
 
 
 
16
 
 
FINANCIAL STATEMENTS
 
Index to Financial Statements
 
 
 
Page
 
F-2
 
 
 
 
F-3
 
 
 
 
F-4
 
 
 
 
F-5
 
 
 
 
F-6
 
 
 
 
F-7
 
 
 
 
F-1
 
 
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.
 
 
Henderson, NV
 
 
 
  
 
 
F-2
 
 
CBA FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
2019  
 
 
2018  
 
ASSETS
 
   
 
 
 
 
Current assets:
 
   
 
 
 
 
    Cash
 $11,532,312 
 $12,412,583 
   Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively
  33,843 
  11,876 
    Prepaid expenses
  96,119 
  113,259 
    Total current assets
  11,662,274 
  12,537,718 
 
    
    
Cash held in escrow
  3,007,254 
  3,000,674 
Other assets
  1,404 
  31,478 
Income Tax Receivable
  105,355 
  -- 
    Total assets
 $14,776,287 
 $15,569,870 
 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    
Current liabilities:
    
    
    Accounts payable
 $37,268 
 $109,689 
    Income tax payable
  -- 
  618,176 
    Sales tax payable & other
  116,000 
  116,000 
    Deferred tax liability
  486,667 
  503,577 
    Accrued expenses
  15,675 
  64,902 
    Total current liabilities
  655,610 
  1,412,344 
 
    
    
    Total liabilities
  655,610 
  1,412,344 
 
    
    
Stockholders' equity:
    
    
    Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares outstanding
  -- 
  -- 
    Common stock, $.0001 par value, 2,890,000,000 shares authorized, 1,272,066,146 outstanding
  127,207 
  127,207 
    Additional paid-in capital
  53,954,510 
  53,954,510 
    Common stock held in treasury stock, 20,000 shares
  (599,833)
  (599,833)
    Accumulated deficit
  (39,361,207)
  (39,324,358)
    Total stockholders’ equity
  14,120,677 
  14,157,526 
    Total liabilities and stockholders’ equity
 $14,776,287 
 $15,569,870 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3
 
 
CBA FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 
 
 
 
Year Ended
 
 
Year Ended
 
 
Operating expenses
 $(639,378)
  (3,876,585)
   Loss from operations
  (639,378)
  (3,876,585)
 
    
    
Other income
  236,402 
  104,724 
   Loss from continuing operations before income taxes
  (402,976)
  (3,771,861)
Income tax benefit
  86,176 
  714,624 
Net loss from continuing operations
  (316,800)
  (3,057,537)
Net income from discontinued operations, net of tax
  279,951 
  16,230,675 
Net income
 $(36,849)
 $13,173,438 
 
    
    
Basic loss from continuing operations per share
 $0.00 
 $0.00 
Diluted loss from continuing operations per share
 $0.00 
 $0.00 
 
    
    
Basic earnings from discontinued operations per share
 $0.00 
 $0.01 
Diluted earnings from discontinued operations per share
 $0.00 
 $0.01 
 
    
    
Basic earnings per share
 $(0.00)
 $0.01 
Diluted earnings per share
 $(0.00)
 $0.01 
 
    
    
Weighted average common shares outstanding
    
    
    Basic weighted average common shares outstanding
  1,272,066,146 
  1,272,066,146 
    Diluted weighted average common shares outstanding
  1,272,066,146 
  1,272,066,146 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4
 
 
CBA FLORIDA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2019 AND 2018
 
 
Twelve-Month period Ended December 31, 2019
 
 
 
 
Preferred stock
 
 
Common stock
 
 
Additional paid- in
 
 
Accumulated
 
 
Treasury
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
 capital
 
 
 deficit
 
 
 stock
 
 
 Total
 
Balances at December 31, 2018
  -- 
 $-- 
  1,272,066,146 
  127,207 
  53,954,510 
  (39,324,358)
  (599,833)
  14,157,526 
Net Income
  -- 
  -- 
    
  -- 
  -- 
  (36,849)
  -- 
  (36,849)
Balances at December 31, 2019
  -- 
 $-- 
  1,272,066,146 
  127,207 
  53,954,510 
  (39,361,207)
  (599,833)
  14,120,677 
 
 
Twelve-Month period Ended December 31, 2018
 
 
 
 
Preferred stock
 
 
Common stock
 
 
Additional paid- in
 
 
Accumulated
 
 
Treasury
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
 capital
 
 
 deficit
 
 
 stock
 
 
 Total
 
Balances at December 31, 2017
  -- 
 $-- 
  1,272,066,146 
  127,207 
  53,954,510 
  (52,497,796)
  (599,833)
  984,088 
Net Income
  -- 
  -- 
    
  -- 
  -- 
  13,173,438 
  -- 
  13,173,438 
Balances at December 31, 2018
  -- 
 $-- 
  1,272,066,146 
  127,207 
  53,954,510 
  (39,324,358)
  (599,833)
  14,157,526 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5
 
