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.

© Edgar Online, source Glimpses