UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NUMBER 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION
OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Our company, Cord Blood America, Inc., is a Florida corporation which was formed in 1999. It did not commence business operations until it acquired Cord Partners, Inc., a Florida corporation ("CPI"), as of March 31, 2004. Since its formation in January 2003, CPI has been, and continues to be, engaged in the business of collecting, testing, processing and preserving umbilical cord blood, thereby allowing families to preserve cord blood at the birth of a child for potential use in future stem cell therapy.
Shortly before the acquisition of CPI, Cord Blood America, Inc. changed its name from D & A Lending, Inc. to Cord Blood America, Inc. ("CBA"). CBA acquired all of CPI's issued and outstanding shares of common stock, making CPI a wholly-owned subsidiary of CBA. The business of CPI has become the only operating business of CBA and the directors and officers of CPI have assumed the management of CBA.
In April 2004, we declared and paid to all of the shareholders of CBA a two for one stock split effected as a stock dividend.
When used herein the term "Company" refers to the combined business entity of CBA and CPI, unless the context otherwise indicates.
GOING CONCERN
Our financial statements have been prepared on a "going concern" basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our independent auditor has expressed substantial doubt as to our ability to continue as a going concern. As shown in the financial statements, during the year ended December 31, 2003, we incurred a loss of $45,838, and during the six months ended June 30, 2004, we incurred a loss of $449,950. As of June 30, 2004, we had $42,434 in current assets and $262,785 in current liabilities, resulting in a working capital deficit of $220,351.
On August 12, 2004, we entered into a loan transaction with an unaffiliated party pursuant to which we borrowed $500,000. The loan bears interest at the rate of 8% per annum and is unsecured. Commencing on February 15, 2005, and continuing on the fifteenth day of each calendar month through and including July 15, 2005, we are obligated to pay to the lender an amount equal to 5% of our consolidated gross revenues for the immediately preceding calendar month. Payments are applied first to interest accrued and then to the outstanding principal amount. The entire amount of the loan and all interest accrued thereon is finally due and payable on August 15, 2005. As a result, we believe that we have sufficient operating capital through the end of calendar year 2004. However, if we fail for any reason to repay this loan on a timely basis, then we may have to curtail our business sharply or cease operations altogether.
Our cash flow requirements have been met through private placements of our common stock and incurring debt. No assurances can be given that financing will continue to be available or be sufficient to meet our capital needs. If we are unable to generate profits and unable to continue to obtain financing to meet our working capital requirements, then we may have to curtail our business sharply or cease operations altogether. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to retain our current financing, to obtain additional financing, and ultimately to attain profitability. Should any of these events not occur, the accompanying financial statements will be adversely affected and our business may not survive.
INDUSTRY BACKGROUND
STEM CELLS. The human body is comprised of many types of cells with individual characteristics and specific functions. Cells with a defined or specialized function are referred to as differentiated. Examples of differentiated cells include nerve cells, red blood cells and skin cells. Differentiated cells are replaced and renewed over time from a population of rare, undifferentiated cells known as stem cells. As stem cells grow and proliferate, they are capable of producing both additional stem cells as well as cells that have differentiated to perform a specific function. Stem cell differentiation is prompted by specific cell-to-cell interactions or other molecular signals. These signals trigger a change in the cell's genetic profile, causing specific genes to become active and others to become inactive. As a result, the cell develops specialized structures, features and functions representative of its differentiated cell type.
There are many types of stem cells in the human body. These stem cells are found in different concentrations and in different locations in the body during a person's lifetime. Current thinking suggests that each organ and tissue in the body is founded, maintained and possibly rejuvenated to different degrees, on a more or less continual basis, by specific stem cell populations naturally present in the body. Types of stem cells include:
Hematopoietic stem cells. Hematopoietic, or blood, stem cells reside in the bone marrow. They can also be found in an infant's umbilical cord as well as circulating in very small numbers in the blood. Hematopoietic stem cells generate all other blood and immune system cells in the body.
Neural stem cells. Neural stem cells can be found in the brain and spinal cord and are capable of differentiating into nerve and brain tissue.
Mesenchymal stem cells. Mesenchymal stem cells can be found in bone marrow and differentiate into bone, cartilage, fat, muscle, tendon and other connective tissues.
Pancreatic islet stem cells. Pancreatic islet stem cells can be found in the pancreas and differentiate into specialized cells of the pancreas including cells that secrete insulin.
The ability of a stem cell to differentiate into multiple types of cells of a certain tissue is referred to as pluripotency. For example, a hematopoietic stem cell has the ability to differentiate into many types of blood and immune system cells. However, stem cells of one tissue type may also generate specialized cells of another tissue type, a characteristic referred to as plasticity. For example, under specific conditions, hematopoietic stem cells have been shown to generate specialized cells of other systems, including neural, endocrine, skeletal, respiratory and cardiac systems. These characteristics make stem cells highly flexible and very useful for a number of applications, including the potential use as therapeutics.
CELL THERAPY. Cell therapy is the use of live cells as therapeutic agents to treat disease. This therapy involves the introduction of cells to replace or initiate the production of other cells that are missing or damaged due to disease. Currently, the most common forms of cell therapy include blood and platelet transfusions and bone marrow transplants.
Bone marrow transplantation is a medical procedure in which hematopoietic stem cells are introduced into the body in order to regenerate healthy, functioning bone marrow. In this procedure, stem cells are obtained from a donor through a surgical procedure to remove approximately one liter of bone marrow. The donated bone marrow, including any "captured" stem cells, is then transfused into the patient. Stem cells for transplantation may also be obtained from peripheral blood or umbilical cord blood donations. Sometimes the stem cells used in the procedure are obtained from the patient's own bone marrow or blood. Bone marrow transplants can be used to:
-- replace diseased bone marrow with healthy, functioning bone marrow for patients with blood diseases such as leukemia and aplastic anemia;
-- replace bone marrow damaged by high-dose chemotherapy or radiation therapy used to treat patients with a variety of cancers such as lymphoma, neuroblastoma and breast cancer; and
-- provide a genetically healthy and functioning bone marrow to treat patients with genetic diseases such as Hurler's syndrome and sickle cell anemia.
In the course of a bone marrow transplant procedure, the patient is treated with high doses of chemotherapy and radiation to eliminate any diseased or damaged tissue from the patient's body. Following chemotherapy and radiation, hematopoietic stem cells to be transplanted are injected into the patient's bloodstream, where they find their way to the bone cavity. Once established in the bone, they begin to grow, or engraft, and produce cells of the blood and immune systems.
Bone marrow transplantation has been successfully employed in the treatment of a variety of cancers and other serious diseases since the 1960s. According to the International Bone Marrow Transplant Registry, over 45,000 bone marrow and other hematopoietic (blood) stem cell transplant procedures were performed worldwide in 2002.
The flexibility and plasticity of stem cells has led many researchers to believe that stem cells have tremendous promise in the treatment of diseases other than those currently addressed by stem cell procedures. Researchers have reported progress in the development of new therapies utilizing stem cells for the treatment of cancer, neurological, immunological, genetic, cardiac, pancreatic, liver and degenerative diseases.
UMBILICAL CORD BLOOD BANKING
The success of current and emerging cell therapies is dependent on the presence of a rich and abundant source of stem cells. Umbilical cord blood has been emerging as an ideal source for these cells. As information about the potential therapeutic value of stem cells has entered the mainstream, and following the first successful cord blood transplant performed in 1988, cord blood collection has grown.
In the past decade, several public and private cord blood banks have been established to provide for the collection and preservation of these cells. Public cord blood banks collect and store umbilical cord blood donated by women at the birth of the child. This blood is preserved and made available for a fee (usually $10,000 to $20,000) to anyone who needs it in the future. We do not currently collect or store donated cord blood units. Private, or family, cord blood banks such as CPI collect and store umbilical cord blood on a fee-for-service basis for families. This blood is preserved and made available to the family in the event the family needs stem cells for a transplant. While stem cells have been successfully recovered from cord blood after at least fifteen years of storage in liquid nitrogen, these cells should theoretically be able to retain their usefulness at least as long as the normal life span of an individual.
As of June 30, 2004, we had 486 clients paying a fee for annual storage services. We believe our potential market could continue to grow due to:
-- increased awareness about the availability and benefits of preserving cord blood;
-- growing endorsement by the medical community; and
-- new applications for cell therapy.
SERVICES PROVIDED BY CPI
Through our CPI subsidiary, we collect, test, process and preserve umbilical cord blood. Our customers are expectant parents who choose to collect and store umbilical cord blood at the birth of their child for potential use in a stem cell transplant at a later date for that child or for another family member.
Private cord banking has been growing in acceptance by the medical community and has become increasingly popular with families. For an initial fee of $1,595 and $95 for storage each year thereafter, we provide the following services to each customer:
Collection. We provide a kit that contains all of the materials necessary for collecting the newborn's umbilical cord blood at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for later testing.
Full-Time Physician and Customer Support. We provide 24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing any instruction necessary on the collection of the cord blood.
Transportation. We manage all logistics for transporting the cord blood unit to our centralized facility immediately following birth. This procedure ensures chain-of-custody control during transportation for maximum security.
Comprehensive Testing. At the laboratory, the cord blood unit sample is tested for stem cell concentration levels and blood type. The cord blood unit and the maternal blood sample are also tested for infectious diseases. We report these results to both the mother and her doctor.
Cord Blood Preservation. After processing and testing, we freeze the cord blood unit in a controlled manner and store it in liquid nitrogen for potential future use. Data indicates that cord blood retains viability and function for at least fifteen years when stored in this manner and theoretically could be maintained at least as long as the normal life span of an individual.
At present, all of our cord blood units are tested and processed by, and stored at, Bergen Community Regional Blood Center, Paramus, New Jersey.
BLOOD BANK SERVICE AGREEMENT
Pursuant to our Service Agreement with Bergen Community Regional Blood Center, the blood center tests all cord blood received from CPI and stores the cord blood in computerized, temperature monitored liquid nitrogen vapor tanks or other suitable storage units. Individual cord blood samples can be retrieved upon request. The blood center is compensated for its services based upon the number of umbilical cord blood units stored with it by CPI each month.
Our agreement with the blood center runs through June 30, 2012. However, our agreement may be terminated by either party on 90 days notice. Several other blood centers also provide the services currently provided to us by Bergen Community Regional Blood Center. If our agreement with Bergen Community Regional Blood Center were to terminate for any reason, we believe that comparable services could be secured from another provider at comparable cost within the contractual notice period. However, we may not be able to secure such terms or secure such terms within such time frame. In such event, we may not be able to continue to provide our cord blood banking services for some period of time or our expenses of storage may increase, or both. This would have an adverse effect on our financial condition and results of operations.
Our agreement with Bergen Community Regional Blood Center requires both parties to maintain commercial general liability insurance in amounts of not less than $1,000,000 per incident and $3,000,000 annual aggregate amount. Our agreement provides that each party will indemnify the other from its respective acts, errors or omissions in performing its respective obligations under the agreement.
PATENT LICENSE AGREEMENT
PharmaStem Therapeutics, Inc. ("PharmaStem") holds certain patents relating to the storage, expansion and use of hematopoietic stem cells. In the past two years, PharmaStem has commenced suit against numerous companies involved in cord blood collection and preservation alleging infringement of its patents. In October 2003, after a jury trial, judgment was entered against certain of our competitors and in favor of PharmaStem in one of those suits.
In February 2004, PharmaStem commenced suit against CPI and certain of its competitors alleging infringement of its patents. Management of CPI determined to settle, rather than to litigate, this matter. As a result, PharmaStem and CPI entered into a Patent License Agreement in March 2004.
Pursuant to the Patent License Agreement, CPI may, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem technology and processes covered by its patents for so long as the patents may remain in effect. All of the patents are scheduled to expire in 2010. CPI is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by CPI from the collection and storage of cord blood on and after January 1, 2004. Other than royalties, no amount is payable by CPI to PharmaStem. All litigation between the parties was dismissed and all prior claims were released.
MARKETING
The marketing of our services is based upon the education of our potential customers. Most people do not know about the medical benefits that stem cells can provide and, even when they do, they may not know that stem cells saved from the birth of their child could have significant value to their family. We attempt to inform and educate our potential customers as to these benefits.
We utilize several methods to educate our potential customers. Primarily, we use our website (www.cordpartners.com), printed information kits and brochures to educate families about the benefits and costs of cord blood storage. We provide potential customers with access to basic information about stem cells and their current and potential uses in medical treatment. We also educate potential customers as to their options with regard to private storage, public donation and disposal of umbilical cord blood and various collection methods, transportation of samples, laboratory testing and preservation techniques. We provide potential customers with the option of having a one-on-one counseling session with a Cord Partners Preservation Counselor.
We help potential customers find non-commercial resources to provide further information about stem cells and their uses in medical treatment and cord blood banks. The most referred sources include: The Parents Guide to Cord Blood (www.parentsguidecordblood.com), the National Institute of Health (www.nih.gov) and the National Marrow Donor Program (www.marrow.org).
Our marketing campaigns are designed to capture as many qualified leads as possible so as to enable us to educate potential customers about their storage options. A marketing campaign is any promotion which is aimed at reaching numerous potential customers. This can be achieved through one or many advertising media. At present, our marketing focuses on the following: personal referrals, professional referrals, internet advertising, print advertising, radio advertising, television advertising, direct mail, baby fairs and public relations.
We funnel our leads through a well defined process which utilizes numerous methods for educating our potential clients, including direct mail, email and telephone consultations. To us, the most important aspect of our work is to try to teach expectant families what their umbilical cord blood storage options may be. While we would like to convert all leads into customers, it is most important that each family is aware of the private and public storage options available to them so that they can make an informed decision.
All of our marketing efforts are designed and implemented by our employees. Our website was designed and is maintained and hosted by Gecko Media, Inc. Stephen Weir, a director of the Company, is a founder, principal shareholder, director and officer of Gecko Media, Inc.
Because of our internet presence, our marketing efforts are worldwide in scope. Nevertheless, virtually all of our customers reside in the United States.
COMPETITION
Our competitors in the cord blood preservation industry include the approximately 20 other national private family cord blood banks in the United States, including Viacell, California Cryobank, Cbr Systems (Cord Blood Registry), Cryo-Cell International, CorCell, LifeBankUSA, and New England Cord Blood Bank. These companies privately store umbilical cord blood on a fee basis. Some of our competitors, including Cryo-Cell, CorCell, and LifeBankUSA, charge a lower price for their products than we do. Other competitors such as Viacell and LifeBankUSA may have greater financial resources than we do. There are also more than fifty public cord blood banks throughout the world, including the New York Blood Center (National Cord Blood Program), University of Colorado Cord Blood Bank, Milan Cord Blood Bank and Duesseldorf Cord Blood Bank. These competitors accept and store cord blood for little or no compensation, but charge a significant fee for the retrieval of the cord blood.
Our ability to compete with other private family and public cord blood banks will depend on our ability to distinguish ourselves as a leading provider of quality cord blood banking services. We believe that three factors
distinguish our services. First, unlike many of our larger competitors, we have entered into a Patent License Agreement with PharmaStem. This insures our ability to continue to provide cord blood banking services to our customers. Second, unlike many of our competitors, our initial fee covers all services for the first year, including collection, transportation, testing, processing and preservation of the cord blood. Several of our competitors do not include all of these services in their initial fee. Finally, we provide individualized services to all of our customers. At the time of enrollment, each customer is assigned her own customer service representative, referred to as a "Cord Partner." The Cord Partner is available to her customers 24 hours per day, 7 days per week, via a toll free pager number. Each Cord Partner is trained not only to handle all customer inquires, but also to communicate with labor and delivery staff in the event questions arise before, during or subsequent to delivery of the child.
GOVERNMENT REGULATION
The cord blood banking service provided by CPI is subject to Food and Drug Administration ("FDA") regulations requiring infectious disease testing. CPI has registered with the FDA as a cord blood banking service, has listed its products with the FDA, and will be subject to FDA inspection. In addition, the FDA has proposed good tissue practice regulations that would establish a comprehensive regulatory program for human cellular and tissue-based products as well as proposed rules for donor suitability. Furthermore, the FDA may develop standards for these products.
Consistent with industry practice, the CPI cord blood collection kits have not been cleared as a medical device. The FDA could at any time require us to obtain medical device premarket notification clearance or approval for the collection kits. Securing any necessary medical device clearance or approval for the cord blood collection kits may involve the submission of a substantial volume of data and may require a lengthy substantive review. The FDA could also require that we cease using the collection kit and require us to obtain medical device pre-market notification clearance or approval prior to further use of the kits.
Of the states in which we provide cord blood banking services, only New Jersey and New York currently require that cord blood banks, such as our storage facility, be licensed. Our blood storage facility, Bergen Community Regional Blood Center, is currently licensed to operate in these two states. If other states adopt requirements for licensing of cord blood services, either our blood storage facility or we would have to obtain licenses to continue providing services in those states.
EMPLOYEES
At present, we employ five persons on a full time basis. Our full time employees include our Chairman of the Board and Chief Executive Officer and our President and Chief Operating Officer. We believe our relations with our employees to be excellent.
REPORTS TO SECURITY HOLDERS
Prior to this filing, we have not been required to deliver annual reports to our security holders. To the extent that we are required to deliver annual reports to security holders through our status as a reporting company, we will deliver annual reports. Upon effectiveness of this Form 10-SB and in accordance with NASDAQ Rule 6530, we intend to file annual and quarterly reports with the Commission. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. We will be an electronic filer and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC which may be viewed at http://www.sec.gov/.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE PROFITABILITY.
During the year ended December 31, 2003, we incurred a loss of $45,838, and during the six months ended June 30, 2004, we incurred a loss of $449,950. At June 30, 2004, we had a stockholders' deficit of $220,351, and a working capital deficit of $220,351. We expect our expenses to increase as a result of our recent Patent License Agreement with PharmaStem. As a result, we will need to generate significant additional revenues to achieve and maintain profitability. We cannot assure our shareholders that we will achieve significant additional revenues, or that we will become profitable and, if so, sustain profitability into the future. It is possible that we may encounter unexpected expenses. If the time required to generate significant revenues and achieve profitability is longer than anticipated, we may need to obtain working capital in the future. There can be no assurance that we will be able to successfully complete any such financing arrangements or that the amounts raised would meet our cash flow needs. We cannot assure our shareholders that additional capital will be available to us in the future on favorable terms, or at all. The various elements of our business strategies, including marketing activities and obtaining increased market acceptance, may require additional future capital. If adequate funds are not available or are not available on acceptable terms, our ability to fund those business activities essential to operate profitably, including further sales and marketing activities, would be significantly limited.
OUR AVAILABLE CASH WILL PERMIT US TO OPERATE ONLY FOR A FEW MONTHS. WE WILL NEED TO RAISE ADDITIONAL CAPITAL.
As of June 30, 2004, the Company had current assets of $42,434 and current liabilities of $262,785, resulting in a working capital deficit of $220,351. We believe that we have sufficient operating capital through the end of calendar year 2004. There can be no assurance that sales will continue to increase or even maintain current levels. We will require additional capital to fund our operations. The failure of the Company to obtain financing as needed would have a material adverse effect upon the Company and its business as we believe our current cash position will enable us to sustain current operations for a short period of time. If additional funds are obtained by issuing equity securities and/or debt securities convertible into equity, dilution to existing shareholders will result, and future investors may be granted rights superior to those of existing shareholders. There can be no assurances, however, that additional financing will be available when needed, or if available, on acceptable terms. There are no current agreements, arrangements, or understandings for any equity and/or debt financing. The failure of the Company to obtain such financing as required or otherwise desired will have a material adverse effect upon the Company, its business and operations.
OUR FINANCIAL STATEMENTS ARE SUBJECT TO A "GOING CONCERN" QUALIFICATION.
Our financial statements appearing elsewhere in this report have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Management realizes that we must generate capital and revenue resources to enable us to achieve profitable operations. We are planning on obtaining additional capital by achieving at least break-even cash flow from operations and selling equity and/or debt securities. The realization of assets and satisfaction of liabilities in the normal course of business is dependent upon us obtaining additional revenues and equity capital and ultimately achieving profitable operations. No assurances can be made that we will be successful in these activities. Should any of these events not occur, our financial statements will be materially affected.
IF OUR UMBILICAL CORD BLOOD STORAGE SERVICES DO NOT ACHIEVE CONTINUED MARKET ACCEPTANCE WE WILL NOT BE ABLE TO GENERATE REVENUE NECESSARY TO SUPPORT OUR BUSINESS.
We anticipate that service fees from the processing and storage of umbilical cord blood will comprise substantially all of our revenues for the foreseeable future and, therefore, our future success depends on the successful and continued market acceptance of this service. Broad use and acceptance of our service requires marketing expenditures and education and awareness of consumers and medical practitioners, and the time and expense required to accomplish such education and awareness of our services and its potential benefits could adversely affect market acceptance. Successful commercialization of our services will also require that we satisfactorily address the needs of various medical practitioners that constitute a target market to reach consumers of our services and to address potential resistance to recommendations for our services. If we
are unable to gain market acceptance of our services, we will not be able to generate enough revenue to achieve and maintain profitability.
WE MAY NOT BE ABLE TO INCREASE SALES OR OTHERWISE SUCCESSFULLY OPERATE OUR BUSINESS.