  
CBA FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
 
 
Year Ended
 
 
Year Ended
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net loss from continuing operations
 $(36,849)
 $(3,057,237)
Adjustments to reconcile net income to net cash used in operating activities:
    
    
Amortization of loan receivable discount
  -- 
  (19,637)
Loss from settlement
  -- 
  89,597 
Depreciation and amortization
  -- 
  9,092 
Bad debt
  -- 
  10,220 
Net change in operating assets and liabilities
    
    
     Changes in accounts receivable
  (21,967)
  39,602 
     Changes in prepaid
  17,140 
  33,219 
     Changes in other assets
  30,074 
  (12,186)
     Changes in escrow receivable
  (6,580)
  (674)
     Changes in accounts payable
  (72,421)
  (261,480)
     Changes in income tax
  (740,441)
  (1,571,871)
     Changes in accrued expenses
  (49,227)
  (28,331)
     Changes in severance payable
  -- 
  (26,764)
NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS
  (880,271)
  (4,796,450)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
     Payments from loan receivable – Biocordcell
  -- 
  350,000 
NET CASH PROVIDED BY INVESTNG ACTIVITIES OF CONTINUING OPERATIONS
  -- 
  350,000 
 
    
    
CASH FLOWS FROM DISCONTINUED OPERATIONS
    
    
     Net Cash provided by operating activities
  -- 
  3,289,116 
     Net Cash provided by investing activities
  -- 
  12,500,000 
NET CASH PROVIDED BY DISCONTINUED OPERATIONS
  -- 
  15,789,116 
 
    
    
NET INCREASE IN CASH
  (880,271)
  11,342,666 
 
    
    
Cash balance at beginning of year
 $12,412,583 
 $1,069,917 
Cash balance at end of year
 $11,532,312 
 $12,412,583 
 
    
    
Non-Cash Investing and Financing Activities
    
    
     Cash paid for interest
 $-- 
 $-- 
     Cash paid for tax
 $(662,789)
 $(1,074,000)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-6
 
 
CBA FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
 
Note 1. Organization and Description of Business
 
Overview
 
CBA Florida, Inc. ("CBAI" or the “Company”), formerly known as Cord Blood America, Inc., was incorporated in the State of Florida on October 12, 1999 as D&A Lending, Inc. CBAI's wholly-owned subsidiaries include CBA Partners, Inc. which was formerly Cord Partners, Inc., CBA Companies Inc. which was formerly CorCell Companies, Inc., and CBA Sub Ltd. which was formerly CorCell, Ltd., (CBA Partners, Inc., CBA Companies Inc. and CBA Sub Ltd. are sometimes referred to herein collectively as “Cord”), CBA Properties, Inc. ("Properties"), and Career Channel, Inc. formerly D/B/A Rainmakers International.  As further described below, on May 17, 2018, CBAI completed a sale of substantially all of the assets of the Company and its wholly-owned subsidiaries. Prior to the sale of substantially all of the assets 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:
 
$5,000 on or before October 12, 2014; $10,000 on or before December 1, 2014; $15,000 on or before March 1, 2015; $15,000 on or before June 1, 2015; $45,000 on or before June 1, 2016; $55,000 on or before June 1, 2017; $55,000 on or before June 1, 2018; $55,000 on or before June 1, 2019; $65,000 on or before June 1, 2020; $75,000 on or before June 1, 2021; $75,000 on or before June 1, 2022; $75,000 on or before June 1, 2023; $80,000 on or before June 1, 2024; $80,000 on or before June 1, 2025.
 
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.
 
Note 3. Discontinued Operations - Cord Blood and Cord Tissue Stem Cell Storage Operations
 
On February 7, 2018, the Company announced that it entered into the Purchase Agreement with FamilyCord. The sale of substantially all of the Company’s assets to FamilyCord was completed on May 17, 2018.
 
Discontinued Operations
On May 17, 2018, the Company divested its Cord Blood and Cord Tissue Stem Cell Storage Operations (CBCTS) to FamilyCord $15.5 million in cash and the assumption of net liabilities of $473,538. The sale resulted in the recognition of an after-tax income of $13.9 million, which is reflected as net income from discontinued operations in the Consolidated Statements of Operations.
 
