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:
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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.
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