We believe that the key to our success is to increase sales of our cord blood preservation services and thereby to increase our revenues and available cash. Our success in this regard will depend in large part on widespread market acceptance of cryopreservation of cord blood and our efforts to educate potential customers and sell our services. Our efforts to increase our sales and revenues could be adversely impacted by other risks to our business described below, including termination of our agreement with Bergen Community Regional Blood Center, a failure, discontinuance or disruption of the Bergen Community Regional Blood Center to preserve stored cord blood, termination of our agreement with PharmaStem and increased competition from other providers of cord blood storage services.
There can be no assurance that we will be able to increase our sales or effectively operate our business. To the extent we are unable to achieve growth in sales, we may continue to incur losses. We cannot assure you that we will be successful or make progress in the growth and operation of our business.
Our current and future expense levels are based on our operating plans and estimates of future sales and revenues and are subject to increase as we implement our strategy. Even if our sales grow, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues would likely have an immediate material adverse effect on our business, operating results and financial condition. Further, if we should substantially increase our operating expenses to increase sales and marketing and such expenses are not subsequently followed by increased revenues, our operating performance and results would be adversely effected and, if sustained, could have a material adverse effect on our business. To the extent we implement cost reduction efforts to align our costs with revenue, our revenue could be adversely affected.
WE ARE DEPENDENT UPON A THIRD PARTY FACILITY FOR THE STORAGE OF UMBILICAL CORD BLOOD. IF OUR STORAGE ARRANGEMENTS TERMINATE FOR ANY REASON, WE MAY NOT BE ABLE TO PROVIDE CORD BLOOD BANKING SERVICES FOR SOME PERIOD OF TIME.
We do not own or operate a storage facility for umbilical cord blood. All cord blood collected from our customers is stored at Bergen Community Regional Blood Center, Paramus, New Jersey. If our storage arrangements with Bergen Community Regional Blood Center terminate for any reason, then we may not be able to continue to provide our cord blood banking services for some period of time. Even if we are able to negotiate an extension of our existing agreement or enter into one or more new agreements, we may not be able to obtain favorable terms.
A FAILURE IN THE PERFORMANCE OF OUR CRYOPRESERVATION STORAGE FACILITY OR SYSTEMS COULD HARM OUR BUSINESS AND REPUTATION.
To the extent our cryopreservation storage service is disrupted, discontinued or the performance is impaired, our business and operations could be adversely affected. We store all of our specimens at the Bergen Community Regional Blood Center in Paramus, New Jersey. Any failure, including network, software or hardware or equipment failure, that causes a material interruption or discontinuance in our cryopreservation storage of stem cell specimens could result in stored specimens being damaged and unable to be utilized. Specimen damage, including loss in transit to the Bergen Community Regional Blood Center facility, could result in litigation against us and reduced future revenue to us, which in turn could be harmful to our reputation. While our agreement with Bergen Community Regional Blood Center requires both parties to maintain commercial general liability insurance in amounts of not less than $1,000,000 per incident and $3,000,000 annual aggregate amount, such insurance coverage may not adequately compensate us for any losses that may occur due to any failures in our system or interruptions in our ability to maintain proper, continued, cryopreservation storage services. Any material disruption in our ability to maintain continued uninterrupted storage systems could have a material adverse effect on our business, operating results and financial condition. Our systems and operations are vulnerable to damage or interruption from fire, flood, equipment failure, break-ins, tornadoes and similar events for which we do not have redundant systems or a formal disaster recovery plan and may not carry sufficient business interruption insurance to compensate us for losses that may occur.
WE ARE DEPENDENT UPON A PATENT LICENSE AGREEMENT FOR CERTAIN TECHNOLOGY AND PROCESSES UTILIZED TO COLLECT, PROCESS AND STORE UMBILICAL CORD BLOOD. IF OUR LICENSING ARRANGEMENT TERMINATES FOR ANY REASON, WE MAY NOT BE ABLE TO COLLECT, PROCESS OR STORE UMBILICAL CORD BLOOD FOR SOME PERIOD OF TIME.
Pursuant to the Patent License Agreement, CPI may, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem technology and processes covered by its patents for so long as the patents may remain in effect. If our licensing arrangement with PharmaStem terminates for any reason, then we may not be able to provide our cord blood banking services for some period of time. Even if we are able to negotiate a new agreement with PharmaStem, we may not be able to obtain favorable terms.
IF WE DO NOT OBTAIN AND MAINTAIN NECESSARY DOMESTIC REGULATORY REGISTRATIONS, APPROVALS AND COMPLY WITH ONGOING REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR CORD BLOOD BANKING SERVICES.
The cord blood banking services provided by us are currently subject to FDA regulations requiring infectious disease testing. We have registered with the FDA as a cord blood banking service, listed our products with the FDA, and will be subject to FDA inspection. In addition, the FDA has proposed new good tissue practice regulations that would establish a comprehensive regulatory program for human cellular and tissue-based products as well as proposed rules
for donor suitability. We believe that we are in compliance with existing regulatory requirements.
We may not be able to comply with any future regulatory requirements that may be imposed on us, including product standards that may be developed after the date hereof. Moreover, the cost of compliance with government regulations may adversely affect our revenue and profitability. Failure to comply with applicable regulatory requirements can result in, among other things, injunctions, operating restrictions, and civil fines and criminal prosecution. Delays or failure to obtain registrations could have a material adverse effect on the marketing and sales of our services and impair our ability to operate profitably in the future.
Of the states in which we provide cord blood banking services, only New Jersey and New York currently require that cord blood banks be licensed. Our cord blood storage facility is currently licensed to operate in these two states. If other states adopt requirements for the licensing of cord blood banking services, either our cord blood storage facility or we would have to obtain licenses to continue providing services in those states.
THE FDA COULD REQUIRE US TO OBTAIN APPROVAL OF OUR CORD BLOOD COLLECTION KITS.
Consistent with industry practice, the CPI cord blood collection kits have not been cleared as a medical device. The FDA could at any time require us to obtain medical device premarket notification clearance or approval for the collection kits. Securing any necessary medical device clearance or approval for the cord blood collection kits may involve the submission of a substantial volume of data and may require a lengthy substantive review. This could increase our costs and reduce our profitability. The FDA could also require that we cease using the collection kit and require us to obtain medical device pre-market notification clearance or approval prior to further use of the kits. This could cause us to cease to operate our business for some period of time.
BECAUSE OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL AND THERAPEUTIC CHANGES AND NEW DEVELOPMENTS, OUR FUTURE SUCCESS WILL DEPEND ON THE CONTINUED VIABILITY OF THE USE OF STEM CELLS.
Our success will depend to a significant extent upon our ability to enhance and expand the use of and utility of our services so that they gain increased market acceptance. There can be no assurance that expectant parents will use our services or that our services will provide competitive advantages with current or future technologies. Failure to achieve increased market acceptance could have a material adverse effect on our business, financial condition and results of operations. The use of stem cells in the treatment of disease is subject to potentially revolutionary technological, medical and therapeutic changes. Future technological and medical developments could render the use of stem cells obsolete and unmarketable. In addition, there may be significant advances in other treatment methods, such as genetics, or in disease prevention techniques, which could significantly reduce the need for the services we provide.
OUR INFORMATION SYSTEMS ARE CRITICAL TO OUR BUSINESS, AND A FAILURE OF THOSE SYSTEMS COULD MATERIALLY HARM US.
We depend on our ability to store, retrieve, process and manage a significant amount of information. If our information systems fail to perform as expected, or if we suffer an interruption, malfunction or loss of information processing capabilities, it could have a material adverse effect on our business.
THE CORD BLOOD BANKING MARKET IS INCREASINGLY COMPETITIVE.
Cord blood banking and stem cell preservation is becoming an increasingly competitive business. The barriers to entry are relatively low. Our business faces competition from other operators of cord blood and stem cell preservation businesses and providers of cord blood and stem cell storage services. Certain of our competitors have greater financial and other resources than we do. Competitors with greater access to financial resources may enter our markets and compete with us. In the event that we are not able to compete successfully, our business may be adversely affected and competition may make it more difficult for us to grow our revenue and maintain our existing business on terms that are favorable to us.
IF WE ARE NOT ABLE TO RECRUIT AND RETAIN QUALIFIED MANAGEMENT PERSONNEL, WE MAY FAIL TO DEVELOP OUR POTENTIAL BUSINESS OPPORTUNITIES.
Our success is highly dependent on the retention of the principal members of our management and sales personnel. Matthew L. Schissler, our Chairman and Chief Executive Officer, is critical to our ability to execute our overall business strategy. Stephanie A. Schissler is critical to our marketing and sales efforts. We do not presently have any key man life insurance on these persons; while we intend to apply for such insurance in such amounts as we deem appropriate, it is uncertain at this time as to when we will apply for and obtain such insurance.
Although we are not aware that any of our key employees are currently planning to retire or leave the company, any key employee could terminate his or her relationship with us at any time and, subject to any non-competition agreement with us, work for one of our competitors. Furthermore, our future growth will require hiring a significant number of qualified management, administrative and sales personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the areas of our activities. If we are not able to continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or achieve our business objectives.
RISKS RELATED TO OUR STOCK
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP OR BE SUSTAINED, AND OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE.
Our common stock does not trade in a public market. While we hope to establish a public market for our common stock, such a market may not develop or be sustained. As a result, our investors may not be able to sell their shares quickly or at the market price if trading in our stock is not active. If a public market does develop, the number of shares available for sale is, at least initially, anticipated to be limited. Therefore, the share price may be volatile.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, OR THE AVAILABILITY OF THOSE SHARES FOR FUTURE SALE, COULD ADVERSELY AFFECT OUR STOCK PRICE AND LIMIT OUR ABILITY TO RAISE CAPITAL.
We are unable to predict the effect, if any, that future sales of common stock or the potential for such sales may have on the market price of the common stock prevailing from time to time. Of the 25,317,200 issued and outstanding shares of common stock of the Company, 4,127,200 shares are believed to be capable of being sold or transferred without registration under the Securities Act of 1933. The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market or the perception that substantial sales could occur. These sales also may make it more difficult for us to sell common stock in the future to raise capital.
WE HAVE NOT PAID CASH DIVIDENDS AND DO NOT EXPECT TO IN THE FORESEEABLE FUTURE, WHICH MEANS THAT THE VALUE OF OUR SHARES CANNOT BE REALIZED EXCEPT THROUGH SALE.
We have never declared or paid cash dividends. We currently expect to retain earnings for our business and do not anticipate paying cash dividends on our common stock at any time in the foreseeable future. Because we do not anticipate paying cash dividends in the future, it is likely that the only opportunity to realize the value of our common stock will be through a sale of those shares. The decision whether to pay cash dividends on common stock will be made by the Board of Directors from time to time in the exercise of its business judgment. Furthermore, we may be restricted from paying dividends by the terms of any credit facility we may enter into in the future.
THE OWNERSHIP OF OUR COMMON STOCK IS CONCENTRATED IN THE HANDS OF OUR EXISTING DIRECTORS AND EXECUTIVE OFFICERS. AS A RESULT, YOU MAY NOT BE ABLE TO EXERT MEANINGFUL INFLUENCE ON SIGNIFICANT CORPORATE DECISIONS.
Our directors and executive officers beneficially own, in the aggregate, approximately 63.7% of our outstanding shares of common stock. These persons, acting together, will be able to exercise significant influence over all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, have the ability to
control the management and affairs of our company. This concentration of ownership may harm the market price of our common stock by delaying or preventing a change in control of our company at a premium price even if beneficial to our other stockholders.
VARIOUS ANTITAKOVER PROVISIONS ARE CONTAINED IN OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION AND OUR AMENDED AND RESTATED BYLAWS. AS A RESULT, ANY TAKEOVER OF THE COMPANY MAY BE DELAYED OR DISCOURAGED AND THE ABILITY OF THE SHAREHOLDERS TO CHANGE THE DIRECTION AND MANAGEMENT OF THE COMPANY MAY BE DELAYED OR LIMITED.
Our Amended and Restated Articles of Incorporation provide for a staggered Board of Directors. Mr. Vicente's term expires in 2005, Mr. Weir's term expires in 2006 and Mr. Schissler's term expires in 2007. Our Amended and Restated Articles of Incorporation, as amended, also provide for a substantial number of shares of common stock and "blank check" preferred stock authorized for issuance solely by action of the Board of Directors. Our Amended and Restated Bylaws provide, among other things, that nominations for election to our Board of Directors, other than those made by the Board of Directors, must be made by written notification delivered to the Company not less than 20 and not more than 50 days prior to any annual or special meeting of shareholders called for the election of directors. Such provisions may have the effect of delaying or discouraging any takeover of the Company by others or otherwise delaying or limiting the shareholders' ability to change the direction and management of the Company.
OUR COMMON STOCK MAY BE SUBJECT TO THE SEC'S PENNY STOCK SALES RULES.
The SEC has adopted regulations which generally define penny stocks to be equity securities that have a market price of less than $5.00 per share. Such designation imposes additional sale practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors.
For transactions covered by these regulations, a broker-dealer must make a special suitability determination for the purchaser. A broker-dealer must obtain from the potential purchaser information concerning the person's financial situation, investment experience and investment objectives and, based upon that and other information available to it, make a determination that transactions in penny stocks are suitable for the purchaser and that the purchaser has sufficient knowledge and experience in financial matters so that the purchaser reasonably may be expected to be capable of evaluating the risks of transactions in penny stocks. A broker-dealer must also receive the purchaser's written consent to the transaction prior to sale.
These penny stock rules may restrict the ability of brokers, dealers and investors to sell our common stock to the extent our common stock may be subject to such rules.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
In addition to the historical information contained herein, we make statements in this Registration Statement on Form 10-SB that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors, certain of which are discussed herein under the heading "Factors That May Affect Future Operating Results," that could cause our actual performance or achievements to be materially different from those expressed in any forward-looking statements made by or on our behalf. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. We do not assume the obligation to update or revise any forward looking statements.
Active operations of our subsidiary corporation, Cord Partners, Inc., commenced in January 2003. We acquired our subsidiary corporation as of March 31, 2004. Therefore, we have only a limited operating history.
REVENUES AND COST OF SERVICES GENERALLY
Our revenues are derived from the sale of the following products and services: our transporting and providing an umbilical cord blood collection kit to the expectant parents, our physician and customer support, our transporting the cord blood to the Bergen Community Regional Blood Center, and the testing and storage of the cord blood at the Bergen Community Regional Blood Center. These products and services are bundled and sold at a fixed fee of $1,595. In addition, storage fees of $95 per year are charged thereafter.
The principal components of our cost of services are: the cost of the umbilical cord blood collection kit, royalty payments to PharmaStem, payments for services to Bergen Community Regional Blood Center and costs of transportation of the umbilical cord blood collection kit to the expectant family and transportation of the umbilical cord blood to Bergen Community Regional Blood Center. The bulk of our cost of services is our royalty payments to PharmaStem and our payments for services to Bergen Community Regional Blood Center. At present, PharmaStem receives royalties of 15% of all revenues generated from the collection and storage of cord blood. Bergen Community Regional Blood Center receives payments of $602.50 for each new collection and storage of cord blood and $50 per year for each storage of cord blood thereafter.
CALENDAR YEAR 2003
For the year ended December 31 2003, CBA had no revenues. For the year ended December 31, 2003, which was CPI's first year of operations, CPI had
revenues of $281,175 and a net loss of $45,838. We believe that revenues will increase during 2004 as the result of increased sales of our services.
For the year ended December 31, 2003, the cost of CPI's services was $198,770. For the year ended December 31, 2003, CPI's gross profit was $82,405 and it gross profit percentage was 29%. We anticipate that our cost of services will increase as our sales and revenues increase. In addition, we believe that our cost of services will increase as the result of payments required to be made to PharmaStem commencing as of January 1, 2004, which were not required during 2003.
For the year ended December 31, 2003, administrative and selling expenses of CPI were $128,243. We anticipate that administrative and selling expenses will increase during 2004 as the result of increased marketing expenses, increased employee salaries and benefits as new employees are added, additional lease expense if and when we move our offices to larger quarters, increased professional fees related to this registration statement and increased insurance expense related to additional coverage required by our agreement with PharmaStem.
At December 31 2003, CPI had current assets of $20,254 and current liabilities of $60,655, resulting in a working capital deficit of $40,451. At December 31, 2003, CPI had deferred revenue of $19,534, resulting from our entering into contracts with expectant parents as to which products or services had not yet been provided.
SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
For the six months ended June 30, 2004, we had revenues of $250,256 and a net loss of $449,950, as compared to revenues of $95,474 and a net loss of $8,695 for the six months ended June 30, 2003. We believe that our sales will continue to increase as the result of our marketing efforts. In 2004, we have increased our internet advertising and commenced advertising in print media, radio and at baby fairs. In addition, in March 2004, we implemented a price increase for our products and services. This price increase is intended to offset, at least in part, the anticipated increase in our cost of services resulting from our entering into a Patent License Agreement with PharmaStem.
For the six months ended June 30, 2004, the cost of our services was $191,675, as compared to $52,225 for the six months ended June 30, 2003. For the six months ended June 30, 2004, our gross profit was $58,581 and our gross profit percentage was 23%, as compared to gross profit of $43,249 and gross profit percentage of 45% for the comparable period of 2003.
For the six months ended June 30, 2004, the cost of our services increased primarily because the number of families choosing to utilize our services increased over the comparable period in 2003 and we were required to make royalty payments to PharmaStem under the Patent License Agreement which we were not required to make in the comparable period in 2003.
For the six months ended June 30, 2004, our administrative and selling expenses were $508,531, as compared to $51,944 for the six months ended June 30, 2003. Our administrative and selling expenses increased as the result of several factors. First, the cost of our internet advertising on a "pay per click" basis and our advertising through additional websites increased by approximately $72,000, or 328%, during 2004. Second, we engaged in print advertising for the first time in 2004. Third, in early 2004, we moved into an office space which increased our expenses by $16,000. Fourth, professional fees increased substantially in 2004 as the result of the cost of this registration statement and unforeseen litigation. Finally, our insurance expense increased in 2004 by $20,000 as the result of additional coverage required by our Patent License Agreement with PharmaStem.
At June 30, 2004, we had current assets of $42,434 and current liabilities of $262,785, resulting in a working capital deficit of $220,351. At June 30, 2004, we had deferred revenue of $79,980, resulting from our entering into contracts with expectant parents pertaining to products or services that had not yet been provided.
THREE MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
For the three months ended June 30, 2004, we had revenues of $148,264 and a net loss of $278,006, as compared to revenues of $66,383 and a net loss of $3,964 for the three months ended June 30, 2003. We believe that our sales will continue to increase as the result of our marketing efforts. In 2004, we have increased our internet advertising and commenced advertising in print media, radio and at baby fairs. In addition, in March 2004, we implemented a price increase for our products and services. This price increase is intended to offset, at least in part, the anticipated increase in our cost of services resulting from our entering into a Patent License Agreement with PharmaStem.
For the three months ended June 30, 2004, the cost of our services was $118,887, as compared to $35,733 for the three months ended June 30, 2003. For the three months ended June 30, 2004, our gross profit was $29,377 and our gross profit percentage was 20%, as compared to gross profit of $30,650 and gross profit percentage of 46% for the comparable period of 2003.
For the three months ended June 30, 2004, the cost of our services increased primarily because the number of families choosing to utilize our services increased over the comparable period in 2003 and we were required to make royalty payments to PharmaStem under the Patent License Agreement which we were not required to make in the comparable period in 2003.
For the three months ended June 30, 2004, our administrative and selling expenses were $307,383, as compared to $34,614 for the three months ended June 30, 2003. Our administrative and selling expenses increased as the result of several factors. First, the cost of our internet advertising on a "pay per click" basis and our advertising through additional websites increased by $43,000 or 65% during 2004. Second, we engaged in print advertising for the first time in 2004. Third, in early 2004, we moved into an office which increased our expenses for the second quarter of 2004 by approximately $9,500. Fourth, professional fees increased substantially in 2004 as the result of the
cost of this registration statement and unforeseen litigation. Finally, our insurance expense increased in 2004 by $20,000 as the result of additional coverage required by our Patent License Agreement with PharmaStem.
LIQUIDITY AND CAPITAL RESOURCES
We are experiencing substantial cash flow difficulties and we anticipate that we will continue to experience cash flow difficulties for an indefinite period. As a result, we have no plans to make any material capital expenditures. At June 30, 2004, we had a working capital deficit of $220,351. Although no assurances can be given, we believe that our cash flow deficit will improve as revenues and sales increase. In addition, although no assurances can be given, we believe that we may be able to secure additional equity and/or debt financing.
On August 12, 2004, we entered into a loan transaction with an unaffiliated party pursuant to which we borrowed $500,000. The loan bears interest at the rate of 8% per annum and is unsecured. Commencing on February 15, 2005, and continuing on the fifteenth day of each calendar month through and including July 15, 2005, we are obligated to pay to the lender an amount equal to 5% of our consolidated gross revenues for the immediately preceding calendar month. Payments are applied first to interest accrued and then to the outstanding principal amount. The entire amount of the loan and all interest accrued thereon is finally due and payable on August 15, 2005. As a result, we believe that we have sufficient operating capital through the end of calendar year 2004. However, if we fail for any reason to repay this loan on a timely basis, then we may have to curtail our business sharply or cease operations altogether.
A critical component of our operating plan that may have a substantial impact on our continued existence is our ability to obtain capital through additional equity and/or debt financing. We do not anticipate adequate positive internal operating cash flow until such time as we can generate substantially greater revenues than we are generating at present. We believe that the creation of a trading market for our common stock will enhance our ability to raise capital through the sale of equity securities. However, this may not prove to be the case. If we cannot obtain the necessary capital to pursue our operating plan, then we may be forced to cease or significantly curtail our operations. This would materially and adversely impact our ability to continue operations.