The Company has classified the CBCTS assets and liabilities as held-for-sale as of December 31, 2017 in the 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 May 17, 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 December 31, 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:
 
 
 
Year Ended
 
 
Year Ended
 
 
Revenue
 $-- 
 $1,108,382 
Cost of services
  -- 
  (473,312)
Gross profit
  -- 
  635,070 
Depreciation and amortization
  -- 
  (99,231)
Income from Discontinued Operations
  -- 
  535,839 
FamilyCord reimbursement
  -- 
  435,923 
Gain on sale of assets
  -- 
  15,973,537 
Income from discontinued operations before taxes
  -- 
  16,945,299 
Income taxes
  -- 
  (714,624)
Net income from discontinued operations
  -- 
  16,230,675 
 
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:
 
 
 
Year Ended
 
 
Year Ended
 
 
Cash provided by discontinued operations
 $-- 
 $3,289,116 
Cash provided by investing activities of discontinued operations
 $-- 
 $12,500,000 
 
Note 4. Property and Equipment
 
At December 31, 2019 and 2018, property and equipment consisted of:
 
 
 
Useful Life
(Years)
 
Furniture and fixtures
1-5 
 $-- 
 $17,597 
Computer equipment
5 
  -- 
  124,466 
Laboratory Equipment
1-5 
  -- 
  5,837 
Freezer equipment
  -- 
  34,699 
Leasehold Improvements
5 
  -- 
  102,862 
 
       
  -- 
  285,461 
Less: accumulated depreciation and amortization
       
  -- 
  (285,461)
 
       
 $-- 
 $-- 
Assets held for sale:
       
    
    
  Furniture and fixtures
1-5 
 $-- 
 $-- 
  Computer equipment
5 
  -- 
  -- 
  Laboratory Equipment
1-5 
  -- 
  -- 
  Freezer equipment
  -- 
  -- 
 
       
  -- 
  -- 
Less: accumulated depreciation and amortization
       
  -- 
  -- 
 
       
 $-- 
 $-- 
 
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 June 3, 2011, the Company registered its 2011 Flexible Stock Option plan, and reserved 1,000,000 shares of the Company's common stock for future issuance under 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:
 
 
 
Stock
Options
 
 
Weighted Average Exercise Price
 
 
Weighted Avg. Contractual
Remaining Life
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2018
  4,307,994 
  0.69 
  1.06 
Granted
  -- 
  -- 
  -- 
Exercised
  -- 
  -- 
  -- 
Forfeited/Expired
  3,643,934 
  -- 
  -- 
Outstanding December 31, 2019
  664,060 
  0.53 
  0.40 
Exercisable December 31, 2019
  664,060 
  0.53 
  0.40 
 
 
F-14
 
   
The following table summarizes significant ranges of outstanding stock options under the stock option plan at December 31, 2019:
 
 
Range of
Exercise Prices
 
 
Number of
Options
 
 
Weighted Average
Remaining
Contractual Life
(years)
 
 
Weighted Average
Exercise
Price
 
 
Number of
Options
Exercisable
 
 
Weighted Average
Exercise
Price
 
 $.53 
  664,060 
  0.40 
 $0.53 
  664,060 
 $0.53 
  - 
  664,060 
  0.40 
 $0.53 
  664,060 
 $0.53 
 
Note 7. Income Tax
 
The components of income (loss) consists of the following:
 
 
Years Ended December 31,
 
 
   
 
2018
 
Loss from continuing operations
 $(402,976)
 $(3,771,861)
Income from discontinued operations
  - 
  19,113,490 
Income before taxes
 $(402,976)
 $15,341,629 
 
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:
 
 
 
Years Ended December 31,
 
 
   
 
2018
 
 
 
 
 
 
 
 
U.S. Federal Tax
 $- 
 $1,577,221 
State and Local Tax
  - 
  123,393 
     Current Income Tax
  - 
 $1,700,614 
 
    
    
Deferred U.S. Federal Tax
  (86,176)
  503,577 
Total Income Tax
 $(86,176)
 $2,204,191 
 
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:
 
 
 
Years Ended December 31,
 
 
   
 
2018
 
Federal income tax benefit/expense at statutory rate (34%)
  21.00%
  21.00%
State income tax, net of federal benefit
  23.12 
  0.63 
Capital loss benefit
  46.47 
  0.00 
Valuation allowance
  1.14 
  (55.84)
Reduction in NOLs
  0.00 
  48.54 
Other
  (2.51)
  0.00 
Effective income tax rate
  89.22%
  14.33%
 
The major components of the Company’s deferred tax assets as of December 31, 2019 and 2018 are shown below.
 
 
 
2019
 
 
2018
 
Net operating loss carryforwards
 $144,551 
 $65,559 
Other deferred tax assets
  25,491 
  38,648 
Gain Liability
  (600,516)
  (546,908)
Valuation allowance
  (56,193)
  (60,876)
Net deferred tax assets (liabilities)
 $(486,667)
 $(503,577)
 
 
F-15
 
 
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.
 
Common Stock
 
As of December 31, 2019 the Company had 2,890,000,000 shares of $0.0001 par value common stock authorized. As of December 31, 2019 and 2018, the Company had 1,272,066,146 shares of common stock issued and outstanding, and 20,000 shares remain in the Company’s treasury.
 
Note 11. Subsequent Events
 
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

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