UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
for the transition period from _________ to _________
CBA FLORIDA, INC.
(Exact Name of Small Business Registrant as Specified in its Charter)
| FLORIDA | | 000-50746 | | 90-0613888 |
| (State or other jurisdiction of incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification No.) |
3753 HOWARD HUGHES PARKWAY SUITE 200 LAS VEGAS, NV | | 89169 |
| (Address of principal executive offices) | | (Zip Code) |
(702) 914-7293
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Sections 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 filings 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 Regulation S-T during the preceding 12 months (or for 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 smaller reporting company or an emerging growth company. See the 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 by Rule 12b-2 of the Exchange Act.): Yes ☑ No ☐
Number of shares of CBA Florida, Inc. common stock, $0.0001 par value, outstanding as of May 14, 2020, 1,272,066,146 exclusive of treasury shares.
CBA FLORIDA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
|
| | | |
| Condensed Consolidated Financial Statements (unaudited) | 3 |
| | | |
| | Condensed Consolidated Balance Sheets March 31, 2020 (unaudited) and December 31, 2019 | 3 |
| | | |
| | Condensed Consolidated Statements of Income (Loss) (unaudited) for the three months ended March 31, 2020 and March 31, 2019 | 4 |
| | | |
| | Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2020 and March 31, 2019 | 5 |
| | | |
| | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2020 and March 31, 2019 | 6 |
| | | |
| | Notes to Condensed Consolidated Financial Statements (unaudited) | 7 |
| | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| | | |
| Quantitative and Qualitative Disclosures About Market Risk | 14 |
| | | |
| Controls and Procedures | 14 |
| | | |
|
| | | |
| Legal Proceedings | 15 |
| | | |
| Risk Factors | 15 |
| | | |
| Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
| | | |
| Defaults Upon Senior Securities | 15 |
| | | |
| Mine Safety Disclosures | 15 |
| | | |
| Other Information | 15 |
| | | |
| Exhibits | 15 |
| | | |
| Signatures | 17
|
PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CBA FLORIDA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | |
| | | |
| Current assets: | | |
| Cash | $11,464,834 | $11,532,312 |
| Accounts receivable, net of allowance for doubtful accounts of $0.00 and $0.00, respectively | 26,346 | 33,843 |
| Prepaid expenses | 77,158 | 96,119 |
| Total current assets | 11,568,338 | 11,662,274 |
| | | |
| Cash held in escrow | 3,008,335 | 3,007,254 |
| Other Assets | 1,404 | 1,404 |
| Income tax receivable | 117,306 | 105,355 |
| Total assets | $14,695,383 | $14,776,287 |
| | | |
| Liabilities and Stockholders’ equity: | | |
| Accounts payable | $79,063 | $37,268 |
| Sales tax payable & other | 116,000 | 116,000 |
| Deferred tax liability | 486,667 | 486,667 |
| Accrued expenses | 15,657 | 15,675 |
| Total current liabilities | 697,387 | 655,610 |
| Total liabilities | 697,387 | 655,610 |
| | | |
| 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 shares issued and outstanding, inclusive of treasury shares, respectively | 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 | (39,483,888) | (39,361,207) |
| Total stockholders’ equity | 13,997,996 | 14,120,677 |
| Total liabilities and stockholders' equity | $14,695,383 | $14,776,287 |
See accompanying notes to these unaudited condensed consolidated financial statements.