Our near term cash requirements are anticipated to be offset through the receipt of funds through private placement offerings and loans obtained through private sources. Since inception, we have financed cash flow requirements through the issuance of common stock for cash and services and the sale of receivables. As we expand our operational activities, we may continue to experience net negative cash flows from operations and we will be required to obtain additional financing to fund operations through common stock offerings and borrowings to the extent necessary to provide working capital. No assurance can be made that such financing will be available, and, if available, whether it will take the form of debt or equity. Should we secure such financing, such financing could have a negative impact on our financial condition and our shareholders. The sale of debt would, among other things, adversely impact our balance sheet, increase our expenses and increase our cash flow requirements.
The sale of equity would, among other things, result in dilution to our shareholders.
RECENT ACCOUNTING PRONOUNCEMENTS
We are not aware of any recent accounting pronoucements which may have a material impact on our financial position, results of operations or liquidity.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. DESCRIPTION OF PROPERTY
We have a month-to-month arrangement with an unaffiliated third party pursuant to which we lease approximately 400 square feet of office space, and we are provided with other office services, at 10940 Wilshire Boulevard, Sixth Floor, Los Angeles, California 90024 for a monthly rental of approximately $2,920.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information relates to those persons who are the beneficial owners of five percent or more of our outstanding shares of common stock:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)(3) OF CLASS (4) -------------------- --------------------------- ------------ Matthew L. Schissler 8,050,000 31.8 Stephanie A. Schissler 8,050,000 31.8 ---------- |
(1) The address for each of the persons listed above is c/o CBA, 10940 Wilshire Boulevard, Sixth Floor, Los Angeles, CA 90024.
(2) These shares are directly owned by each listed shareholder.
(3) After giving effect to a two for one stock split effected as a stock dividend effective as of April 2, 2004.
(4) The percentage is based upon 25,317,200 shares of issued and outstanding common stock as of August 23, 2004.
The following information relates to the shares of common stock beneficially owned by each of our directors and executive officers and all of our directors and executive officers as a group:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)(3) OF CLASS (4) -------------------- --------------------------- ------------ Matthew L. Schissler 8,050,000 31.8 Stephanie A. Schissler 8,050,000 31.8 Joseph R. Vicente 0 0 Stephen Weir 20,000 (5) All directors and executive officers as a group (4 persons) 16,120,000 63.7 ---------- |
(1) The address for each of the persons listed above is c/o CBA, 10940 Wilshire Boulevard, Sixth Floor, Los Angeles, CA 90024.
(2) These shares are directly owned by each listed shareholder.
(3) After giving effect to a two for one stock split effected as a stock dividend effective as of April 2, 2004.
(4) The percentage is based upon 25,317,200 shares of issued and outstanding common stock as of August 23, 2004.
(5) Less than one percent.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages and positions of all of our current directors and executive officers are listed below, followed by a summary of their respective business experience during the past five years.
NAME AGE POSITION
---- --- --------
Matthew L. Schissler 33 Chairman of the Board and
Chief Executive Officer
Stephanie A. Schissler 31 President and Chief Operating Officer
Sandra D. Smith 32 Chief Financial Officer
Joseph R. Vicente 41 Director
Stephen Weir 31 Director
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Matthew L. Schissler is one of the founders of CPI. He has served as Chairman of the Board and Chief Executive Officer of CPI since its inception in January 2003. From April 2001 until January 2003, Mr. Schissler was the President and Chief Executive Officer of Rainmakers International, Inc., an advertising agency which he founded. From 1994 through March 2001, Mr. Schissler held various management sales positions at TMP Worldwide, Inc., a personnel staffing company.
Stephanie A. Schissler is one of the founders of CPI. She has served as President and Chief Operating Officer of CPI since its inception in January 2003. From September 2001 until December 2002, Mrs. Schissler was an account executive with Paychex Business Solutions, Inc., a payroll services company. From April 2001 through August 2001, she was a director of business development at Mills & Murphy Software Systems, Inc., a software developer and reseller. From February 1996 through December 2000, she held various sales and managerial positions with TMP Worldwide, Inc.
Sandra D. Smith became our Chief Financial Officer as of July 1, 2004. From December 2002 until May 2004, she served as the Accounting System Administrator for Bisk Education, Inc.. From September 2000 to December 2002, she was a financial systems analyst for Mills & Murphy Software Systems, Inc. From August 1998 to August 2000, she was an accounts receivable manager for TMP Worldwide, Inc.
Joseph R. Vicente is one of the founders of The Empower Network, Inc., a personnel staffing consulting company. Since September 2003, he has served as President and Chief Operating Officer of The Empower Network, Inc. From July 2002 through August 2003, Mr. Vicente served as a Vice President of Workplace
Technology Ventures, Inc., a software developer. From 1993 through March 2002, Mr. Vicente held various management sales positions at TMP Worldwide, Inc.
Stephen Weir is one of the founders of Gecko Media, Inc., a website development company. Since 2002, he has served as President of Gecko Media, Inc. Mr. Weir was also a founder of Global Interactive Network Systems, Inc., a network consulting company. From 1996 to 2002, Mr. Weir served as President of Global Interactive Network Systems, Inc.
TERMS OF OFFICE
The Company's Amended and Restated Articles of Incorporation provide for three classes of directors, and further provide that directors elected to succeed those directors whose terms expire will be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled by a majority vote of the directors then in office, and the directors so chosen will hold office for a term expiring at the annual meeting of shareholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors will shorten the term of any incumbent director. All directors hold office, subject to such staggered board provisions, until the next annual meeting of shareholders of the Company and until their successors are elected and qualified.
Officers are normally appointed annually by the Board of Directors at a meeting of the directors immediately following the annual meeting of shareholders. Officers hold office until the first meeting of directors following the next annual meeting of shareholders and until their successors are elected and qualified, subject to earlier removal by the Board of Directors.
FAMILY RELATIONSHIPS
Matthew L. Schissler and Stephanie A. Schissler are married. There are no other family relationships among the directors or executive officers of the Company.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our officers, directors, promoters or control persons have been involved in the past five years in any of the following:
(1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2) any conviction in a criminal proceedings or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil action), the SEC or the U.S. Commodity Futures Trading Commission to have violated a federal or state securities laws or commodities law, and the judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
MANAGEMENT COMPENSATION
No member of our management earned more than $100,000 in the year ended December 31, 2003.
COMPENSATION OF DIRECTORS
We have not yet implemented any standard arrangements for the compensation of directors of the Company. In April 2004, as recognition of their service, each of the Company's two non-management directors, Joseph R. Vicente and Stephen Weir, have been granted options to purchase 50,000 shares of our common stock at an exercise price of $0.25 per share. Such options may be exercised at any time after April 28, 2005. In addition, we reimburse Messrs. Vicente and Weir for their out-of-pocket expenses necessary to attend meetings of the Board of Directors.
EMPLOYMENT AGREEMENTS
We have entered into five year employment agreements with our two executive officers, Matthew L. Schissler and Stephanie A. Schissler. Pursuant to our employment agreement with Mr. Schissler, Mr. Schissler serves as Chairman of the Board and Chief Executive Officer of the Company at an annual salary of $125,000 through December 31, 2004. Mr. Schissler's annual salary increases to $150,000 as of January 1, 2005 and to $175,000 as of January 1, 2006. His salary is thereafter adjusted in accordance with changes in the cost of living index. Mr. Schissler is entitled to receive performance bonuses as may from time to time be determined by the Board of Directors and certain fringe benefits. Mr. Schissler is subject to non-competition and confidentiality requirements.
Pursuant to our employment agreement with Stephanie A. Schissler, Mrs. Schissler serves as President and Chief Operating Officer of the Company at an annual salary of $125,000 through December 31, 2004. Mrs. Schissler's annual salary increases to $150,000 as of January 1, 2005 and to $175,000 as of January 1, 2006. Her salary is thereafter adjusted in accordance with changes in the cost of living index. Mrs. Schissler is entitled to receive performance bonuses as may from time to time be determined by the Board of Directors and certain fringe benefits. Mrs. Schissler is subject to non-competition and confidentiality requirements.
STOCK OPTIONS
We have granted options to purchase 500,000 shares of our common stock to three employees of the Company, including Mr. Schissler and Mrs. Schissler. All of the options were granted at an exercise price of $0.25 per share. For each employee, 125,000 options vest on April 29, 2005, an additional 125,000 options vest on April 29, 2006, an additional 125,000 options vest on April 29, 2007 and an additional 125,000 options vest on April 29, 2008. Vested options may be exercised at any time through April 28, 2014.
CHANGE IN CONTROL OF THE COMPANY
There are no provisions in our Amended and Restated Articles of Incorporation or our Amended and Restated Bylaws that would delay, defer, or prevent a change in control, except to the extent as may be influenced by the staggered board of directors provisions in our Amended and Restated Articles of Incorporation and the ability of the Board of Directors to issue shares of preferred stock with such designations, rights and preferences as the Board of Directors may, in its sole discretion, determine. We have no current plans to issue any of such preferred stock.
If, subsequent to a change in control of the Company which is not approved by the Company's Board of Directors, the employment of Matthew. L. Schissler or Stephanie A. Schissler is terminated for any reason other than death, disability, cause or good reason, then we are obligated to pay to either or both of Mr. Schissler or Mrs. Schissler, as the case may be, an amount in cash equal to the sum of that person's then current salary and most recent bonus, multiplied by three.
Upon a change in control of the Company which is not approved by the Company's Board of Directors, all outstanding options to purchase our shares of common stock which have not previously vested will vest and become immediately exercisable. As a result, upon a change in control of the Company which is not approved by the Company's Board of Directors, up to 1,700,000 options to purchase shares could vest and become exercisable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, we have not entered into a transaction, nor are any transactions currently proposed, with a value in excess of $60,000 with an officer, director or beneficial owner of 5% or more of our common stock, or with any member of the immediate family of any of the foregoing named persons or entities, except as follows:
CPI is a party to a Web Development and Maintenance Agreement with Gecko Media, Inc. Stephen Weir, a director of the Company, is a founder, principal shareholder, director and officer of Gecko Media, Inc. Pursuant to the Web Development and Maintenance Agreement, we pay to Gecko Media, Inc. the amount of $5,000 per month for March through May 2004, and the amount of $10,000 per month for June 2004 through March 2006, for development, maintenance and hosting of our website. In addition, we have granted to Gecko Media, Inc. options to purchase 150,000 shares of our common stock at $.25 per share. If Gecko Media, Inc. performs its obligations under the Web Development and Maintenance Agreement, then in March 2005, we will be obligated to issue to Gecko Media, Inc. options to purchase an additional 150,000 shares of our common stock at $1.00 per share.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock, par value $.0001 per share. As of August 23, 2004, 25,317,200 of our shares of common stock were issued and outstanding after giving effect to a two for one stock split effected as stock dividend effective as of April 2, 2004.
Each shareholder is entitled to one vote for each share of common stock owned of record. The holders of shares of common stock do not possess cumulative voting rights, which means that the holders of more than fifty percent of the outstanding shares voting for the election of directors can elect all of the directors, and in such event the holders of the remaining shares will be unable to elect any of our directors. Except with respect to the election of directors, action may be taken without a meeting if a written consent setting forth the action taken is signed by holders of not less than the minimum number of shares necessary to authorize the action at a meeting if all shares entitled to vote were present and voted. If the consent of all shares entitled to vote is not obtained, within ten days of obtaining the consent by a sufficient number of shares to approve the vote, subsequent notice must be given to holders who did not so consent.
Holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may from time to time determine. Upon the liquidation, dissolution, or winding up of the Company, the assets legally available for distribution to the shareholders will be distributable ratably among the holders of the shares outstanding at the time. Holders of the shares of common stock have no preemptive, conversion, or subscription rights, and
shares are not subject to redemption. All outstanding shares of common stock are, and the shares being offered hereby will be, fully paid and non-assessable.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par value $.0001 per share, issuable in such series and bearing such voting, dividend, conversion, liquidation and other rights and preferences as the Board of Directors may determine. As of August 16, 2004, none of our shares of preferred stock were issued or outstanding. Any future issuances of preferred stock could dilute the voting rights and economic interests of holders of shares of common stock. As of the date hereof, no shares of preferred stock are issued and outstanding.
The issuance of preferred stock, under certain circumstances, may have the effect of discouraging, delaying or preventing a change in control of the Company.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
TRADING MARKET
Our shares of common stock have never traded on any securities exchange. We plan to make application to permit our common stock to trade on the over-the-counter bulletin board (OTCBB) after this Registration Statement on Form 10-SB may become effective. There can be no assurance that an active public market for our common stock will develop or be sustained.
SHARES AVAILABLE FOR FUTURE RESALE
As of August 23, 2004, options to purchase 1,750,000 shares of our common stock were outstanding. As of August 23, 2004, 4,127,200 shares of our common stock are believed to be capable of being sold or transferred without registration under the Securities Act of 1933.
HOLDERS
As of August 23, 2004, there were approximately 625 shareholders of record.
DIVIDENDS
We have never declared or paid a cash dividend. There are no restrictions on the common stock or otherwise that limit the ability of us to pay cash dividends if declared by the Board of Directors.
The holders of common stock are entitled to receive dividends if and when declared by the Board of Directors, out of funds legally available therefor and to share pro-rata in any distribution to the shareholders. Generally, we are not able to pay dividends if after payment of the dividends, we would be unable to pay our liabilities as they become due or if the value of our assets, after payment of the liabilities, is less than the aggregate of our liabilities and stated capital of all classes.
We do not anticipate declaring or paying any cash dividends in the foreseeable future.
On April 2, 2004, we declared and paid a two for one stock split, effected as a stock dividend, to all of our shareholders.
EQUITY COMPENSATION PLANS
None of our securities were authorized for issuance pursuant to any equity compensation plan as of December 31, 2003.
ITEM 2. LEGAL PROCEEDINGS
Except as is described below, we have not been a party to and none of our property has been or is subject to any pending or threatened legal, governmental, administrative or judicial proceedings. We have never been subject to a bankruptcy or receivership proceeding.
In February 2004, PharmaStem commenced suit against CPI and certain of its competitors alleging infringement of PharmaStem patents. Management of CPI determined to settle, rather than to litigate, this matter. As a result, PharmaStem and CPI entered into a Patent License Agreement in March 2004.
Pursuant to the Patent License Agreement, CPI may, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem technology and processes covered by the patents for so long as the patents may remain in effect. CPI is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by CPI from the collection and storage of cord blood on and after January 1, 2004. Other than royalties, no amount is payable by CPI to PharmaStem. All litigation between the parties was dismissed and all prior claims were released.
In May 2004, we received a complaint filed in the Superior Court of the State of California by Kenneth D. Worth, purportedly by and for the People of the State of California, and naming as defendants a number of private cord blood banks, including us. The complaint alleges that the defendants have made fraudulent claims in connection with the marketing of their cord blood banking services and seeks restitution for those affected by such marketing, injunctive relief precluding the defendants from continuing the allegedly abusive and fraudulent marketing of their services, unspecified punitive damages and attorney's fees. We are not yet able to make a determination as to the likelihood of the plaintiff's claims being upheld, nor can we estimate the possible financial consequences should the plaintiff prevail. However, we believe this suit to be without merit and intend to vigorously defend ourselves in this action.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in accountants. There have been no disagreements with our accountants on accounting and financial disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Except as otherwise described below, during the last three years, we issued the following Company securities pursuant to Section 4(2) of the Securities Act of 1933 based upon the limited number of offerees, their relationship to the Company, their status as accredited investors, the amount of securities offered in each offering, the size of the respective offerings, and the manner of each offering: In each instance, the investor was provided with, or had access to, adequate information about the Company so as to be able to make an informed investment decision. Except as otherwise described below, the Company had a reasonable basis to believe that each investor was an "accredited investor," as such term is defined in Regulation D, and otherwise possessed the requisite sophistication in business matters.
In January 2003, three founders and employees of CPI acquired a total of 8,250 shares of common stock of CPI for an aggregate consideration of $82.50. Each of the certificates representing shares of common stock of CPI contained a legend restricting transferability under the Securities Act of 1933.
In January 2004, three persons acquired a total of 1,000 shares of common stock of CPI for services. The services had an aggregate value of $10,000. Each of the certificates representing shares of common stock of CPI contained a legend restricting transferability under the Securities Act of 1933.
In March 2004, one investor acquired a total of 1,145 shares of common stock of CPI for $185,000. Each of the certificates representing shares of common stock of CPI contained a legend restricting transferability under the Securities Act of 1933.
As of March 31, 2004, CBA acquired all of the shares of common stock of CPI from its shareholders in exchange for 10,395,000 shares of common stock of CBA pursuant to an Exchange Agreement dated March 31, 2004. Each of the certificates representing shares of common stock of CBA contained a legend restricting transferability under the Securities Act of 1933.
In April 2004, we declared and paid a two for one stock split effected as a stock dividend to all of the shareholders of CBA. This transaction did not constitute a "sale" within the meaning of the Securities Act of 1933.
In April 2004, two former employees of CPI acquired a total of 20,000 shares of common stock of CBA in exchange for the termination of certain agreements and the exchange of general releases, pursuant to the exemption from registration set forth in Rule 504 under Regulation D. Neither of these persons was an accredited investor. Each of the certificates representing shares of common stock of CBA contained a legend restricting transferability under the Securities Act of 1933.
On June 30 2004, eight investors acquired a total of 280,000 shares of common stock of CBA for $70,000. Each of the certificates representing shares of common stock of CBA contained a legend restricting transferability under the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws provide for the indemnification of directors, officers, employees and agents to the fullest extent permitted by the laws of the State of Florida. The Florida Business Corporation Act contains provisions entitling directors and officers of the Company to indemnification from judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees, as the result of an action or proceeding in which they may be involved by reason of being or having been a director or officer of the Company, provided said officers or directors acted in good faith.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
PART F/S. FINANCIAL STATEMENTS.
CBA Financial Statements:
Independent Auditor's Report
Balance Sheet as of December 31, 2003
Statements of Operations for the years ended December 31, 2003 and 2002 and for the period from October 12, 1999 (inception) to December 31, 2003
Statement of Changes in Stockholders' Equity for the years ended December 31, 2003 and 2002 and for the period from October 12, 1999 (inception) to December 31, 2003
Statements of Cash Flows for the years ended December 31, 2003 and 2002 and for the period from October 12, 1999 (inception) to December 31, 2003
Notes to Financial Statements
CPI Financial Statements:
Independent Auditor's Report
Balance Sheet as of December 31, 2003
Statement of Operations for the year ended December 31, 2003
Statement of Changes in Stockholders' Deficit
for the year ended December 31, 2003
Statement of Cash Flows for the year ended December 31, 2003
Notes to Financial Statements
CBA Financial Statements:
Balance Sheet (unaudited) as of June 30, 2004
Statements of Operations (unaudited)for the six month periods ended June 30, 2004 and June 30, 2003
Statements of Operations (unaudited)for the three month periods ended June 30, 2004 and June 30, 2003
Statements of Cash Flows (unaudited)for the six month periods ended June 30, 2004 and June 30, 2003
Notes to Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Cord Blood America, Inc.:
We have audited the accompanying balance sheet of Cord Blood America, Inc. (formerly known as D & A Lending, Inc.), a development stage company, (the "Company") as of December 31, 2003 and the related statements of operations, stockholder's equity, and cash flows for the years ended December 31, 2003 and 2002, and for the cumulative development stage from October 12, 1999 (inception) to December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cord Blood America, Inc. as of December 31, 2003, and the results of its operations and its cash flows for the years ended December 31, 2003 and 2002, and for the cumulative development stage from October 12, 1999 (inception) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As Discussed in Note 2 to the financial statements, the Company is dependent upon raising additional capital and/or completing a merger or purchase of another company to implement a business plan. The uncertainty of the ability to successfully implement a business plan raises substantial doubt about its ability to continue as a going concern. The financial statements do no include any adjustments that might result from the outcome of this uncertainty.
/s/ TEDDER, JAMES, WORDEN & ASSOCIATES, P.A. Orlando, Florida April 5, 2004 |
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 2003
Assets:
Total assets $ --
=======
Liabilities:
Total liabilities $ --
Stockholder's equity:
Common stock 1,400
Deficit accumulated during the development stage (1,400)
-------
Total stockholder's equity --
-------
Total liabilities and stockholders equity $ --
=======
|
See accompanying notes to the financial statements.
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED OCTOBER 12, 1999
DECEMBER 31, DECEMBER 31, (INCEPTION) TO
2003 2002 DECEMBER 31, 2003
------------ ------------ -----------------
Revenue $-- - --
Expenses:
General and administrative -- - 1,400
--- - ------
Net loss $-- - (1,400)
=== = ======
|
See accompanying notes to the financial statements.
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDER'S EQITY
For the years ended December 31, 2003 and 2002 and the period from October 12, 1999 (inception) to December 31, 2003
DEFICIT ACCUMULATED
COMMON COMMON DURING THE DEVELOPMENT
SHARES STOCK STAGE TOTAL
---------- ------ ---------------------- ------
Balance, October 12, 1999 (inception) -- $ -- -- --
Issuance of stock for services 24,000,000 1,400 -- 1,400
Net loss -- -- (1,400) (1,400)
---------- ------ ------ ------
Balance, December 31, 2000 24,000,000 1,400 (1,400) --
---------- ------ ------ ------
Shares issued (See Note 1) 127,200 -- -- --
Net loss -- -- -- --
---------- ------ ------ ------
Balance, December 31, 2001 24,127,200 1,400 (1,400) --
---------- ------ ------ ------
Net loss -- -- -- --
---------- ------ ------ ------
Balance, December 31, 2002 24,127,200 1,400 (1,400) --
---------- ------ ------ ------
Net loss -- -- -- --
---------- ------ ------ ------
Balance, December 31, 2003 24,127,200 $1,400 (1,400) --
========== ====== ====== ======
|
See accompanying notes to the financial statements.
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED OCTOBER 12, 1999
DECEMBER 31, DECEMBER 31, (INCEPTION) TO
2003 2002 DECEMBER 31, 2003
Cash flows from operating activities:
Net loss $-- - (1,400)
Adjustments to reconcile net loss to net cash
operating activities:
Stock issued for services -- - 1,400
--- - ------
Net cash provided by operating activities -- - --
--- - ------
Net change in cash -- - --
Cash at beginning of period -- - --
--- - ------
Cash at end of period $-- - --
|
See accompanying notes to the financial statements.
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
October 12, 1999 (Inception) to December 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Cord Blood America, Inc. (A Development Stage Company) (the "Company") has been in the development stage since its incorporation in Florida on October 12, 1999. The Company's former name was D & A Lending, Inc. The Company has not generated revenues from operations. The Company's headquarters are located in Miami, Florida.
The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. See Note 2 to the financial statements for a discussion of management's plans and intentions.
(b) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
(c) PREFERRED STOCK
The Company has 5,000,000 shares of preferred stock authorized. No preferred stock has been issued.
(d) COMMON STOCK
The Company has 50,000,000 shares of non-par common stock
authorized. In January 2000, the Company issued 12,000,000 shares
of its common stock (24,000,000 as adjusted for the subsequent two
for one stock split) for services. The services were valued at
$1,400. During 2001, the Company issued 63,600 shares of stock
(127,200 as adjusted for the subsequent two for one stock split)
in connection with a bankruptcy case. No value was assigned to the
63,600 shares of stock issued. As disclosed in Note 3 subsequent
to year end, the Company changed its' authorized shares to
100,000,000.
CORD BLOOD AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) 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 statements 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. Deferred tax assets resulting principally from operating losses have been fully reserved.
(f) USE OF 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 reported period. Actual results could differ from these estimates.
(2) MANAGEMENT PLANS AND INTENTIONS
Management of the Company is developing its business plan and anticipates a merger with or purchase of another company. However, as of December 31, 2003, the success of achieving the objectives discussed above, as well as the ultimate profitability of the Company's operations once the development stage has ended, cannot be determined at this time.
The accompanying financial statements have been prepared assuming that the Company will implement a successful business plan. The Company is dependent upon raising additional capital and/or completing a merger or purchase of another company to implement a business plan. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(3) SUBSEQUENT EVENTS
In March 2004, the board of directors of the Company amended their articles of incorporation to authorized 5,000,000 shares of $.0001 par value preferred stock and 100,000,000 shares of $.0001 par value common stock.
Effective March 31, 2004, the Company entered into an Agreement for the Exchanges of Common Stock (the "Agreement") with Cord Partners, Inc., ("CPI") where the Company is to issue 10,395,000 shares of common stock, (20,790,000 as adjusted for the subsequent two for one stock split) for all of the outstanding stock of CPI, a company in the business of collecting, processing and cryogenically storing umbilical cord blood. In accordance with the agreement, 9,950,000 shares (19,900,000 shares as adjusted for a subsequent two for one stock split) of the Company, were cancelled so that majority ownership is now with the shareholders of CPI and CPI is a wholly owned subsidiary of the Company.
In April 2004, the board of directors of the Company declared and paid a two for one stock split, effected as a stock dividend to it's shareholders. Amounts in the accompanying financial statements have been changed to reflect this stock split.
In April 2004, the Company entered into Employment agreements (collectively, the "Employment Agreements") with three executives to run the daily operations of the Company and sit on the board of directors. The Employment Agreements include terms ranging from one to five-year periods and include compensation in the form of salary, bonuses, and vehicle reimbursements.
In April 2004, the Company entered into five Stock Option Agreements (collectively, the "Option agreements") with the executives and members of the board of directors. The Option Agreements grant 1,750,000 shares of common stock at an exercise price of $.25 per share, which expire 10 years after the grant date. The options vest 25% per year over a period of four years.
In April 2004, the Company issued 20,000 shares of common stock to former employees of Cord Partners, Inc. in connection with the termination of employment agreements.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Cord Partners, Inc.
We have audited the accompanying balance sheet of Cord Partners, Inc. (the "Company") as of December 31, 2003, and the related statement of operations, capital deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cord Partners, Inc. as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company needs to obtain substantial additional funding to execute its business plan. This raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Orlando, Florida
March 22, 2004
CORD PARTNERS, INC.
BALANCE SHEET
December 31, 2003
ASSETS
Current assets:
Cash $ 10,199
Accounts receivable, net of allowance for
doubtful accounts of $1,910 10,055
--------
Total assets $ 20,254
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 36,121
Deferred revenue 19,534
Due to officer 5,000
--------
Total liabilities 60,655
Stockholders' deficit
Common stock, no par value, 100,000 shares authorized,
8,250 shares issued and outstanding 83
Additional paid-in capital 5,354
Deficit accumulated during the development stage (45,838)
--------
Total stockholders' deficit (40,401)
--------
Total liabilities and stockholders' deficit $ 20,254
========
|
See accompanying notes to the financial statements.
CORD PARTNERS, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
Revenue $ 281,175
Cost of services (198,770)
---------
Gross profit 82,405
Administrative and selling expenses 128,243
---------
Net loss $ (45,838)
=========
Basic net loss per share (5.70)
=========
Weighted average common shares outstanding 8,047
=========
|
See accompanying notes to the financial statements.
CORD PARTNERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the year ended December 31, 2003
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- -------
Shares issued at inception 8,250 $83 -- -- 83
Contributions -- -- 5,354 -- 5,354
Net loss -- -- -- (45,838) (45,838)
----- --- ----- ------- -------
Balances at December 31, 2003 8,250 $83 5,354 (45,838) (40,401)
===== === ===== ======= =======
|
See accompanying notes to the financial statements.
CORD PARTNERS, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 2003
Cash flows from operating activities:
Net loss $(45,838)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for uncollectible accounts 1,910
Changes in operating assets and liabilities
Accounts receivable (11,965)
Accounts payable 36,121
Deferred revenue 19,534
--------
Net cash used in operating activities (238)
Cash flows from financing activities:
Proceeds from issuance of common stock 83
Proceeds from loan from officer 5,000
Contributions 5,354
--------
Net cash provided by financing activities 10,437
--------
Net increase in cash 10,199
Cash, at beginning of year --
--------
Cash, at end of year 10,199
========
|
See accompanying notes to the financial statements.
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Cord Partners, Inc, (the "Company") was incorporated in the State of Florida on January 1, 2003. The Company is in the business of collecting, processing, and cryogenically storing umbilical cord blood. The Company's headquarters are located in Los Angeles, California.
The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. See Note 2 to the financial statements for a discussion of management's plans and intentions.
(b) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
(c) ACCOUNTS RECEIVABLE
Accounts receivable consist of the amounts due for the processing and storage of umbilical cord blood. The allowance for doubtful accounts is estimated based upon historical experience. The allowance is reviewed periodically and adjusted for accounts deemed uncollectible by management.
(d) DEFERRED REVENUE
Deferred revenue consists of payments for enrollment in the program and processing and storage of umbilical cord blood by customers whose samples have not been collected, as well as the pro-rata share of annual storage fees for customers whose samples were placed in storage during the year.
(e) COMMON STOCK
The Company has 100,000 shares of common stock authorized. At inception, the Company issued 8,250 shares of its common stock to the newly appointed officers. The stock was valued at $.01 per share.
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) REVENUE RECOGNITION
The Company provides a combination of products and services to customers. This combination arrangement is evaluated under Emerging Issues Task Force Issues ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables," ("EITF 00-21"). EITF 00-21 addresses certain aspects of accounting for arrangements under multiple revenue generating activities. The Company has elected early adoption of EITF 00-21.
The Company recognizes revenue from processing fees upon the completion of processing and storage fees ratably over the contractual storage period. Enrollment fees are deferred and recognized once the processing of the umbilical cord blood is complete.
(g) COST OF SALES
Cost of sales represents the expenses resulting from the shipment, processing, testing, and storage of the umbilical cord blood.
(h) ADVERTISING
All costs associated with advertising and promoting the Company are expensed in the year incurred. Advertising expense totaled approximately $69,000 for the year ended December 31, 2003.
(i) 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. Deferred tax assets resulting principally from operating losses have been fully reserved and expired through 2023.
(j) NET LOSS PER SHARE
Basic and diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the reporting period.
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) STOCK BASED COMPENSATION
The Company intends to account for stock-based compensation awards to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation expense will be recorded for options issued to employees in fixed amounts and with fixed exercise prices at least equal to the fair value of the Company's common stock at the date of the grant. The Company provides the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. Stock-based awards to non-employees are accounted for under the provisions of SFAS No. 123. As of December 31, 2003, there were no stock-based compensation awards to employees or non-employees.
(l) CONCENTRATIONS OF RISK
Relationships and agreements which potentially expose the Company to concentrations of credit risk consist of the Company's use of one source for the processing and storage of all umbilical cord blood, one source for its collection kits, and one source for the development and maintenance of a website. The Company believes alternative sources are available for each of these concentrations.
(m) USE OF 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(2) MANAGEMENT PLANS AND INTENTIONS
Management of the Company continues to execute its business plan while anticipating a merger with another company. However, as of December 31, 2003, the success of achieving the objectives discussed above, as well as the ultimate profitability of the Company's operations cannot be determined.
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(2) MANAGEMENT PLANS AND INTENTIONS, CONTINUED
The accompanying financial statements have been prepared assuming the Company will implement a successful business plan. The Company is dependant upon raising additional capital and/or completing a merger with another company to continue in existence. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Subsequent to year-end, the company entered into a share exchange agreement with Cord Blood America, Inc. ("CBA"). The Company will be a wholly owned subsidiary of CBA. (See Note 7)
(3) COMMITMENTS AND CONTINGENCIES
The Company is operating under an agreement with a not-for-profit company to test and store all umbilical cord blood samples collected. The agreement has a 10-year term, beginning January 1, 2003, and can be terminated by either party giving a 90-day notice. If the agreement is not terminated within 120-days of the end of the initial term, the agreement will renew on an annual basis for successive one-year terms.
(4) SALES CONTRACTS
The Company has sales contracts totaling $27,375 as of December 31, 2003 relating to customers who have initiated a sale with the Company for which the Company has performed no services. In accordance with the Company's revenue recognition policy, these sales contracts, for which no payment has been received nor services performed, are excluded from the accompanying financial statements. A receivable and deferred revenue will be recorded when the collection kit is shipped and/or payment is received from the customer. These sales contracts will be recognized as income and deferred revenue as the umbilical cord blood is processed and stored.
(5) RELATED PARTY TRANSACTIONS
In January 2003, the Company entered into a Web Development and Maintenance Agreement (the "Web Agreement") for the development and maintenance of a website with a company who's president is a member of the board of directors of Cord Partners, Inc. The Web Agreement stipulates the Company does not own the website; however, the Company maintains a license to utilize the site as long as the Web Agreement is in effect. The Web Agreement calls for commissions to be paid on sales and requests for information resulting in a sale generated through the website. The Web Agreement has an initial 3-year term and renews automatically for additional 3-year periods unless either party provides written notice at least 30 days prior to the end of the term. During 2003, the Company paid approximately $17,500 relating to the Web Agreement. (See Note 7)
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(5) RELATED PARTY TRANSACTIONS, CONTINUED
In December 2003, the Company received $5,000 as a short term, non-interest bearing advance from an officer of the Company. Subsequent to year-end, this advance was repaid.
During 2003, an officer of the company contributed $5,354 to the Company to provide working capital.
(6) SEGMENT REPORTING
SFAS 131 "Disclosures about Segments of an Enterprise and Related Information," requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company has one operating segment. All of its long-lived assets are located in, and substantially all of its revenues are generated from within, the United States of America. The following table represents net revenues generated from our one operating segment for the year ended December 31, 2003:
Enrollment fees $ 87,630
Storage and other fees 11,490
Processing fees 182,055
--------
Total revenue $281,175
========
(7) SUBSEQUENT EVENTS
|
In January 2004, the Company issued 1,000 shares of common stock for professional services. The services were valued at $10,000.
Effective February 2004, the Company entered into a month-to-month rental agreement for office space and certain office equipment. The rental agreement calls for payments of approximately $2,900 per month.
In February 2004, the Company entered into a Receivables Agreement whereby, at the customer's discretion, the products and services purchased can be financed through an unrelated finance company. The Company paid a $500 origination fee in conjunction with executing the Receivables Agreement.
CORD PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(7) SUBSEQUENT EVENTS, CONTINUED
On March 31, 2004, the Company sold 1,145 shares of common stock for $185,000. The terms call for payments to be made over a three-month period. All amounts have been paid to the Company as of March 15, 2004.
In March 2004, the Company entered into a Patent License Agreement with the holder of patents utilized in connection with the collection, processing, and storage of umbilical cord blood to settle litigation against the Company for alleged patent infringements. The Patent License Agreement calls for royalties of 15% with a minimum of $225 per specimen collected, on all revenues generated by the Company for collection and storage of cord blood after January 1, 2004 until the patents expire in the year 2010.
In March 2004, the Company cancelled the existing Web Agreement and signed a new Web Design and Maintenance Agreement. The new agreement replaces the commission payments with a flat monthly fee of $5,000 per month from March 2004 through May 2004 and $10,000 per month from June 2004 until termination of the Web Agreement. The new Web Agreement also contains the potential for the issuance of stock options upon successful completion of a share exchange. Options for 150,000 shares of common stock are to be issued at an exercise price of $.25 per share followed by options for another 150,000 shares to be issued one year later at an exercise price of $1 per share. The options would be issued from the acquiring company. The new Web Agreement expires in March 2005.
Effective March 31, 2004, the Company entered into an Agreement for the
Exchange of Common Stock (the "Agreement") with CBA where the Company
will exchange all of its outstanding shares of stock for 10,395,000
(20,790,000 shares as adjusted for a subsequent two for one stock split)
of CBA common stock. As a result of the Agreement, the shareholders of
Cord Partners, Inc. will own approximately 83% of the outstanding shares
of CBA and Cord Partners, Inc. has been deemed the accounting acquirer (a
reverse acquisition).
CORD BLOOD AMERICA, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 2004
ASSETS
Current assets:
Cash $ 12,379
Accounts receivable, net of allowance for
doubtful accounts of $3,105 23,794
Other assets 6,261
---------
Total assets $ 42,434
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 68,719
Accrued expenses 86,091
Deferred revenue 79,980
Loan payable 20,878
Due to officer 7,117
---------
Total liabilities 262,785
Stockholders' deficit
Preferred stock, $.0001 par value, 5,000,000 shares authorized,
no shares issued and outstanding --
Common stock, $.0001 par value, 100,000,000 shares authorized,
25,317,200 shares issued and outstanding 2,532
Additional paid-in capital 272,905
Accumulated deficit (495,788)
---------
Total stockholders' deficit (220,351)
---------
Total liabilities and stockholders' deficit $ 42,434
=========
|
See accompanying notes to the condensed consolidated financial statements.
CORD BLOOD AMERICA, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Revenue $ 250,256 95,474
Cost of services (191,675) (52,225)
------------ -------
Gross profit 58,581 43,249
Administrative and selling expenses 508,531 51,944
------------ -------
Net loss $ (449,950) (8,695)
============ =======
Basic and diluted net loss per share $ (0.02) (0.54)
============ =======
Weighted average common shares outstanding 24,622,530 16,050
============ =======
|
See accompanying notes to the condensed consolidated financial statements.
CORD BLOOD AMERICA, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, 2004 JUNE 30, 2003
-------------- -------------
Revenue $ 148,264 66,383
Cost of services (118,887) (35,733)
------------ -------
Gross profit 29,377 30,650
Administrative and selling expenses 307,383 34,614
------------ -------
Net loss $ (278,006) (3,964)
============ =======
Basic and diluted net loss per share $ (0.01) (0.25)
============ =======
Weighted average common shares outstanding 25,108,079 16,050
============ =======
|
See accompanying notes to the condensed consolidated financial statements.
CORD BLOOD AMERICA, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Cash flows from operating activities:
Net loss $(449,950) (8,695)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for uncollectible accounts 1,195 1,000
Stock issued for services 15,000 --
Changes in operating assets and liabilities
Accounts receivable (14,934) (20,860)
Other assets (6,261) --
Accounts payable 32,598 19,354
Accrued expenses 86,091 --
Deferred revenue 60,446 24,963
--------- -------
Net cash (used in) provided by operating activities (275,815) 15,762
Cash flows from financing activities:
Proceeds from issuance of common stock 255,000 83
Proceeds from loan from officer 7,117 --
Payments on loan from officer (5,000) --
Proceeds from loan payable 21,000 --
Payments on loan payable (122) --
Contributions -- 5,354
--------- -------
Net cash provided by financing activities 277,995 5,437
--------- -------
Net increase in cash 2,180 21,199
Cash, at beginning of period 10,199 --
--------- -------
Cash, at end of period $ 12,379 21,199
========= =======
|
See accompanying notes to the condensed consolidated financial statements.
CORD BLOOD AMERICA, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2004
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Cord Blood America, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. Certain prior period amounts have been reclassified to conform to the current period presentation. The information included in these unaudited financial statements should be read in conjunction with Management's Discussion and Analysis and Plan of Operations contained in this report and the audited financial statements and accompanying notes included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
The Company provides a combination of products and services to customers. This combination arrangement is evaluated under Emerging Issues Task Force Issues ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables," ("EITF 00-21"). EITF 00-21 addresses certain aspects of accounting for arrangements under multiple revenue generating activities. The Company has elected early adoption of EITF 00-21.
The Company recognizes revenue from processing fees upon the completion of processing and storage fees ratably over the contractual storage period. Enrollment fees are deferred and recognized once the processing of the umbilical cord blood is complete.
(b) BASIS OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of Cord Blood America, Inc., and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(c) STOCK COMPENSATION PLAN
The Company accounts for its stock option plans using the intrinsic value based method of accounting, under which no compensation expense has been recognized for stock option awards granted at fair market value. For purposes of pro forma disclosures under Statement of Financial Accounting Standards No. (SFAS) 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation--Transition and Disclosure, the estimated fair value of the stock options is amortized to compensation expense over the options' vesting period. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period:
SIX-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
2004 2003
---------------- ----------------
Net loss applicable to common stock, as reported $(449,950) $(8,695)
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects -- --
Deduct: Total stock-based employee compensation
expense determined under the fair value method
for all awards, net of related tax effects (10,144) --
--------- ------
Pro forma net loss $(460,094) $(8,695)
========= ======
Basic loss per common share as reported (0.02) (0.54)
Basic loss per common share pro forma (0.02) (0.54)
|
THREE-MONTH PERIOD THREE-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
2004 2003
------------------ ------------------
Net loss applicable to common stock, as reported $(278,006) (3,964)
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects -- --
Deduct: Total stock-based employee compensation
expense determined under the fair value method
for all awards, net of related tax effects (10,144) --
--------- ------
Pro forma net loss $(288,150) (3,964)
========= ======
Basic loss per common share as reported (0.01) (0.25)
Basic loss per common share pro forma (0.01) (0.25)
|
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(c) STOCK COMPENSATION PLAN, CONTINUED
The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model based on the following assumptions:
Risk free interest rate 4.69% Expected life 10 years Expected volatility 0% Dividend yield 0% |
NOTE 3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the realization of assets and satisfaction of liabilities on the normal course of operations. The Company is dependent upon successful implementation of its business plan, raising additional capital and/or obtaining financing to continue its operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management's plan to raise additional funds through private placements, mergers, or acquisitions. There can be no assurances that the Company will be successful in achieving the above plans, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue as a going concern.
NOTE 4. SEGMENT REPORTING
SFAS 131 "Disclosures about Segments of an Enterprise and Related Information," requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company has one operating segment with all of its long-lived assets located in, and substantially all of its revenues generated from within the United States of America. The following table represents net revenues generated from our one operating segment for the six and three-month periods ended June 30:
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Six months ended:
Enrollment fees $ 56,470 34,365
Storage and other fees 22,838 2,879
Processing fees 170,948 58,230
-------- ------
Total revenue $250,256 95,474
======== ======
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Three months ended:
Enrollment fees $ 37,135 24,577
Storage and other fees 13,471 4,949
Processing fees 97,658 36,857
-------- ------
Total revenue $148,264 66,383
======== ======
|
NOTE 5. STOCK OPTIONS
In April 2004, the Company entered into five Stock Option Agreements (collectively, the "Option Agreements") with the executives and members of the board of directors. The Option Agreements grant 1,750,000 shares of common stock at an exercise price of $.25 per share, which expire 10 years after the grant date. The options vest 25% per year over a period of four years. As of June 30, 2004, no stock options were exercisable.
NOTE 6. COMMON STOCK
In January 2004, the Company issued 1,000 shares of common stock of CPI for professional services. The services were valued at $10,000.