CBA FLORIDA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND MARCH 31, 2019
| | | |
| | | March 31, 2019 |
| | | |
| | | |
| Operating expenses | (184,864) | (103,431) |
| Loss from operations | (184,864) | (103,431) |
| | | |
| | | |
| Other income | 29,572 | 48,092 |
| Loss from continuing operations before income taxes | (155,292) | (55,339) |
| Income tax benefit | 32,611 | 12,888 |
| Net loss from continuing operations | (122,681) | (42,451) |
| Net income (loss) | (122,681) | (42,451) |
| | | |
| Basic earnings from continuing operations per share | $(0.00) | $(0.00) |
| Diluted earnings from continuing operations per share | $(0.00) | $(0.00) |
| Basic earnings from discontinued operations per share | $(0.00) | $(0.00) |
| Diluted earnings from discontinued operations per share | $(0.00) | $(0.00) |
| | | |
| Basic earnings per share | $(0.00) | $(0.00) |
| Diluted earnings per share | $(0.00) | $(0.00) |
| | | |
| Weighted average common shares outstanding | | |
| Basic weighted average common shares outstanding | 1,272,066,146 | 1,272,066,146 |
| Diluted weighted average common shares outstanding | 1,272,066,146 | 1,272,066,146 |
| | | |
See accompanying notes to these unaudited condensed consolidated financial statements.
CBA FLORIDA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Three-Month period Ended March 31, 2020 |
| | | | | | | |
| | | | | | | | | |
| Balances at December 31, 2019 | -- | $-- | 1,272,066,146 | 127,207 | 53,954,510 | (39,361,207) | (599,833) | 14,120,677 |
| | -- | -- | | -- | -- | (122,681) | -- | (122,681) |
| Balances at March 31, 2020 | -- | $-- | 1,272,066,146 | 127,207 | 53,954,510 | (39,483,888) | (599,833) | 13,997,996 |
Three-Month period Ended March 31, 2019 |
| | | | Additional paid- in capital | | | |
| | | | | | | | | |
| Balances at December 31, 2018 | -- | $-- | 1,272,066,146 | 127,207 | 53,954,510 | (39,324,358) | (599,833) | 14,157,526 |
| Net Loss | -- | -- | | -- | -- | (42,451) | -- | (42,451) |
| Balances at March 31, 2019 | -- | $-- | 1,272,066,146 | 127,207 | 53,954,510 | (39,366,809) | (599,833) | 14,115,075 |
See accompanying notes to these unaudited condensed consolidated financial statements
CBA FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net loss from continuing operations | $(122,681) | $(42,451) |
| | | |
| | | |
| Net change in operating assets and liabilities | | |
| Changes in accounts receivable | 7,497 | 3,065 |
| Changes in prepaid | 18,961 | 5,615 |
| Change in escrow receivable | (1,081) | (2,220) |
| Changes in accounts payable | 41,795 | (101,489) |
| Changes in accrued expenses | (18) | (16,070) |
| Changes in deferred income taxes | (11,951) | (365,888) |
| | | |
| NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS | (67,478) | (519,438) |
| | | |
| | | |
| NET INCREASE IN CASH | (67,478) | (519,438) |
| | | |
| Cash balance at beginning of period | $11,532,312 | $12,412,583 |
| Cash balance at end of period | $11,464,834 | $11,893,145 |
| | | |
| Cash Paid For | | |
| Interest | $-- | $-- |
| Taxes | $-- | $(353,000) |
See accompanying notes to these unaudited condensed consolidated financial statements.
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, 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).
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.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete annual financial statements. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31,2020 or for any other future period. The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Company for the period ended December 31, 2019 and notes thereto included in the Company's annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports as noted in the Company's annual report on Form 10-K.
Note 2. Summary of Significant Accounting Policies
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 $11,214,834 during the period ended March 31, 2020.
Accounts Receivable
Accounts receivable consists primarily of unpaid lease obligations payable to the Company by the Sublessee (see Note 5 for additional information). Accounts receivable also includes expenses incurred by the Company which are to be reimbursed in connection from the sale of substantially all its assets to FamilyCord, and amounts due for facilitating the processing and storage of umbilical cord blood and cord tissue, and birth tissue procurement services. The Company wrote off $0 and $0 in bad debt expense during the three months ended March 31, 2020 and 2019, 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.
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 and $353,000 for the three months ended March 31, 2020 and 2019, respectively. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state jurisdictions.
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 March 31, 2020 and 2019, 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 March 31, 2020, this was the case. To date, the Company has not experienced any such losses.