In March 2004, the board of directors of the Company amended their articles of incorporation to authorize 5,000,000 shares of $.0001 par value preferred stock and 100,000,000 shares of $.0001 par value common stock.
On March 31, 2004, the Company sold 1,145 shares of common stock for $185,000.
Effective March 31, 2004, the Company entered into an Agreement for the Exchange of Common Stock (the "Agreement") with Cord Partners, Inc. ("CPI") where the Company issued 20,790,000 shares, as adjusted for a two for one stock split of the Company's common stock, for all of the outstanding stock of CPI. As a result of the Agreement, the shareholders of CPI own approximately 83% of the outstanding shares of the Company, and CPI has been deemed the accounting acquirer (a reverse acquisition). Accordingly, the historical financial information presented is that of CPI. The results from operations of the Company have been included with the results of operations of CPI in the accompanying condensed consolidated financial statements from the date of acquisition. As a result of this reverse acquisition, there were no assets acquired or liabilities assumed.
In April 2004, the board of directors of the Company declared and paid a two for one stock split, affected as a stock dividend to its shareholders. Amounts in the accompanying financial statements have been changed to reflect this stock split.
In April 2004, the Company issued 20,000 shares of common stock to former employees of CPI in connection with the termination of employment agreements. The stock was valued at $5,000, was charged to income in the three month period ended June 30, 2004 and is included in administrative and selling expenses.
June 2004, the Company sold 280,000 shares of common stock for $70,000.
NOTE 7. PREFERRED STOCK
The Company has 5,000,000 shares of $.0001 par value preferred stock authorized. No preferred stock has been issued.
NOTE 8. NET LOSS PER SHARE
Net loss per common share was calculated under SFAS No. 128, "Earnings per Share." Basic net loss per share is computed by dividing the net loss by the weighted average outstanding shares of 24,622,530 and 16,050 for the six-months ended June 30, 2004 and 2003, respectively and 25,108,079 and 16,050 for the three-months ended June 30, 2004 and 2003 respectively.
The Company has granted 1,750,000 and -0- outstanding options to acquire common stock at June 30, 2004 and 2003, respectively, which are not included in the computation of net loss per common share because the effects of inclusion would be anti-dilutive.
NOTE 9. COMMITMENTS AND CONTINGENCIES
In March 2004, the Company entered into a Patent License Agreement with the holder of patents utilized in connection with the collection, processing, and storage of umbilical cord blood to settle litigation against the Company for alleged patent infringements. The Patent License Agreement calls for royalties of 15% with a minimum of $225 per specimen collected, on all revenues generated by the Company for collection and storage of cord blood after January 1, 2004, until the patents expire.
In May 2004, the Company entered into a loan payable agreement (the "Agreement") with a finance company. In accordance with the terms of the agreement, the Company received $21,000. The loan has a fixed interest amount of approximately $7,400. The loan will be repaid at a rate of 17% of certain future credit card receipts until the total principal and interest amount of approximately $28,400 has been repaid. As of June 30, 2004, the Company owes approximately $20,900, which is included in the accompanying financial statements as loan payables. The advance has been guaranteed by an officer and shareholder of the Company.
The Company is party to a legal matter arising in the ordinary course of its business. While the results of these matters cannot be predicted with certainty, the Company believes that the outcome of such litigation will not have a materially adverse effect on the Company's financial condition.
NOTE 10. RELATED PARTY TRANSACTION
In March 2004, the Company cancelled its existing Web Agreement and signed a new Web Design and Maintenance Agreement. The new agreement provides for commission payments of a flat monthly fee of $5,000 per month from March 2004 through May 2004 and $10,000 per month from June 2004 until termination of the Web Agreement. The new Web Agreement provided for the issuance of 150,000 stock options upon successful completion of the share exchange at an exercise price of $.25 per share. The new Web Agreement also calls for the issuance of another 150,000 options one year after the share exchange at an exercise price of $1 per share. The new Web Agreement expires in March 2005.
NOTE 11. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2004
Royalties $40,253
Payroll and related payroll taxes 25,664
Other 20,174
-------
$86,091
=======
61
|
NOTE 12 SALES CONTRACTS |
The Company has sales contracts totaling $63,545 and $7,225 as of June 30, 2004 and 2003, respectively relating to customers who have initiated a sale with the Company for which the Company has performed no services. In accordance with the Company's revenue recognition policy, these sales contracts, for which no payment has been received nor services performed, are excluded from the accompanying financial statements. A receivable and deferred revenue will be recorded when the collection kit is shipped and/or payment is received from the customer. These sales contracts will be recognized as income and deferred revenue as the umbilical cord blood is processed and stored.
NOTE 13 SUBSEQUENT EVENT
In August 2004, the Company issued a promissory note (the "Promissory Note") for $500,000 bearing interest at 8% per annum. The Promissory Note calls for monthly payments of interest and principal commencing in February 2005. The payments are calculated as an amount equal to 5% of the Company's consolidated revenues determined in accordance with generally accepted accounting principles for the immediately preceding calendar month. The entire principal of the Promissory Note together with any and all unpaid interest accrued thereon, shall be finally due and payable on August 15, 2005. The principal amount of this Promissory Note and any interest accrued thereon may be prepaid in whole or in part at any time prior to maturity without premium or penalty of any kind.
PART III
INDEX TO EXHIBITS
2.0 Exchange Agreement dated as of March 31, 2004 by and between
Cord Blood America, Inc. and certain shareholders of Cord
Partners, Inc.*
3.0 Amended and Restated Articles of Incorporation of Cord Blood
America, Inc.*
3.1 Amended and Restated Bylaws of Cord Blood America, Inc.*
4.0 Form of Common Stock Share Certificate of Cord Blood America,
Inc.*
10.0 Patent License Agreement dated as of January 1, 2004 between
PharmaStem Therapeutics, Inc. and Cord Partners, Inc.
10.1 Service Agreement dated as of February 15, 2004 by and between
Bergen Community Regional Blood Center and Cord Partners, Inc.
10.2 Web Development and Maintenance Agreement dated March 18, 2004
by and between Gecko Media, Inc. and Cord Partners, Inc.*
10.3 Employment Agreement dated April 29, 2004 by and between Cord
Blood America, Inc. and Matthew L. Schissler*
10.4 Employment Agreement dated April 29, 2004 by and between Cord
Blood America, Inc. and Stephanie A. Schissler*
10.5 Stock Option Agreement dated April 29, 2004 by and between
Cord Blood America, Inc. and Matthew L. Schissler*
10.6 Stock Option Agreement dated April 29, 2004 by and between
Cord Blood America, Inc. and Stephanie A. Schissler*
10.7 Stock Option Agreement dated April 29, 2004 by and between
Cord Blood America, Inc. and Joseph R. Vicente*
10.8 Stock Option Agreement dated April 29, 2004 by and between
Cord Blood America, Inc. and Stephen Weir*
10.9 Stock Option Agreement dated April 29, 2004 by and between
Cord Blood America, Inc. and Gecko Media, Inc.*
10.10 License Agreement by and between Cord Partners, Inc. and
Premier Office Centers, LLC
63
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10.11 Purchase and Sale of Future Receivables Agreement between
Advanceme, Inc. and Cord Partners, Inc.
10.12 Promissory Note dated August 12, 2004 made by Cord Blood
America, Inc. to the order of Thomas R. Walkey
21.0 Subsidiaries of the Registrant*
----------
|
* Filed as an exhibit to the Registration Statement on Form 10-SB filed on May 6, 2004.
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Cord Blood America, Inc.
Date: August 23, 2004 By: /s/ Matthew L. Schissler
----------------------------------
Matthew L. Schissler, Chairman and
Chief Executive Officer
|
EXHIBIT 10.0
PATENT LICENSE AGREEMENT
This is a Patent License Agreement (the "Agreement"), entered into as of January 1, 2004, between PharmaStem Therapeutics, Inc., a Delaware corporation having an address of 700 Building, 435 Devon Park Drive, Wayne, PA 19087-1990 ("PharmaStem" or "Licensor"), and Cord Partners, Inc., ("Cord Partners" or "Licensee"), a Florida corporation having an address of 10940 Wilshire Boulevard, 6th Floor, Los Angeles, CA 90024.
Background. PharmaStem owns patents which relate to the storage, expansion, and use of human stem cells. Cord Partners is in the business of storing, expanding, and using hematopoietic stem cells and desires a license under PharmaStem's patent portfolio. The parties hereto are entering into this Agreement for the purpose of setting forth the terms and conditions of the license.
NOW, THEREFORE, in consideration of the promises and covenants contained herein, the parties agree as follows:
TERMS AND CONDITIONS
1. Definitions. The terms defined below shall have the meanings defined herein, when used in capital letters:
a. "Collection" or "Collected" means accumulation of or accumulated Cord Blood in a container.
b. "Cord Blood" means blood or any blood components (including without limitation stem cells) collected from a human umbilical cord and/or placenta.
c. "Cryopreservative" means an agent capable of preserving at very low temperatures.
d. "Cryopreserve" means to preserve a material, such as Cord Blood or Stem Cells, by freezing.
e. "Cryopreserved Blood" means (i) frozen Cord Blood, (ii) frozen and thawed Cord Blood or (iii) any other composition which would, but for this Agreement, infringe one or more claims of the Licensed Patents, in all three instances with or without a Cryopreservative.
f. "Effective Date" means the date noted in the first line of this Agreement.
g. "Expanded Stem Cells" means Stem Cells, expanded from Cryopreserved Blood, or Cryopreserved after expansion.
h. "Lawsuit" means PharmaStem Therapeutics, Inc. v. ViaCell, Inc. et al., United States District Court for the District of Delaware, Civ. No. 02-148 GMS.
i. "Licensed Patents" means U.S. Patents Nos. 5,004,681, 5,192,553, 6,461,645, 6,569,427 and 6,605,275 and all patents that are related to any or all of those patents through priority or otherwise, directly or indirectly, including but not limited to, continuations, continuations in part, divisions, reissues and reexaminations thereof, and shall further include any other patents owned or licensable by PharmaStem, with an effective filing date prior to the Effective Date, that relate to pharmaceutical compositions of human hematopoietic stem cells derived from umbilical cord or placental blood and the collection, storage or therapeutic use of the same.
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
|
j. "Licensed Process" means any process for the Collection, storage or use of Cord Blood that would, but for this Agreement, infringe one or more claims of Licensed Patents.
k. "Modified Stem Cells" means Stem Cells, modified from Cryopreserved Blood, or Cryopreserved after modification.
l. "Patent Term" means the period ending on the expiration date of the last-to-expire of the Licensed Patents.
m. "Revenues" means gross revenues paid to Licensee with respect to the (i) creation, use or storage of any composition or use of any process that would, but for this Agreement, infringe one or more claims of the Licensed Patents, (ii) Collection, storage or and/or use of Specimens, or (iii) creation, storage or use of Expanded Stem Cells or Modified Stem Cells.
n. "Specimen" means a discrete amount of Cryopreserved Blood Collected from a human.
o. "Stem Cells" means stem cells derived from Cord Blood.
p. "Storage Revenues" means Revenues based on the storage of Specimens.
q. "Territory" means the United States of America, its territories, possessions, and overseas military bases.
2. Release and Dismissal of PharmaStem Therapeutics, Inc. v. Alpha Cord, Inc. et al., United States District Court for the Northern District of California, Case No. 04-00564-JSW.
a. In consideration of the mutual covenants, conditions and agreements contained herein, and subject to the other provisions of this Agreement, PharmaStem, on behalf of itself, its assigns, and successors, hereby fully and forever releases, discharges, and covenants not to sue or otherwise institute or prosecute any legal, administrative, or other proceeding against Cord Partners and its representatives, agents, servants, employees, officers, directors and shareholders, with respect to any and all liabilities and claims asserted by PharmaStem in the Lawsuit.
b. In consideration of the mutual covenants, conditions and agreements contained herein, and subject to the other provisions of this Agreement, Cord Partners on behalf of itself, its assigns, and successors, hereby fully and forever releases, discharges, and covenants not to sue or otherwise institute or prosecute any legal, administrative, or other proceeding against PharmaStem and its representatives, agents, servants, employees, officers, directors and shareholders with respect to any and all liabilities and counterclaims asserted by Cord Partners in the Lawsuit.
2
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
|
c. Upon execution of this Agreement, the parties will file with the Court a stipulation to dismiss all claims and counterclaims between the parties in the Lawsuit, with prejudice, according to the terms of this Agreement. Each party agrees to bear responsibility for all attorneys' fees, expenses and costs that it has accrued in relation to the lawsuit. This Agreement will be submitted to the Court, as an exhibit to the stipulated dismissal, subject to a motion to seal the Agreement under the local rules of the Court.
3. License Grant to Licensee.
Licensor hereby grants to Licensee a non-exclusive, non-transferable, royalty-bearing license under the Licensed Patents in the Territory to:
a. collect, make, have made, store, process, sell and import Cryopreserved Blood, but not to make, have made, Cryopreserve, store, process, use, sell, or import Expanded Stem Cells or Modified Stem Cells;
b. make, have made, Cryopreserve, store, process, use, sell, or import Expanded Stem Cells or Modified Stem Cells; and
c. in all other respects, perform Licensed Processes.
4. Limitations on License Grant.
a. Licensee shall have no rights under this Agreement to sublicense Licensed Patents, either directly or indirectly.
b. This Agreement does not enable Licensee to perform for entities or subcontract to entities that have not entered into separate license agreements with PharmaStem. However, it enables Licensee to subcontract services for Collection or storage of Cryopreserved Blood or creation or storage of Expanded Stem Cells or Modified Stem Cells for a limited time only, provided that the subcontractor enters into a separate license agreement with PharmaStem within ninety (90) days from the effective date of the subcontracting agreement between Licensee and its subcontractor.
5. License Fees. In consideration of the licenses granted to Licensee hereunder, Licensee agrees to make the following payments:
a. Standard Royalties for the License of Subparagraph 3(a). In consideration of the license of subparagraph 3(a), Licensee shall pay PharmaStem non-refundable royalty fees as follows:
i. Specimen Collection Fee. Fifteen percent (15%) of all
Revenues generated at or around the time of
Collection, with a minimum cash fee of Two Hundred
Twenty Five Dollars ($225) for each Specimen
Collected during the Patent Term.
3
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
|
ii. Annual Specimen Storage Fee. Fifteen percent (15%) of all Revenues generated after the Collection, with a minimum cash fee of Twenty Five Dollars ($25) for each Specimen stored per year during the Patent Term.
b. Standard Royalties for the Licenses of Subparagraphs 3(b) and
3(c). In consideration of the licenses of subparagraphs 3(b)
and 3(c), Licensee shall pay to PharmaStem non-refundable
royalty fees as follows:
i. Expanded or Modified Stem Cells. Fifteen percent (15%) of Revenues generated during the Patent Term from any product created or service performed involving Expanded Stem Cells or Modified Stem Cells; or
ii. Alternative Fees. Fifteen percent (15%) of Revenues generated from the performance of Licensed Processes not otherwise subject to royalty under subparagraphs 5(b)(i) or (ii) or 5(c)(i).
6. Payments.
All royalty fees payable under paragraph 5(a)(i) shall accrue immediately upon the performance of the licensed activity giving rise to the royalty obligation while all other royalty obligations shall accrue upon receipt of revenue. All accrued royalties for the calendar quarter shall be paid by Licensee to PharmaStem in U.S. Dollars within thirty (30) days after the end of each calendar quarter.
7. Reports.
a. Each payment under paragraph 6 shall be accompanied by a written report, in the form of Exhibit A, certified by Licensee to be complete and accurate, setting forth all information reasonably necessary to calculate payments due hereunder, including whether Licensee has complied with the most current procedures established under paragraph 7(b). If no payment is due in any calendar quarter as a result of the lack of any activity giving rise to a royalty obligation, Licensee shall provide a report no later than thirty (30) days after the end of each calendar quarter.
b. Licensee shall provide PharmaStem with a copy of its procedures established for the collection of data regarding royalty fees payable hereunder and the computation and payment of such royalty fees, (which procedures shall be in form and substance satisfactory to PharmaStem) and shall review and update those procedures, if appropriate, at least biannually, and provide PharmaStem with a copy of those updated procedures.
8. Audits. Licensee shall keep books and records adequate to determine
accurately the payments due under this Agreement. The books and records
must be retained for at least seven (7) years after the delivery of the
respective royalty reports to which they relate. PharmaStem shall have
the right, no more than once during any calendar year, to have an
independent certified public accountant inspect the relevant records of
Licensee and confer with designated employees of Licensee on thirty
(30) business days notice and during regular business hours to verify
the reports and payments required to be made hereunder.
4
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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The auditor is authorized to provide PharmaStem with a written report, supported by copies of the applicable Licensee documentation, showing the results of the audit. Should an underpayment in excess of ten percent (10%) be discovered, Licensee shall pay the cost of the audit. In any event, Licensee shall promptly pay any underpayment together with interest at the annual rate of twelve percent (12%).
9. Insurance. Licensee shall, at all times maintain product liability insurance in adequate amounts, but in any case not less than Three Million Dollars ($3,000,000) per occurrence, and commercial general liability insurance, errors and omissions insurance and any other insurance policies that are customary for the health care industry, each in adequate amounts but in any case not less than One Million Dollars ($1,000,000) per occurrence (hereinafter collectively "Insurance") with a carrier reasonably acceptable to PharmaStem, naming PharmaStem as an additional insured, and providing that such Insurance may not be cancelled without thirty (30) days prior notice to PharmaStem. Cord Partners shall provide PharmaStem with a certificate of the carrier, evidencing that insurance, no later than the Effective Date.
10. Assignment, Successors and Assigns.
a. This Agreement and the licenses granted herein are personal to
Licensee and may not be assigned by Licensee, in whole or in
part, without the prior written consent of PharmaStem. An
Initial Public Offering (IPO) of any class or series of
Licensee stock is not an assignment for purposes of this
Section 10. A transfer of the rights and obligations of
Licensee under this Agreement in connection with any merger or
consolidation of Licensee, a change of control or sale of all
or substantially all of the assets of Licensee, or the assets
used in connection with this Agreement, shall be deemed an
assignment for purposes of this paragraph 9(a) and shall
require the prior written consent of PharmaStem. Any
assignment of this Agreement in violation of this paragraph
shall be void ab initio.
b. In addition to and not in limitation of paragraph 10(a), if Licensee directly or indirectly, merges with or is acquired by a third party which, at the time of the merger or acquisition, is an infringer of one or more Licensed Patents, this Agreement shall terminate unless the third party negotiates a license agreement with PharmaStem within sixty (60) days after the merger or acquisition becomes effective.
c. If Licensee, directly or indirectly, mergers with or is acquired by a third party which, at the time of the merger or acquisition, has a license under the Licensed Patents, the terms of the license agreement with the higher royalty fees shall apply to the merged or acquired entity and the other license agreement shall terminate upon completion of the merger or acquisition.
d. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
11. Term. The term of this Agreement shall commence on the Effective Date and terminate, as to the license under the Licensed Patents and the future obligation to pay royalties, at the end of the Patent Term, unless this Agreement is sooner terminated in accordance with its terms.
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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12. Termination.
a. For Cause. This Agreement may be canceled by either party, upon thirty (30) days prior written notice, if the other party is in breach of any of its material obligations hereunder, including without limitation the payment of any royalty fee due and owing, and the breach is not remedied within such thirty (30) day notice period.
b. For Challenge. PharmaStem may terminate the Agreement, on thirty (30) days notice, if Licensee challenges the validity or enforceability of any of the Licensed Patents in any judicial or administrative proceeding.
c. Adjudication of Invalidity. This Agreement may be terminated by Cord Partners upon the entry of a judgment in the Lawsuit from which no appeal is taken within the statutory time period, that all of the Licensed Patents are invalid, not infringed or unenforceable.
d. Failure to Obtain Insurance. PharmaStem may terminate this Agreement immediately in the event that Licensee fails to obtain or maintain continuously in effect the Insurance, as provided in paragraph 9.
13. Effect of Termination. Termination or expiration of this Agreement shall have no effect on PharmaStem's right to receive reports and royalty fees, conduct audits and enforce its rights related to activities prior to the date on which termination or expiration is effective. All of Licensee's rights and privileges to use the Licensed Patents shall cease upon the expiration of this Agreement or termination by either party.
14. Notices. All notices or other communications required or permitted under this Agreement shall be in writing and shall be delivered by personal delivery, registered mail return receipt requested, a "Next Day Air" delivery service or by wire communications (i.e., telex, fax, etc.), at the address indicated in this Agreement or as otherwise duly notified.
15. Dispute Resolution.
a. Negotiation of Disputes. In the event of any dispute arising
under this Agreement, senior executives of the parties with
decision making authority shall meet in Philadelphia, PA as
soon as reasonably possible (but no later than sixty (60) days
after notice) and shall enter into good faith negotiations
aimed at resolving the dispute. If they are unable to resolve
the dispute in a mutually satisfactory manner within an
additional sixty (60) days, the matter may be submitted to
mediation/arbitration as provided for in paragraphs 15(c) and
(d) ; provided, however, that if Licensee challenges the
validity of any of the Licensed Patents in connection with any
dispute arising hereunder or otherwise, PharmaStem shall have
the right to terminate this Agreement and pursue litigation of
all issues relating to the Licensed Patents and this
Agreement. For purposes of this Agreement, Licensee's bringing
prior art to the attention of PharmaStem without additional
efforts directed toward obtaining a finding that any claim of
the Licensed Patents is invalid shall not be deemed a
challenge to the validity of the Licensed Patents.
b. Mediation of Disputes. At the mutual option and consent of the parties, the parties may agree to submit any unresolved dispute to a sole mediator selected by the parties as soon as reasonably possible (but no later than sixty (60) days after mutual consent). If not thus resolved, the parties shall
6
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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proceed as specified in paragraph 15(c), unless litigation is pursued by PharmaStem pursuant to paragraph 15(a).
c. Arbitration of Disputes. Subject to paragraph 15(a), any unresolved disputes arising under or related to this Agreement, including without limitation, any dispute as to the validity, enforceability or applicability of any of the Licensed Patents, shall be submitted to an arbitration proceeding in Philadelphia, PA. The proceeding shall be conducted under the then prevailing rules for commercial arbitration (or, if the matter involves issues of patent validity, infringement or enforceability, the patent arbitration rules) of the American Arbitration Association ("AAA"), by a single arbitrator, reasonably acceptable to both of the parties, who must be an attorney with substantial business and licensing experience in the field of biological sciences and, if the matter includes issues of patent law, must be a patent attorney with at least fifteen (15) years of legal experience including substantial patent litigation experience. If the parties are unable to agree on an arbitrator, an arbitrator with those qualifications shall be appointed by the AAA from its panel of experts. The arbitrator shall have the authority to permit limited discovery to the extent required by a party in order to establish its case. The decision of the arbitrator shall be final and binding and may be entered and enforced in any court of competent jurisdiction. Any monetary award shall be payable in U.S. dollars, free of any tax, offset or other deduction. Any determination of the arbitration shall be confidential to the parties hereto and binding solely on the parties hereto.
d. Fees. The parties shall bear their own costs and attorney fees during any mediation and arbitration, except that the arbitrator shall be permitted, in his discretion, to award costs and reasonable attorneys fees to the prevailing party.
16. Warranties of PharmaStem. PharmaStem warrants that:
a. It is the owner of all right, title and interest in and to the Licensed Patents; and
b. It has the full power and authority to enter into this Agreement and grant the license provided for hereunder.
c. To the best of its knowledge, with no investigation having been made or required to be made, it knows of no third party patents, which are necessarily infringed by the practice of the invention as claimed in the Licensed Patents.
17. Warranties of Licensee. Cord Partners represents and warrants to PharmaStem that
a. It has the full power and authority to enter into this Agreement.
b. It will not conduct any operations that make use of, and will not use in any manner or cause or permit any other person to use in any manner the Cryopreserved Blood, Modified Stem Cells, Expanded Stem Cells, Licensed Processes or, in any other way conduct business under the Licensed Patents without first obtaining the Insurance and thereafter during the term of this Agreement maintaining the Insurance continuously in effect.
c. It has collected 238 specimens prior to the Effective Date.
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Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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18. Product Liability. Licensee shall, at all times during the term of this Agreement and thereafter, indemnify, defend and hold Licensor, its directors, officers, employees, affiliates, successors and assigns harmless against all claims, proceedings, demands and liabilities of any kind whatsoever, including legal expenses and reasonable attorneys' fees, arising out of the death of or injury to any person or persons or out of any damage to property resulting from the production, manufacture, sale, use, lease, consumption or advertisement of Cord Blood, Cryopreserved Blood, Expanded Stem Cells or Modified Stem Cells or any other use of any Licensed Patents by, on behalf of, or under the direction or authorization of Licensee or resulting from any breach of any obligation of Licensee hereunder.
19. Miscellaneous.
a. Nothing in this Agreement shall be construed as:
i. A warranty or representation that any product or process will be free from infringement of patents of third parties;
ii. Conferring any license or right under any patent other than the Licensed Patents; or
iii. A warranty or representation as to the validity or enforceability of the Patents.
b. Because of the nature of the Licensed Patents and the interrelationship between their subject matter, Licensee acknowledges that it desires to obtain a license under all of the Licensed Patents as a group and not individually.
c. Licensee shall include an appropriate patent marking on products and services licensed hereunder, sufficient to notify purchasers of the existence of the Licensed Patents. The notice shall read "Licensed under U.S. Patents 5,004,681, 5,192,553, 6,461,645, 6,569,427 and 6,605,275." As soon as reasonably possible after receipt of a request from PharmaStem to modify the notice to add additional newly issued Licensed Patents, Licensee shall modify the notice.
d. The validity and interpretation of this Agreement shall be governed by the laws of the State of Delaware, without regard to conflicts of laws principles. Subject to paragraph 15, the parties further consent to jurisdiction of the state and Federal courts sitting in Wilmington, Delaware. Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, and addressed as indicated in this Agreement or as otherwise provided by proper notice.
e. This Agreement was negotiated in good faith by the parties as willing licensor and willing licensee, each of which was represented by counsel. Accordingly, the rule of construction that holds that any ambiguities shall be construed against the drafter shall not apply.
f. Licensee agrees that PharmaStem may disclose orally to other potential licensees the existence and nature of this Agreement, the fact that Licensee has taken a license under the Licensed Patents, and the royalty fee provisions of paragraphs 5 (b) and (c). The parties agree to the issuance of the Press Release attached as Exhibit B. The specific payments
8
Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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and royalties provided for herein shall not be publicly disclosed by a party without the consent of the other party, except that this Agreement may be disclosed (i) as may be required by law, (ii) in a patent infringement suit involving any of the Licensed Patents, under a reasonable protective order; (iii) subject to a reasonable confidentiality agreement, to prospective buyers of, or investors in, PharmaStem or Licensee, and (iv) to each party's outside legal and accounting advisors.
g. This Agreement (including the Exhibits attached hereto), the Negotiation Agreement dated February 19, 2004 shall be deemed to contain the complete and final agreement between the parties, and shall supersede all previous understandings relating to the subject matter hereof, whether oral or written. This Agreement may only be modified by a written agreement signed by duly authorized representatives of the parties.
h. This Agreement may be executed in two or more counterparts (including by facsimile), each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
PHARMASTEM THERAPEUTICS, INC.
AGREED:
BY:_____________________________
TITLE:__________________________
CORD PARTNERS, INC.
AGREED:
BY:_____________________________
TITLE:__________________________
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Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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EXHIBIT A
PATENT LICENSE AGREEMENT,
DATED
JANUARY 1, 2004,
BETWEEN
PHARMASTEM THERAPEUTICS, INC.
AND
CORD PARTNERS, INC.
(THE "LICENSE AGREEMENT")
ROYALTY REPORT
Royalty Period Covered by this Report ("Royalty Period"):
Number of Specimens collected during the Royalty Period: Computation of royalty payable:
Number of Specimens stored during the Royalty Period: Computation of royalty payable:
Number of Specimens Expanded during the Royalty Period:
Gross Revenues from Expanded Specimens:
Royalty payable:
Number of Specimens Modified during the Royalty Period:
Gross Revenues from Modified Specimens:
Royalty payable:
Gross Revenues from Licensed Processes:
Royalty payable:
The undersigned hereby certifies that he (or she, as applicable) (1) has
reviewed the manner in which data has been collected, analyzed and computed to
prepare this report; (2) has consulted with patent counsel about any questions
regarding the interpretation of the License Agreement or Licensed Patents; and
(3) has read this Report carefully and (4) the Report accurately states all
royalty amounts accrued under the License Agreement for the Royalty Period and
the Cash Position.
Terms used in this Royalty Report and defined in the License Agreement are used as defined.
________________________________
Name:
Title:
Date:
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Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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EXHIBIT B
FOR IMMEDIATE RELEASE - PRESS RELEASE
PHARMASTEM THERAPEUTICS ANNOUNCES PATENT LICENSE AGREEMENT WITH CORD PARTNERS
Wayne, PA, March __, 2004- PharmaStem Therapeutics, Inc. and Cord Partners, Inc. today announced that they have entered into an agreement under which Cord Partners has obtained a license to PharmaStem's patent portfolio. PharmaStem is the successor to Biocyte Corporation, the pioneer in the development of umbilical cord and placental blood preservation and its therapeutic use. In recognition of its leadership, PharmaStem has received five U.S. patents to date: No. 5,004,681, 5,192,553, 6,461,645, 6,569,427 and 6,605,275.
Matt Schissler, President and CEO of Cord Partners stated: "
Nicholas Didier, President and CEO of PharmaStem stated: "
For further information about PharmaStem, contact Nicholas Didier, CEO, at (914) 833-9227 or ndidier@pharmastem.com.
For further information about Cord Partners, contact Matt Schissler, CEO, at
(310) 443-4153 or mschissler@cordpartners.com.
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Cord Partners: ______________ PharmaStem: ______________
Date: ______________ Date: ______________
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EXHIBIT 10.1
SERVICE AGREEMENT
This Service Agreement ("Agreement") is made as of the 15th day of February 2004, by and between BERGEN COMMUNITY REGIONAL BLOOD CENTER ("CBS"), a New Jersey not-for-profit corporation with its principal place of business at 970 Linwood Ave. West, Paramus, New Jersey 07652, and Cord Partners, Inc. (CPI) (formerly Rainmakers International) a Florida corporation, with its principal place of business at 10940 Wilshire Boulevard, 6th Floor, Los Angeles, CA 90024.
WHEREAS, CPI is in the business of soliciting customers in the market for Umbilical Cord Blood ("Cord Blood"), processing and storage services;
WHEREAS, CPI seeks to contract with an entity to process and store Umbilical Cord Blood units and provide other services relative to ensuring the processing of such Cord Blood; and
WHEREAS, CBS operates The Elie Katz Umbilical Cord Blood Program operates and is able to provide the services to CPI as listed in Paragraph 2.
NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto do agree as follows:
Section 2. Obligations of CBS
2.1 Services Provided. CBS shall provide CPI with the following "Services"
2.1.1 CBS shall test all Cord Blood received from CPI to determine whether it is appropriate for storage. CBS shall process and store the Cord Blood under prevailing professional industry standards in accordance with all applicable federal, state and local statutes, rules, association requirements, and regulations governing the processing and storage of Cord Blood (collectively "Applicable Law"). If CBS determines that any cord blood received from CPI is not appropriate for storage, it will promptly return it to CPI at CPI's expense.
2.1.2 CBS shall store the processed Cord Blood in computerized, temperature monitored liquid nitrogen vapor tanks or other suitable storage units until the Cord Blood is disposed of as provided in Section 6 of this Agreement.
2.1.3 CBS shall assist CPI in formulating a Cord Blood extraction kit ("Kits"), which will comply with CBS's current standard operating procedures. This will include, but not be limited to, blood bags and other necessary paperwork and materials required to collect the Cord Blood.
2.1.4 CBS shall provide CPI with instructions regarding the extraction and transportation of the Cord Blood.
2.1.5 The services to be provided by CBS pursuant to the terms of this Agreement shall be furnished in accordance with the prevailing standards applicable to storing Cord Blood, as well as Applicable Law.
Section 3. Obligations of CPI.
3.1 Duties of CPI. The duties and obligations of CPI, shall include:
3.1.1 CPI shall be responsible for collecting the cord blood in accordance with prevailing professional industry standards and applicable law.
3.1.2 CPI shall ensure that all Cord Blood transported to CBS is accompanied by documentation identifying the owner of the Cord Blood, the quantity of blood collected, evidence of the Cord Blood, consent to process and store the Cord Blood, and any other information reasonably requested by CBS to facilitate the processing and storing of the Cord Blood.
3.1.3 CPI shall maintain current information regarding Cord Blood owners. All Information maintained by CPI shall be updated annually including, but not to be limited to, the current address and telephone number of Cord Blood owners. The information of Cord Blood owners as described hereinabove is hereby deemed the confidential property of CPI and is not to be disclosed or sold to a third party, all as more fully set forth in Section 10 hereof.
3.1.4 CPI acknowledges that (a) CPI bears the sole responsibility for collecting and transporting the Cord Blood to CBS; (b) CPI bears the sole responsibility of ensuring that all payments due under this Agreement, including the Annual Storage Fees, as defined in Section 4, are paid; (c) CPI bears the sole responsibility of furnishing CBS with the information required to dispose of the Cord Blood, as set forth in Section 6 of this Agreement; and (d) all clients of CPI have the right to transfer the Cord Blood to another party for storage upon written notice to CBS by CPI or by the client to CBS in the event that CPI is unavailable or such client has terminated CPI 's service.
3.1.5 CPI shall adhere to the professional standards associated with the marketing, sales, education and transportation of the Cord Blood.
4. Compensation. CPI shall compensate CBS for the services performed herein at the rate indicated in Schedule 1. The fee shall cover all services, materials and activities necessary to place a client's sample into liquid nitrogen storage according to Section 2.1.2 above. The Processing Fee shall include but not be limited to, administration fees, laboratory fees, enrollment fees, processing fees, cost of maternal and Cord Blood testing. In addition to the processing fee, CPI will pay to CBS storage fees as indicated in Schedule 1.
A one time fee covering 20 years of storage amounting to $750, can be paid by CPI with the delivery of the cord blood unit to CBS.
In the event that CPI does not make payment of the fees as herein provided, CBS retains all rights to the processed Cord Blood that is not paid for. CPI may cure this default as provided in section 5.2.1 of this Agreement.
5. Term and Termination.
5.1 Term. This Agreement commenced on June 30, 2002, and will continue for a period of ten (10) years subject to earlier termination as hereinafter provided. If no notice is given to terminate this Agreement within the last 120 days of its term(s) the Agreement, and any renewals thereafter,
shall be renewed on the anniversary date of this Agreement and shall renew on an annual basis.
5.2 Termination For Cause.
5.2.1 Upon a party breaching a material term or obligation of this Agreement, the non-breaching party may terminate this Agreement; provided that such breach remains uncured for more than thirty (30) days after the breaching party has received written notice of the breach from the non-breaching party.
5.2.2 At the election of the other party, this Agreement shall terminate thirty (30) days after the date upon which a party makes a general assignment for the benefit of creditors, files a voluntary petition or commences a proceeding for any relief under any bankruptcy or insolvency laws or any laws relating to the relief of debtors, readjustment or indebtedness, reorganization, composition or extension.
5.2.3 At the election of the other party, if an involuntary petition or any
proceeding is commenced against a party hereto for any relief under
any bankruptcy or insolvency laws, or any laws relating to the
readjustment of indebtedness, reorganization, composition or
extension, or the appointment of a receiver of any part of the
property of such Party or levy on or attachment of any of the property
of such Party, and such petition or proceeding is not dismissed within
ninety (90) days after the date on which it is filed or commenced
("Dismissal Period"), this Agreement may be terminated within thirty
(30) days after the end of the Dismissal Period.
5.3 Termination Other Than For Cause The agreement may be terminated by either party, at any time, by either party giving 90 days written notice to the other party.
6. Disposition of the Cord Blood.
6.1 Release for Transplant or Directed Use by an Individual Client During the Term of the Agreement. During the term of this Agreement, CBS shall release the Cord Blood stored at its facility upon receipt of a written request by CPI, which shall include documentation evidencing the Cord Blood owner's consent to release or dispose of the Cord Blood from storage. Such a request shall include without limitation the necessary information regarding the preparation, destination, and required timing of the shipment. CBS shall no longer be responsible for the Cord Blood once it is released to a courier or delivery service. CPI shall bear the cost of $50 per sample associated with the preparation (including but not limited to labor, supplies and other usual and customary procedures and equipment, associated with the release of such samples of the cord blood). CPI shall pay any delivery costs from CBS to the destination.
6.2 Bulk Release of Multiple Specimens or Bulk Release of Specimens upon Termination of the Agreement. Within 60 days of the termination of this Agreement, as set forth in the provisions of Section 5, CPI shall provide CBS with adequate instructions regarding the disposition of multiple units of the Cord Blood stored by CBS pursuant to the terms of this Agreement. CPI shall provide CBS with written instructions regarding the preparation, destination, and required timing of the shipment of all Cord Blood stored by CBS pursuant to this Agreement. CBS shall no longer be responsible for the Cord Blood once it is released to a courier or delivery service. CBS shall provide all preparation, services, equipment and materials customary for the transport of bulk cord blood specimens. CPI, shall bear the costs associated with the Bulk Release of Cord Blood which in any event shall not exceed $1000 for every 200 units released. CPI shall bear
the costs of any transportation of bulk units from CBS to their final destination.
6.3 Failure to Give Instructions. If CPI fails to give CBS the instructions required in Section 6.2, CBS shall have the right to dispose of the stored Cord Blood in any manner, in the sole discretion of CBS, without liability to CPI or CBS's clients. Alternatively, CBS may contact individual owners of the cord blood directly and make any arrangements it deems appropriate to continue to store such cord blood. The failure of CBI to give such instructions shall be a material breach of this Agreement
7. Responsibility.
CPI will implement precautions and procedures to ensure that every client's Cord Blood is collected, handled and shipped in a proper and expedient manner in accordance with applicable law . Upon receipt, CBS will process and store such Cord Blood at CBS's laboratory.
CBS will do everything reasonable and with proper laboratory practices to ensure the safety and long-term cryo preservation of every client's umbilical cord blood. When the umbilical cord blood has been processed and stored at CBS's laboratory, CBS will be solely responsible to CPI's clients with respect to the storage of all Cord Blood pursuant to the terms hereof. After processing and storage of such Cord Blood, CPI will be responsible for billing its clients only.
8. Assignability.
Each party shall have the right to assign this Agreement with the consent of the other party, such consent not to be unreasonably withheld.
9. Confidentiality and Non-Solicitation.
9.1 Both Parties acknowledge that all information of or about the other, including all information relating to any technology, products, process or intellectual property of each party (including but not limited to, owned or licensed intellectual property, rights, data, know-how, samples, technical and non-technical materials and specifications) as well as any business plan, financial information or other confidential information of each party will not be disclosed by any party without the prior written consent of the other. The proceeding does not apply to such information, which is in the public domain.
9.2 CBS acknowledges that all information pertaining to CPI's clients and
client base is confidential and proprietary in nature. CBS shall maintain
the confidentiality of all such information as required by Applicable Law,
and shall not disclose such information without the prior written consent of
RMI except as may be required by law or legal process. Except as provided in
Section 6.3 above, CBS shall not contact or solicit any clients of CPI
throughout the term of this Agreement without the prior written consent of
CPI.
9.3 Both parties agree not to disclose or publicize the existence of or any portion of this agreement unless given permission in writing by the other party.
10. Trademarks.
10.1 Both parties are the owners of a certain trademarks that may appear upon or in connection with the Kits and certain labels, packages, containers and other materials.
10.2 Other than as provided above in Paragraph 10.1, nothing in this Agreement shall be deemed to transfer to or confer upon the other party any right to use the name of the other party or any of its subsidiaries or any trademark or trade name owned by the other party or by any of its subsidiaries unless consent is given to do so.
11. Insurance.
11.1 CBS and CPI shall respectively at its sole cost and expense, procure and maintain commercial general liability insurance in their respective favor, in amounts of not less than $1,000,000 per incident and $3,000,000 annual aggregate and name the counter party hereto herewith as additional insured. Such commercial general liability insurance coverage required under this Section 11 shall not be construed to create a limit of liability of the parties under this Agreement. Upon signing of this Agreement, each party shall provide to the other certificates of insurance showing compliance with the foregoing requirements.
11.2 The insurance required herein shall provide that the counter party designated as the additional insured thereunder pursuant to Section 11.1 above shall receive as least fifteen (15) days written notice prior to the cancellation, non-renewal or material change in the insurance policies to be maintained hereunder in the event suitable replacement insurance is not provided within such fifteen (15) days, the party receiving such notice shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period
11.3 All insurance maintained by the parties pursuant to the terms hereof shall be maintained with carriers having a commercially reasonable insurance rating. All insurance required hereunder shall be maintained throughout the term of this Agreement, or any extension hereof, plus an additional period of no less than ten (10) years.
11.4 This Section 11 shall survive expiration or termination of this Agreement for any reason.
13. FORCE MAJEURE
Not withstanding anything in this Agreement to the contrary, neither party shall be liable to the other for any loss or damage of any kind arising out of delay or failure in performance of any obligation thereunder beyond that party's reasonable control, including but not limited to any delay or failure caused by failure, unavailable or shortage of power, materials or supplies, flood, fire, other abnormally inclement weather, other act of God, act of war or terror, riot, act or omission of government or governmental agency (including FDA withdrawal and recall recommendations), strike, work stoppage, other labor unrest, other act or omission in the process of manufacture, production or supply under the control of third parties, or any other emergency ("Force Majeure"). If either party delays or fails to perform in whole or part its obligations hereunder for reasons arising from Force Majeure, and such delay or failure to perform extends for a period of sixty (60) days or more, then the non-delaying party to the other, effective immediately upon receipt of by the delaying party of written notice of termination from the non-delaying party, provided that any fees and charges then due and owing shall remain due and payable in accordance with the terms hereof.
14. INDEMNIFICATION
14.1.1 CPI agrees to indemnify, defend and hold CBS, its trustees,
officers, employees, and agents harmless from and against any and
all liability, expense (including court costs and reasonable
attorney's fees) arising from claims for bodily injury, death or
property damage which CBS may incur, suffer, become liable for, or
which may be asserted or claimed against CBS as a result of the
acts, errors or omissions of CPI, its directors, officers,
employees, contractors, subcontractors, agents, donors, customers or
clients as a result of or while performing its obligations hereunder
or arising otherwise from the use, or handling of the cord Blood.