Fair Value Measurements
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820, are as follows:
| ● | Level 1 – quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. |
| ● | Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date. |
There were no financial instruments measured on a recurring basis as of March 31, 2020 and 2019 and on a non-recurring basis for any of the periods presented.
For certain of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, and deferred revenues, the carrying amounts approximate fair value due to their short maturities. The carrying amounts of the Company’s notes receivable and notes payable approximates fair value based on the prevailing interest rates.
Recently Issued Accounting Pronouncements
In 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 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.
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. Commitments and Contingencies
Operating Leases
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 $1,884 and $296 during the three months ended March 31, 2020 and 2019, respectively.
Note 4. 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 during the three months ended March 31, 2020 and the year ended December 31, 2019.
The Company’s stock option activity was as follows:
| | | Weighted Average Exercise Price | Weighted Avg. Contractual Remaining Life |
| | | | |
| Outstanding, December 31, 2019 | 664,060 | 0.53 | 0.40 |
| Granted | -- | -- | -- |
| Exercised | -- | -- | -- |
| Forfeited/Expired | 200,000 | -- | -- |
| Outstanding March 31, 2020 | 464,060 | 0.53 | 0.25 |
| Exercisable March 31, 2020 | 464,060 | 0.53 | 0.25 |
The following table summarizes significant ranges of outstanding stock options under the stock option plan at March 31, 2020:
| | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Number of Options Exercisable | Weighted Average Exercise Price |
$0.53 | 464,060 | 0.25 | $0.53 | 464,060 | $0.53 |
$0.53 | 464,060 | 0.25 | $0.53 | 464,060 | $0.53 |
Note 5. Income Tax
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For the first quarter of 2020 the Company expects to utilize net operating losses generated in the current year to offset future deferred tax liabilities derived from the sale of assets in 2018.
The company expects its overall effective tax rate for 2020 to be around 20.89%.
As of March 31, 2020 and December 31, 2019, the Company has a partial valuation allowance on net operating losses that may not be able to be utilized fully.
For the three months ended March 31, 2020 the Company recorded a tax benefit of $32,611 as compared to a tax benefit of $12,888 for the comparative three month period ended March 31, 2019.
Note 6. 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.
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;
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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;
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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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 7. Tax Estimates and Tax Expense
For the three months ended March 31, 2020, the Company realized an income tax benefit from continuing operations of $32,611 as a consequence of the utilization of federal and state net operating loss offsets.
Note 8. Stockholder’s 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 March 31, 2020, and December 31, 2019, the Company had no shares of preferred stock outstanding.
Common Stock
The Company has 2,890,000,000 shares of $.0001 par value common stock authorized. As of March 31, 2020, and December 31, 2019, the Company had 1,272,066,146 shares of common stock issued and outstanding. 20,000 shares remain in the Company’s treasury.
Note: 9. Subsequent Events
Management is aware that a novel strain of coronavirus (COVID-19) was declared a pandemic by the World Health Organization. After the sale of substantially all assets to FamilyCord, the Company ceased all ongoing operations related the cord blood and cord tissue stem cell services, and procurement of birth tissue for organizations utilizing the tissue in the transplantation and/or research of therapeutic products. The Company holds a large majority of its assets in cash and as such, believes there is minimal to no impact that could result from the COVID-19 pandemic.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described under Note 1. Organization and Description of Business - Company Developments – Sale of Assets, 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.
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. |
Forward Looking Statements
In addition to the historical information contained herein, the Company makes statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about the Company’s future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and our ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in the Company's periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The following information should be read in conjunction with the Company’s March 31, 2020 unaudited condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with its consolidated financial statements and notes thereto for the year ended December 31, 2019 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as well as its quarterly reports and reports filed on Form 8-K for the relevant periods. The Company also urges you to review and consider its disclosures describing various risks that may affect its business, which are set forth under the heading "Risk Factors Related to the Company Business" in its Annual Report on Form 10-K for the year ended December 31, 2019.