However, CPI shall not be responsible to CBS for any liability to
the extent it is caused by any willful misconduct or gross
negligence of CBS, its Trustees, officers, employees or agents.
14.1.2 CBS agrees to indemnify, defend and hold CPI, its trustees,
officers, employees, and agents harmless from and against any and
all liability, expense (including court costs and reasonable
attorney's fee) arising from claims for bodily injury, death or
property damage which CPI may incur, suffer, become liable for, or
which may be asserted or claimed against CPI as a result of the
acts, errors or omissions of CBS, its directors, officers,
employees, contractors, subcontractors, agents, donors, customers or
clients as a result of or while performing its obligations
hereunder. However, CBS shall not be responsible to CPI for any
liability to the extent it is caused by willful misconduct or gross
negligence CPI its trustees, officers, employees or agents.
14.2 The provisions of this Section 14 shall survive the termination of
this Agreement.
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15. NOTICES
Notices provided under this Agreement shall be in writing and shall be sent by U.S. mail to CPI, 10940 Wilshire Boulevard, 6th Floor, Los Angeles, CA 90024, Attention: Matthew Schissler, CEO, and to Bergen Community Regional Blood Center, 970 Linwood Avenue West, P.O. Box 39, Paramus, New Jersey 07653-0039, Attention: Stanley Siegel. Each party by notice to the other party may change its address for the delivery of notice hereunder.
16. Miscellaneous.
This Agreement represents the entire Agreement between the parties concerning the subject matter hereof and there are not understandings, agreements, or representations other than as herein set forth. This Agreement shall be binding upon the parties and their respective heirs, spouses, executors, administrators, agents, representatives, successors and assigns, shareholders, directors, officers and employees. Headings shall not be used in the construction of this Agreement. The Agreement shall be construed in Accordance with the laws of the state of New Jersey (without application of its principles of conflicts of laws). If any provision of this Agreement is deemed unenforceable, the remaining provisions hereof shall nevertheless be fully enforceable in accordance with their terms.
For the purposes of this Agreement and all services to be provided hereunder, each party shall be, and shall be deemed to be, an independent contractor and not an agent, partner, joint venture or employee of the other party. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action which shall be binding on the other party, except as may be explicitly provided for herein or authorized in writing.
Failure of either party to enforce a right under this Agreement shall not act as a waiver of that right or the ability to later assert that right relative to the particular situation involved or to terminate this Agreement arising out of any subsequent default or breach. Any waiver or modification of any provision hereof must be in writing and duly executed by authorized representatives of both parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date above under seal.
BERGEN COMMUNITY REGIONAL CORD PARTNERS INC.
BLOOD CENTER
----------------------------------------- ----------------------------
By: Dennis M. Todd, Ph.D. By: Matthew Schissler
President and Chief Executive Officer Chief Executive Officer
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SCHEDULE I
CHARGE FOR SERVICES PER ARTICLE 4
Fee for all services necessary to place a client's
umbilical cord blood unit in liquid nitrogen per
Section 2.1.2. $ 577.50
Fee for storage of each umbilical cord blood unit:
First six months (to be billed six months after collection) $ 25.00 Each anniversary date thereafter $ 50.00 |
NOTES
1) Invoices will be sent as of the last day of each month and will be due and payable within 30 days from invoice date. A discount of 2% will be allowed for all invoices paid within 10 days of the invoice date. A volume discount of an additional $28.13 per unit will be given for each unit invoiced in excess of 100 units per unit.
2) The fees listed above may be adjusted by CBS by giving 60 days written notice to CPI.
Exhibit 10.10
LICENSE AGREEMENT Premier Business Centers
Center Information
Tower Executive Suites
10940 Wilshire Boulevard Suite 1600
Los Angeles, CA 9004
Phone 310-443-4100 Fax: 310-443-4220
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Date of Agreement: February 13, 2004 Initial Term: Month to Month
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Client: Cord Partners Move in Date: March 1, 2004
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Address: 10940 Wilshire Blvd., Initial Term Expiration Month to Month
Suite 600 Date:
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City: Los Angeles Contact: Matt Schissler
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State: Ca Zip: 90024 Telephone: 310-443-4178
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E-Mail: Fax:
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Total # of Offices: 2 Prorated for: 30 Days out of 30
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No. of People: 3
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|
MONTHLY RECURRING CHARGES -------------------------------------------------------------------------------------------------------------- Office Square Interior/Exterior Market Rate UNITS FIRST MONTH DUE MONTHLY #(s) Footage -------------------------------------------------------------------------------------------------------------- 47, 48 398 Exterior $2,786.00 2300 $2,300.00 $2,300.00 -------------------------------------------------------------------------------------------------------------- Estimated Cam Charges (Building's common area 398 $39.80 $39.80 maint./operating exp. Subject to adjustment) -------------------------------------------------------------------------------------------------------------- Telephone Package (Includes 1 phone, 2 line appearances and 3 $300.00 $300.00 voicemail for $100 per month) -------------------------------------------------------------------------------------------------------------- Dedicated Fax or Modem Line ($50 per line per month) 1 $47.00 $47.00 -------------------------------------------------------------------------------------------------------------- Internet Access (Shared access to a T-1 connection $95 each) 2 $190.00 $190.00 -------------------------------------------------------------------------------------------------------------- Service Fee (Personalized telephone answering and kitchen 1 $47.00 $47.00 service ($100 per office) -------------------------------------------------------------------------------------------------------------- SUBTOTAL $2,923.80 $2,923.80 |
SECURITY DEPOSIT
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Security Deposit (Equal to 2 times monthly recurring charges) $2,923.80 $2,923.80
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SUBTOTAL $2,923.80
TOTAL MOVE-IN CHARGES $4,185.12
MISCELLANEOUS:
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CLIENT: PREMIER OFFICE CENTERS, LLC
CORD PARTNERS A CALIFORNIA LIMITED LIABILITY COMPANY
/s/ Matthew L. Schissler /s/ Jeffrey H. Reinstein
------------------------ ------------------------
SIGNATURE By: Jeffrey H. Reinstein
Chief Executive Officer
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2/13/2004
TERMS AND CONDITIONS
1. SERVICES LICENSED. Pursuant to this Agreement, you have a license to use the office(s) assigned to you. You also have shared use of common areas in the Center including conference rooms, lobby and kitchen areas. You have access to your office(s) 24 hours a day, 7 days a week. Our building provides office cleaning, maintenance services, electric, lighting, heating and air conditioning to the Center during normal business hours as determined by the landlord for the building (Building Landlord). In addition to your office(s), we will provide you with certain services on an as requested basis. The fee schedule for these services is available upon request. The fee schedule will be updated from time to time. The fees are charges to your account and are payable on the first day of the next calendar month. You agree to pay all charges authorized by you or your employees. Premier Office Centers, LLC dba Premier Business Centers (Premier) and vendors designated by Premier are the only service providers authorized to provide services in the Center. You agree that neither you nor your employees will solicit other clients of the Center to provide any service provided by Premier or its designated vendors, or otherwise. If you default on your obligations under this Agreement, you agree that Premier may cease to provide any and all services, including without limitation telephone and internet services, without the need to initiate legal process.
2. PAYMENTS. You agree to pay, without offset or demand, the Basic Monthly Fee and all other monthly recurring fees in advance on the first day of each month. You also agree to pay monthly, at the same time as the Basic Monthly Fee and other monthly recurring fees (unless another time is specified herein for such payment), additional service fees, CAM Charges (as defined below) and all applicable sales or use taxes. If you dispute any portion of the charges on your bill, you agree to pay the undisputed portion on the first day of the calendar month. You agree that charges must be disputed within 30 days or you waive your right to dispute such charges. If any payments are not received by the third day after the due date, you may be charged a service charge of 10% of the late payment or $50, whichever is greater, for bookkeeping and administrative expenses. You will also be charged interest at 1.5% per month on late payments, or the highest rate permitted by applicable law, whichever is less. When you sign this Agreement you are required to pay your first months' Basic Monthly Fee and all Set Up Fees. You acknowledge that the Basic Monthly Fee is based upon the number of persons occupying or using the office(s) assigned to you on the first page of this Agreement. If the number of persons that regularly uses or occupies the office(s) increase, an excess occupant fee may be charged for each such additional person.
3. CAM CHARGES. You will pay, as an additional charge, a portion of all common area maintenance and building operating costs and charges (CAM Charges) paid by Premier under its lease with the Building Landlord. Your share of CAM Charges will be based upon a fraction, the numerator of which shall be the square footage of the office(s) assigned to you and the denominator of which shall be the square footage of the Center. The dollar amount that you are required to pay will be based upon the most recent statement Premier has received from the Building Landlord, and will be payable monthly or at such other times as determined by Premier. If the Building Landlord's statement is an estimate of the actual Cam Charges payable by Premier, then you will pay your share of any underpayment, if any, as and when Premier receives a reconciliation from the Building Landlord. Even if the term of this Agreement has expired and you have vacated the Center, or this Agreement has terminated, when the final determination is made of the actual CAM Charges for the period in question, you will immediately pay to Premier the difference between your share of the actual CAM Charges and the amounts you previously paid. In no event shall you pay less than ten cents per square foot occupied as your share of the CAM Charges.
4. SECURITY DEPOSIT. Client shall deposit with Premier upon execution of this Agreement the Security Deposit specified on the first page of this Agreement as security for Client's faithful performance of Cleint's obligations hereunder, if at any time during the term of this Agreement (or any renewal of extension term), your Basic Monthly Fee and/or other monthly recurring fees are increased, then the amount of the Security Deposit will be increased by 200% of such increase in the Basic Monthly Fee and/or other monthly recurring fees, which increase shall be payable to Premier upon request. The Security Deposit will not be kept in a separate account from other funds of Premier and no interest will be paid to you on this amount. The Security Deposit may be applied to outstanding fees or charges at any time, at our discretion. Premier has the right to require that you replace any portion of the Security Deposit that we apply to your fees or charges. At the end of the term of this Agreement, if you have satisfied all of your payment obligations, we will refund the unapplied portion of the Security Deposit within 60 days.
5. RULES AND REGULATIONS. You agree to comply with the rules and regulations of the Center (Rules), a copy of which you acknowledge having received upon your execution of this Agreement. Premier has the right to reasonable amend the Rules and supplement the same with other reasonable Rules, and all such amendments or new Rules shall be binding upon you after 5 days notice to you. Nothing herein shall be construed to give you or any other person or entity any claim, demand or cause of action against Premier arising out of the violation of such Rules by any other client, occupant or visitor of the Center, or out of the enforcement or waiver of the Rules by Premier in any particular instance. To the extent there is a conflict between the Rules and this Agreement, this Agreement will control.
6. RESTRICTION ON HIRING PREMIER'S EMPLOYEES. Our employees are an essential part of our ability to deliver our services. You acknowledge this and agree that, during the term of this Agreement and for 6 months afterward, you will not hire any of our employees. If you do hire any of our employees, you agree that actual damages would be difficult to determine and therefore you agree to pay liquidated damages in the amount of one-half of the annual base salary of the employee you hire. You agree that this liquidated damage amount is fair and reasonable.
7. LICENSE AGREEMENT. THIS AGREEMENT IS NOT A LEASE OR ANY OTHER INTEREST IN REAL PROPERTY. IT IS A CONTRACTUAL ARRANGEMENT THAT CREATES A REVOCABLE LICENSE. We retain legal possession and control of the Center and the office(s) assigned to you. This Agreement and our obligation to provide you office space and services is subject and subordinate to the terms of our lease with the Building Landlord. This Agreement terminates automatically upon any termination of our lease with the Building Landlord or the termination of the operation of the Center for any reason. As our client you do not have any rights under our lease with the Building Landlord. When this Agreement is terminated because the term has expired or otherwise, your license to occupy the Center is revoked. You agree to remove your personal property and leave the office(s) as of the date of termination. We are not responsible for property left in the office(s) after termination.
8. DAMAGES AND INSURANCE. You are responsible for any damage you cause to the Center or your office(s) beyond normal wear and tear. We have the right to inspect the condition of the office(s) from time to time and make any necessary repairs. You are responsible for insuring your personal property against all risks. You have the risk of loss with respect to all of your personal property. You agree to waive any right of recovery against Premier and the Building Landlord, and their respective officers, directors, employees, shareholders, members, partners, agents and representatives, for any damage or loss to your property under your control. It is understood that all property in your office(s) is under your control.
9. DEFAULT; TERMINATION. You are in default under this Agreement if: (I) you fail to abide by, or to cause your employees or invitees to abide by, the Rules of the Center; (II) you do not pay any amount payable by you hereunder on the designated payment date and after written notice of your failure to pay you do not pay within 3 days after the date of such notice; or (III) you do not otherwise comply with the terms of this Agreement. If the default is unrelated to payment you will be given written notice of the default and you will have 10 days from the date of such notice to correct the default (unless the default cannot be corrected, in which event no cure period will apply). Premier has the right to terminate this Agreement early; (1) if you fail to correct a default within the applicable cure period or if the default cannot be corrected; (2) If you repeatedly default under this Agreement, in which case no cure period shall apply; or (3) if you use the Center for any illegal operations or purposes. If this Agreement is terminated due to your default, then you will nevertheless remain liable for the Monthly Basic Fee which would have been payable for the remainder of the term had this Agreement not been terminated.
10. OUR LIMITATION OF LIABILITY. You acknowledge that due to the imperfect nature of verbal, written and electronic communications, neither Premier nor the Building Landlord or any of their respective officers, directors, employees, shareholders, members, partners, agents or representatives shall be responsible for damages, direct or consequential, that may result from the failure of Premier to furnish any service, including but not limited to the service of conveying messages, communications (including but not limited to telephone and internet service) or any other utility or services. Your sole remedy and Premier's sole obligation for any failure to render any service, any error or omission, or any delay or interruption of any service, is limited to an adjustment to your bill in an amount equal to the charge for such service for the period during which the failure, delay or interruption continues. WITH THE SOLE EXCEPTION OF THE REMEDY DESCRIBED ABOVE, YOU EXPRESSLY AND SPECIFICALLY AGREE TO WAIVE, AND AGREE NOT TO MAKE, ANY CLAIM FOR DAMAGES, DIRECT OR CONSEQUENTIAL, INCLUDING, WITHOUT LIMITATION, LOST BUSINESS OR PROFITS, ARISING FROM ANY FAILURE TO FURNISH ANY SERVICE, ANY ERROR OR OMISSION WITH RESPECT THERETO, OR ANY DELAY OR INTERRUPTION OF SERVICES. WITH REGARD TO ANY SERVICES PROVIDED BY PREMIER, PREMIER DISCLAIMS ANY WARRANTY OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ADDITIONALLY, PREMIER MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING THE AVAILABLITY OF PARKING AT THE CENTER, AND CLIENT SHALL INDEMNIFY AND HOLD PREMIER HARMLESS FROM ANY PARKING CHARGES OR PENALTIES THAT MAY BE IMPOSED BY BUILDING LANDLORD DUE TO CLIENT'S USE OF PARKING AT THE CENTER.
11. RENEWAL/NOTICE REQUIREMENT. UNLESS CANCELLED AS PROVIDED BELOW. THIS AGREEMENT WILL AUTOMATICALLY RENEW FOR THE SAME PERIOD OF TIME AS THE INITIAL TERM AT THE THEN CURRENT RATES FOR THE OFFICE(S) AND/OR SERVICES. IF YOU HAVE LESS THEN 3 OFFICES, YOU MUST GIVE 60 DAYS ADVANCE WRITTEN NOTICE TO CANCEL YOUR RENEWAL. IF YOU HAVE 3 OFFICES OR MORE, YOU MUST GIVE 90 DAYS ADVANCE WRITTEN NOTICE TO CANCEL YOUR RENEWAL. SUCH NOTICE MAY ONLY BE DELIVERED ON THE FIRST DAY OF ANY GIVEN MONTH. IF SUCH NOTICE IS DELIVERED ON ANY OTHER DAY, IT SHALL BE DEEMED TO HAVE BEEN DELIVERED ON THE FIRST DAY OF THE FOLLOWING MONTH. NOTWITHSTANDING THE FOREGOING, PREMIER MAY TERMINATE THIS AGREEMENT AFTER EXPIRATION OF THE INTIAL TERM FOR ANY REASON WITH 30 DAYS NOTICE TO YOU.
12. RELOCATION. We reserve the right to relocate you to another office in the Center from time to time. If we exercise this right it will only be to an office of equal or larger size and configuration. This relocation will be at our expense. We reserve the right to show the office(s) to prospective clients and will use reasonable efforts not to disrupt your business.
13. INTERNET SERVICES. At Client's election and for an additional cost, Premier will provide Client with shared access to a high-speed internet connection (Internet Service). Client will be responsible for connecting its computer to the wall mounted high-speed internet jack. For an additional charge, Premier can provide a Network Interface Controller (NIC) card and Category-5 Unshielded Twisted Pair (UTP) patch cable in order to connect the computer to the high-speed Internet Jack. Premier shall not be responsible for any loss, damage, liability, claim or expense arising from any device that is connected to the Internet Service. If other equipment is needed at time of onsite installation, Client shall be responsible for the purchase and installation of said equipment at Client's cost. Client shall have sole responsibility for the installation, testing and operation of Internet facilities. Services and equipment (other than installation specifically provided by Premier). Client shall be responsible for user access security and network access, such as control over which users use the Internet Service and installation of passwords. Client acknowledges that Premier will not be providing user access security of any kind and Client agrees that Client shall have the sole responsibility for detecting any network security breaches. Client shall not operate a server for the purpose of hosting domain names or web sites of any kind, personal or business, on the Internet connection provided by Premier. Client shall not run information Servers of any kind without prior written approval from Premier, which approval may be withheld in Premier's sole discretion. To protect client workstations, inbound access to the internal LAN is blocked at the router. However, if Client requires usage of inbound remote control software (such as pcANYWHERE), Premier, at its election and at an additional charge to Client, may allow this type of inbound access on an as requested basis. If inbound access to Client's computer is allowed, Premier shall in no way be liable for external attacks made on Clients computer system. Client is allowed to access the internet utilizing only IP addresses issued by Premier, unless otherwise agreed to by Premier. Client will be charged for any unauthorized access to the internet from the date of initial move in. Premier shall have the right to terminate Internet Service to Client for any unauthorized use of or access to the Internet by Client. If inordinate amounts of bandwidth consumption or out of the ordinary broadcasts are detected by Premier, Premier reserves the right to either, (a) temporarily block services; or (b) disallow usage above a pre-determined threshold. After 2 warnings of Inordinate bandwidth consumption by Client, Premier shall have the right to terminate Internet Service to Client. For these purposes, greater than 12-megabytes of data per connection, per week, shall be deemed to constitute inordinate bandwidth consumption. Client shall be subject to, and Client's use of Internet Service shall be limited by, any rules and regulations that Premier may impose in connection with use of the Internet Service. Premier shall have the right to terminate Internet Service to Client if Client violates any such rules and regulations. If Premier is informed by government authorities of inappropriate or illegal use by Client of Premier's facilities or other networks accessed through Premier, Premier may terminate Client's Internet Service. Client shall indemnify, defend and hold Premier harmless from and against any loss, liability, claim, action or expense arising from content disseminated by Client's equipment, software and/or users of the Internet Service, or arising from Premier's registration and maintenance of Client's domain name. Premier makes no representations or warranties regarding bandwidth speeds for the Internet Service.
14. HANDLING OF MAIL UPON TERMINATION. Upon expiration or earlier termination of this Agreement, you must notify all parties with whom you do business of your change of address. You agree not to file a change of address form with the postal service. Filing of a change of address form may forward all mail addressed to the Center to your new address. In addition, all telephone and facsimile numbers and IP addresses are the property of Premier. These numbers will not be transferred to you at the end of the term. For a period of 30 days after the expiration of this Agreement, Premier will provide your new telephone number and address to all incoming callers and will hold your mail, packages and facsimiles at no costs to you. After 30 days you may request the continuation of this service at our current rates.
15. NOTICES. All notices are to be in writing and may be given by registered or certified mail, postage prepaid, overnight mail service or hand delivered with proof of deliver, addressed to Premier or Client at the address listed on the first page of this Agreement.
16. MEDIATION; GOVERNING LAW. In the event a dispute arises under this Agreement, you agree to submit the dispute to mediation. If mediation does not resolve the dispute, you agree that the matter will be submitted to arbitration pursuant to the procedure established by the American Arbitration Association in the metropolitan area in which the Center is located, unless Premier elects to not have the dispute resolved through arbitration. The decision of the arbitrator will be binding on the parties. The non-prevailing party as determined by the arbitrator shall pay the prevailing parties' attorneys' fees and costs of the arbitration. Furthermore, if a court decision prevents or Premier elects not to submit this matter to arbitration, then the non-prevailing party as determined by the court shall pay the prevailing parties' reasonable attorneys' fees and costs. Nothing in this paragraph will prohibit Premier from seeking equitable relief, including without limitation, any action for removal of Client from the Center after the license has been terminated or revoked. This agreement is governed by the laws of the State of California.
17. MISCELLANEOUS. Client may not assign this Agreement without Premier's prior written consent, which consent will not be unreasonably withheld. No assignment shall release Client from Client's liability under this Agreement. This Agreement is the entire agreement between you and Premier. It supercedes all prior agreements. This Agreement may not be modified, except in writing signed by both parties. If more than one party sign this Agreement as Client, the obligations of such parties shall be joint and several. This Agreement is not binding on Premier unless it is executed by the Chief Executive Officer of Premier.