Results of Operations for the Three-Months Ended March 31, 2020
The Company did not generate any revenue during the three months ended March 31, 2020 and 2019, due to the sale of substantially its assets to FamilyCord. Administrative and selling expenses for the three months ended March 31, 2020 were $0.18 million as compared to $0.10 million for the comparative period of March 2019, representing an 78.7% increase. These expenses are primarily related to professional services, allocated facility, including utilities, expenses, and wages for personnel.
The Company’s net loss from continuing operations was $0.16 million for the three month period ended March 31, 2020, as compared to a net loss of $0.06 million for the comparative three month period of March 2019.
Liquidity and Capital Resources
Total assets at March 31, 2020 were $14.70 million, compared to $14.78 million at December 31, 2019. Total liabilities at March 31, 2020 were $0.70 million consisting primarily of sales tax payable, accounts payable, and deferred taxes liability. At December 31, 2019, total liabilities were $0.66 consisting primarily of sales tax payable and deferred taxes liability.
At March 31, 2020, the Company had $11.46 million in cash, a decrease of $0.07 million from the December 31, 2019 cash balance of $11.53 million. For the three months ended March 31, 2020, cash flow used in operating activities of continuing operations totaled $0.07 million compared to $0.52 million for the three months ended March 31, 2019. At March 31, 2020, the Company had $3.01 million deposited in escrow to secure CBAI’s indemnification obligations under the Purchase Agreement, compared to $3.01 at December 31, 2019.
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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T. 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 March 31, 2020. 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, 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
A description of the Company’s risk factors can be found in “Risk Factors” of its Annual Report on Form 10-K for the year ended December 31, 2019. There were no material changes to those risk factors for the three months ended March 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a-b) Not applicable.
(c) Repurchase of Shares. The Company did not repurchase any of its shares during the quarter ended March 31, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION
NONE
The following documents are included as exhibits to this Form 10Q:
| EXHIBIT | | DESCRIPTION |
| 2.0 | | Form of Common Stock Share Certificate of Cord Blood America, Inc. (1) |
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| 3.1(i) | | Amended and Restated Articles of Incorporation of Cord Blood America, Inc. (1) |
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| 3.1(ii) | | Articles of Amendment to Articles of Incorporation (2) |
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| 3.1(iii) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (3) |
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| 3.1(iv) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (4) |
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| 3.1(v) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (4) |
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| 3.1(vi) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (5) |
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| 3.1 (vii) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (6) |
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| 3.1 (viii) | | Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (7) |
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3.1 (ix) |
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Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (8) |
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| 3.1 (x) | | Articles of Amendment to the Articles of Incorporation of CBA Florida, Inc. (9) |
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| 3.2(i) | | Amended and Restated Bylaws of Cord Blood America, Inc. (1) |
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| 3.2(ii) | | Second Amended and Restated Bylaws of Cord Blood America, Inc. (7) |
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| | Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed Herewith) |
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| | Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) Filed as an exhibit to Registration Statement on Form 10-SB filed on May 6, 2004
(2) Filed as an exhibit to Current Report on Form 8-K filed on August 29, 2008
(3) Filed as an exhibit to the Current Report on Form 8-K filed on March 31, 2009
(4) Filed as an exhibit to Current Report on Form 10Q filed on May 23, 2011
(5) Filed as an exhibit to Current Report on Form S-8 filed on June 3, 2011
(6) Filed as an exhibit to the Current Report on Form 8-K filed on August 10, 2015
(7) Filed as an exhibit to the Current Report on Form 8-K filed on April 26, 2018
(8) Filed as an exhibit to the Current Report on Form 8-K filed on May 25, 2018
(9) Filed as an exhibit to the Current Report on Form 8-K filed on May 31, 2018
(7) Filed as an exhibit to the Current Report on Form 8-K filed on May 29, 2015
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 14th day of May 2020.
| | CBA FLORIDA, INC. | |
| | | | |
| | By: | /s/Anthony Snow | |
| | | President and Corporate Secretary | |
| | | (Principal Executive Officer, Principal Financial and Accounting Officer) | |
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