PREMIER OFFICE CENTERS, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
BY: /s/ Jeffrey H. Reinstein
-------------------------------------------------
JEFFREY H. REINSTEIN, CHIEF EXECUTIVE OFFICER
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CLIENT:
Cord Partners, Inc.
PRINT COMPANY NAME AND TYPE (I.E. A CALIFORNIA CORPORATION)
BY: /s/ Matthew L. Schissler
----------------------------------------
SIGNATURE
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RULES AND REGULATIONS
1. The electrical current shall be used for ordinary lighting purposes, to run desktop computers, and facsimile equipment only unless written permission to do otherwise shall first have been obtained from Premier at an agreed charge to Client.
2. Client may reserve the conference room or a day office at any Premier center for a total of 8 hours per month for each office licensed based on availability. Client may not carry over unused time to future months. Any usage over the allowance shall be subject to the charges as set forth on the fee schedule. Immediately following Client's use of the conference room (or day office) and/or audio/visual equipment Client shall clean up and return the space(s) to the state and condition it was prior to Client's use. If not, Premier may charge Client for any expenses required to restore the space and/or equipment to its original condition.
3. Noise levels shall be conducive to a professional environment and shall not interfere with or annoy other Clients. Client and their guests shall conduct themselves in a businesslike manner, proper attire will be worn at all times.
4. Client shall not provide or offer any services to Premier's customers if such services are available from Premier.
5. Client shall not affix anything to walls of Center or Client's office(s) without prior written consent of Premier. 6. Client shall not conduct any activity within the Center or Building, which in the sole judgment of Premier or the Building Landlord will create excessive traffic or is inappropriate to the executive office suite environment.
7. Client shall not conduct business in the corridors or any other areas, except in its designated offices or conference rooms. Client shall not block or congregate in the common areas and those areas must be kept neat and attractive at all times.
8. All corridors, halls, elevators and stairways shall not be obstructed by Client or used for any purpose other than normal egress and ingress.
9. No advertisement, identifying signs, personal items or artwork or other notices shall be inscribed , painted or affixed on any part of the corridors, doors, public areas or cubicles. Client shall no prop open any corridor doors, exit doors or doors connecting corridors during or after business hours.
10. Without Premier's prior written permission, Client is not permitted to place "mass market", direct mail or advertising (i.e. newspaper, classified advertisements, billboards) using Premier's assigned phone number or take any such action that would generate an excessive amount of incoming calls.
11. Canvassing, soliciting and peddling in the Center or Building are prohibited.
12. Client shall not use cooking equipment at the Center other than the microwave oven in the Center's lounge.
13. Client shall not use or store or bring into the Center or Building oil, burning fluids (or candles), gasoline, kerosene, explosives or any other hazardous materials.
14. Client shall not bring any animals into the Center or building, except for those assisting disabled individuals.
15. Client shall not remove furniture, fixtures or decorative material from offices or common areas without the written consent of Premier.
16. Client shall use chair mats in the office(s) and any damage from failure to use the same shall be the responsibility of the Client.
17. Client shall not use the Center for manufacturing or storage of merchandise, except as such storage may be incidental to general office purposes.
18. Client shall not use or sell liquor, narcotics or tobacco in any form in the Center or Building.
19. Client shall not use the office(s) for lodging or sleeping or for any immoral or illegal purposes.
20. Client shall not modify existing locks or install additional locks or bolts of any kind on any of the doors or windows of the Center.
21. Before leaving the Office(s) unattended for an extended period of time, Client shall close and securely lock all doors and shut off all light and other electrical apparatus. Any damage resulting from failure to do so shall be paid by Client.
22. Premier shall not be responsible for any loss, damage or theft of any property belonging to Client or any employee, agent or invitee of Client.
23. Client shall use only telecommunications systems and services as provided by Premier at Premier's standard rates.
24. Neither Client nor Client's employees, agents, representatives or invitees shall participate in any type of harassment or other disruptive behavior, whether verbal or physical, in the Center or Building.
Premier reserves the right to make such other Rules and Regulations that in its judgment may from time to time be needed for the safety, care and cleanliness of the Center. Premier shall not be responsible for the failure of any other client or their guests to comply with any of the Rules and Regulations, but shall use reasonable efforts to uniformly enforce all Rules and Regulations.
Exhibit 10.11
ADVANCEME, INC.
[ ]1029131
Agreement dated May 12, 2004 between ADVANCEME, INC. (the "Company") and the merchant listed below ("Merchant").
MERCHANT INFORMATION
Type of Entity: [x] corporation [ ] limited liability company [ ] partnership
[ ] limited partnership [ ] limited liability partnership [ ] sole partnership
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Physical address: 10940 Wilshire Boulevard City: Los Angeles State: CA Zip: 90024
------------------------ ----------- -- -----
Mailing address: 10940 Wilshire Boulevard City: Los Angeles State: CA Zip: 90024
------------------------ ----------- -- -----
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Date business started (mm/yy): 01/03 Federal ID or SS#: 651167067
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Contact Name: Matt Schissler Position: owner
----------------------------- ----------------
Phone: (310) 443-4153 Fax: (310) 443-4154 Email: Web Site:
-------------- -------------- ---------- ------------
Bank Name: Bank of America City: Los Angeles State: CA
------------------ -------------- -------
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PURCHASE AND SALE OF FUTURE RECEIVABLES
Upon payment by the Company to the Merchant of the purchase price specified below (the "Purchase Price"), the Company will hereby be purchasing from the undersigned Merchant and Merchant will hereby be selling to the Company, Merchant's interest in the percentage specified below (the "Specified Percentage") of each of its future credit card receivables (the "Future Receivables") due to Merchant from a credit card processor acceptable to the Company ("Processor") until the amount specified below (the "Specified Amount") of Future Receivables has been delivered by Merchant to the Company.
Purchase Price: = $21,000.00 Specified Percentage: = 17%
---------- ---
Specified Amount: = $28,404.00
----------
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Merchant (i) agrees to enter into an agreement ( the "Processing Agreement") acceptable to the Company with Processor to obtain credit and processing services and (ii) hereby authorizes the Processor to pay the cash attributable to the Specified Percentage of each of the Future Receivables to the Company rather than to the Merchant until the Company receives the cash attributable to the Specified Amount of Future Receivables from the Processor.
PERSONAL GUARANTEE
The owners of Merchant (such owners, whether shareholders, partners or other owners are referred to herein as "Owners") hereby guarantee Merchant's performance of all of the covenants made by Merchant in this Agreement, including the covenants contained in the next sentence (the "Merchant Contractual Covenants"). Merchant agrees (i) to conduct its business consistent with past practice; (ii) to exclusively use Processor for the processing of all its credit card transactions; (iii) not to take any action to discourage the use of credit cards or to permit any event to occur which could have an adverse effect on the use, acceptance or authorization of credit cards for the purchase of Merchant's services and products; (iv) not to change its arrangement with Processor in any way which is adverse to the Company; (v) not to take any action that has the effect of causing the credit card processor through which the major credit cards are settled to be changed from Processor to another credit card processor; and (vi) not to sell, dispose, convey or otherwise transfer its business or assets without the express prior written consent of the Company and the assumption of all of Merchant's obligations under this Agreement pursuant to documentation reasonably satisfactory to the Company.
MERCHANT
By: Matthew L. Schissler /s/ Matthew L. Schissler
--------------------------------------- ---------------------------
(Print Name) (Signature)
WITNESS
By: Stephanie A, Schissler /s/ Stephanie A. Schissler
--------------------------------------- ---------------------------
(Print Name) (Signature)
OWNER/GUARANTOR
By:
--------------------------------------- ---------------------------
(Print Name) (Signature)
By:
--------------------------------------- ---------------------------
(Print Name) (Signature)
WITNESS
By:
--------------------------------------- ---------------------------
(Print Name) (Signature)
ADVANCEME, INC.
By: /s/ Miriam Adelberg Associate Name: Miriam Adelberg
-------------------- ---------------
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To the extent set forth herein, each of the parties is obligated upon their execution of the Agreement.
The above-signed represents that he or she is authorized to sign this Agreement for Merchant and that the information provided in this and all of the Company's forms is true and accurate in all respects. If the information is false or inaccurate, the Merchant shall be deemed in material breach of all agreements between the Merchant and the Company and the Company shall be entitled to all remedies available under law.
The Company may produce a monthly statement reflecting the delivery of the Future Receivables from the Merchant via the Processor. Merchant hereby agrees to a $0 administrative fee per month for the production of the monthly statement and further agrees that the Company may debit such administrative fee from the Merchant's bank account each month via the automated clearing house system.
An investigative or consumer report may be made in connection with the Merchant Agreement. Merchant and each of the above-signed authorizes the Company and its agents and representatives and any credit reporting agency employed by the Company to investigate any references given or any other statements of data obtained from or about Merchant or any of its principals for the purpose of this Agreement and to pull credit reports at any time now or in the future on the Merchant and Owner/Guarantor(s).
ADVANCEME, INC.
ADDITIONAL TERMS OF THE MERCHANT AGREEMENT
Capitalized terms used but not defined in these Additional Terms of the Agreement shall have the meanings assigned to such terms on the face of this Agreement.
I. PROCESSING AGREEMENT.
Section 1.1. Processing Agreement. Merchant understands that the Processing Agreement (as well as the authorization set forth on the face hereof) irrevocably authorizes Processor to pay the cash attributable to the Specified Percentage of each of the Future Receivables to the Company rather than to Merchant until the Company receives the cash attributable to the Specified Amount of Future Receivables from Processor. This authorization may only be revoked with the prior written consent of the Company. Merchant agrees that Processor may rely upon the instructions of the Company, without any independent verification, in making the cash payments described above. Merchant waives any claim for damages it may have against Processor in connection with actions taken based on instructions from the Company unless such damages were due to Processor's failure to follow the Company's instructions. Merchant understands that (a) Processor will be acting on behalf of the Company with respect to the Specified Percentage of Future Receivables until the cash attributable to the Specified Amount of Future Receivables has been remitted by Processor to the Company, (b) the Company is not affiliated with the Processor and has no relationship with the Processor other than through the Processing Agreement, (c) the Company does not have any power or authority to control Processor's actions with respect to the processing of credit card transactions and (d) the Company is not responsible for Processor's actions and agrees to hold the Company harmless for the actions of Processor.
Section 1.2. Merchant Instructions to Processor. The Merchant will irrevocably instruct the Processor to hold the Specified Percentage of the Future Receivables on behalf of the Company and to remit directly to the Company the cash attributable to such Specified Percentage at the same time it remits to Merchant the cash attributable to the balance of such Future Receivables which was not sold to the Company by Merchant.
Section 1.3. Transactional History. Merchant acknowledges and agrees that Processor may provide the Company with Merchant's credit card history without the prior consent of the Merchant.
Section 1.4. Indemnification of Processor. Merchant indemnifies and holds Processor, its officers, directors, affiliates, employees, agents and representatives harmless from and against all losses, damages, claims, liabilities and expenses (including reasonable attorneys' fees) suffered or incurred by Processor resulting from actions taken by Processor in reliance upon information or instructions provided to Processor by the Company.
Section 1.5. No Liability for Processor. In no event will the Processor be liable for any claims asserted by the Merchant under any theory of law, including any tort or contract theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is hereby expressly waived by the Merchant.
Section 1.6. Processor Commissions. The Company and Merchant understand that Processor will charge a fee or commission for processing receipts representing Future Receivables which have become actual receivables (the "Processor's Fee") as set forth in the Processing Agreement. The Company and the Merchant understand that with respect to each such receipt, Processor will deduct a pro rata portion of the Processor's Fee from each such receipt based on the relative size of the cash attributable to the Specified Percentage of such Future Receivable sold by Merchant to the Company and the cash attributable to the portion of such Future Receivable which was retained by Merchant.
Section 1.7. No Modification of Processing Agreement. Merchant will comply with the Processing Agreement and will not modify the Processing Agreement in a manner that could have an adverse effect upon the Company's interests, without the Company's prior written consent.
Section 1.8. Processing Trial; Decision to Purchase Future Receivables. After this Agreement has been signed by both the Merchant and the Company but prior to the Company's determination as to whether to pay the Purchase Price, Merchant agrees to permit the Company to instruct the Processor to conduct a short processing trial (the "Processing Trial") in order to ensure that the Merchant's credit card transactions are being correctly processed through Processor and that the cash attributable to the Specified Percentage of any Future Receivables purchased by the Company is being appropriately remitted to the Company. The Company agrees to make a determination as to whether to purchase the Specified Amount of Future Receivables promptly after the commencement of the Processing Trial. If the Company determines to purchase Specified Amount of Receivables, then all of the cash received by the Company in connection with the Processing Trial prior to the payment of the Purchase Price shall be applied to reduce the Specified Amount. Nothing herein shall create an obligation on behalf of the Company to purchase any Future Receivables, and the company expressly reserves the right to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price to Merchant. If the Company decides to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price, this Agreement shall have no further effect and the Company shall, promptly after receipt from the Processor, return to the Merchant any cash received by the Company in connection with the Processing Trial.
Section 1.9. Additional Amount. In the event that the amount of cash remitted by Processor to the Company pursuant to this Agreement exceeds the Specified Amount (such cash being the "Excess Cash") by at least $20.00, the Company agrees to pay such Excess Cash to Merchant promptly after receipt thereof by the Company. In the event the Excess Cash is less than $20.00, the Company agrees to pay such Excess Cash to Merchant promptly after the receipt of a written request from Merchant within six months for such Excess Cash. The Merchant acknowledges that the Company has no
obligation to take any action (including against the Processor) with respect to any cash being held by Processor, which will become Excess Cash once it is paid by the Processor to the Company, prior to the receipt of such Excess Cash by the Company.
Section 1.10. Reliance on Terms. Sections 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8 and 1.9, and this Section 1.10, as well as provisions on the face of this Agreement are agreed to for the benefit of Merchant, the Company and Processor, and notwithstanding the fact that Processor is not a party to this Agreement, Processor may rely upon their terms and raise them as a defense in any action. No amendment to, or modification or deletion of, any of the aforementioned Sections shall be made without the prior written consent of Processor.
II. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
Merchant and the Owners represent, warrant and covenant that as of this date and during the term of this Agreement:
Section 2.1. Merchant Contractual Covenants. Merchant agrees to comply with the Merchant Contractual Covenants set forth on the face of the Agreement.
Section 2.2. Information Regarding Business. The information (financial and other) provided by or on behalf of Merchant to the Company in connection with the execution of or pursuant to this Agreement is true and correct in all material respects. Merchant shall furnish the Company and Processor such information as the Company may request from time to time.
Section 2.3. Reliance on Information. Merchant acknowledges that the information (financial and other) provided by Merchant has been relied upon by the Company in connection with its decision to purchase the Future Receivables.
Section 2.4. Governmental Approvals. Merchant possesses and is in compliance with all permits, licenses, approvals, consents and other authorizations necessary to conduct its business. Merchant is in compliance with any and all applicable federal, state and local laws and regulations. Merchant possesses all requisite permits, authorizations and licenses to own, operate and lease its properties and to conduct the business in which it is presently engaged.
Section 2.5. Authorization. Merchant, and the person(s) signing this Agreement on behalf of Merchant, have full power and authority to enter into and perform the obligations under this Agreement and the Processing Agreement, all of which have been duly authorized by all necessary and proper action.
Section 2.6. Insurance. Merchant will maintain insurance in such amounts and against such risks as are consistent with past practice and shall show proof of such insurance upon the reasonable request of the Company.
Section 2.7. Change Name or Location. Merchant will not conduct Merchant's businesses under any name other than as disclosed to Processor or the Company or change any of its places of business.
Section 2.8. Merchant Not Indebted to Company. The Merchant is not a debtor of the Company as of the date of this Agreement.
Section 2.9. Exclusive Use of Processor. Merchant understands that the services of the Processor is the exclusive means by which the Merchant can process its credit card transactions.
III. ADDITIONAL TERMS.
Section 3.1. Sale of Future Receivables. Merchant and the Company agree that the Purchase Price paid by the Company in exchange for the Specified Amount of Future Receivables in a purchase of the Specified Amount of Future Receivables and is not intended to be, nor shall it be construed as, a loan from the Company to Merchant.
Section 3.2. No Right to Repurchase. Merchant acknowledges that it has no right to repurchase the Specified Amount of Future Receivables from the Company.
Section 3.3. Term of the Agreement. This Agreement shall be in full force and effect until the Specified Amount of Future Receivables has been delivered by Merchant to the Company.
Section 3.4. Recision of Agreement. Merchant agrees that in the event that the representations and warranties in Sections 2.2 or 2.7 are not true and correct, the Company shall be entitled to rescind this Agreement and to the return (and Merchant agrees to so return) of the Purchase Price less any cash attributable to Future Receivables that has been received by the Company. Merchant agrees that the Company may automatically debit such recision amount from Merchant's bank account via the automated clearing house system or wire transfer.
Section 3.5. Remedies. In the event that any of the representations and warranties contained in this Agreement are not true and correct or in the event of a breach of any of the covenants contained in this Agreement, including the Merchant Contractual Covenants, the Company shall be entitled to all remedies available under law, including but not limited to the right to non-judicial foreclosure. In the event that Merchant breaches the specified Merchant Contractual Covenant (v) on the face of this Agreement, the Merchant agrees that the Company will be entitled to, but not limited to damages equal to the amount by which the cash attributable to the Specified Amount of Future Receivables exceeds the amount of cash received from Future Receivables exceeds the amount of cash received from Future Receivables that have previously been delivered by Merchant to the Company under this Agreement. Merchant hereby agrees that the Company may automatically debit such damages from Merchant's bank account via an automated clearing house system or wire transfer.
Section 3.6. UCC-1 Financing Statement. To secure the performance of the Merchant Contractual Covenants and all of the other obligations of the Merchant to the Company under this Agreement, Merchant grants to Company a continuing priority security interest, subject only to the security interest of the Processor, if any, in the following property of the Merchant: (a) All accounts, chattel paper, documents, equipment, general intangibles, instruments, inventory (as those terms are defined in Article 9 of the Uniform Commercial Code in effect from time-to-time in the State of New York) wherever located, now or hereafter owned or acquired by the Merchant; (b) All trademarks, trade names, service marks, logos and other sources of business identifiers, and all registrations, recordings and applications with the U.S. Patent and Trademark Office and all renewals, reissues and extensions thereof (collectively "Trademarks") whether now owned or hereafter acquired, together with any written agreement granting any right to use any Trademarks; and (c) All proceeds, as that term is defined in Article 9 of the Uniform Commercial Code. Merchant understands that the Company will file one or more UCC-1 Financing Statements prior to each sale of Future Receivables in order to perfect the interest created under the U.C.C. upon the sale. The UCC-1 Financing Statements will state that the sale of the Future Receivables is intended to be a sale and not an assignment for security.
IV. MISCELLANEOUS.
Section 4.1. Modifications; Amendments. No modification, amendment, or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the party affected.
Section 4.2. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by mail, overnight delivery or hand delivery to the respective parties to this Agreement. Notice to the Company shall be sent to the following address:
Advanceme, Inc.
c/o Office of Corporate Secretary
2 Overhill Road, Suite 410
Scarsdale, NY 10583-5323
Section 4.3. Waiver; Remedies. No failure on the part of the Company to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
Section 4.4. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Merchant, the Company and their respective successors and assigns, except that Merchant shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Company which consent may be withheld in the Company's sole discretion. The Company reserves the right to assign this Agreement with or without prior notice to Merchant.
Section 4.5. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. Merchant hereby submits to the jurisdiction of any New York state or federal court sitting in the Borough of Manhattan of The City of New York or any Georgia state or federal court sitting in Cobb County. Merchant hereby waives any claim that the action is brought in an inconvenient forum, that the venue of the action is improper, or that this Agreement or the transactions of which this Agreement is a part may not be enforced in or by any of the above-named courts.
Section 4.6. Costs to Enforce Merchant Agreement Payable by Merchant. The Company shall be entitled to receive from Merchant and Merchant shall pay, all reasonable costs associated with a breach by Merchant of the Merchant Contractual Covenants or other obligations or any of the representations and warranties of the Merchant and the enforcement thereof, including but not limited to court costs and attorney's fees.
Section 4.7. Survival of Representations, etc. All representations, warranties and covenants herein shall survive the execution and delivery of this Agreement and shall continue in full force and effect until all obligations under this Agreement shall have been satisfied in full and this Agreement shall have terminated.
Section 4.8. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
Section 4.9. Entire Agreement. This Agreement contains the entire agreement and understanding between Merchant and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof unless otherwise specifically reaffirmed or restated herein.
Section 4.10. Jury Trial Waiver. The parties hereto waive trial by jury in any court in any suit, action or proceeding on any matter arising in connection with or in any way related to the transaction of which this agreement is a part or the enforcement hereof, except where such waiver is prohibited by law or deemed by a court of law to be against public policy. The parties hereto acknowledge that each makes this waiver knowingly, willingly and voluntarily and without duress, and only after extensive consideration of the ramifications of this waiver with their attorneys.
EXHIBIT 10.12
PROMISSORY NOTE
FOR VALUE RECEIVED, CORD BLOOD AMERICA, INC., a Florida corporation (the "Maker"), promises to pay to the order of Thomas R. Walkey (the "Payee"), the principal amount of Five Hundred Thousand United States of America Dollars (U.S. $500,000.00), together with simple interest on the principal amount of this Promissory Note (the "Note") from time to time outstanding at the rate of eight percent (8%) per annum.
MONTHLY PAYMENTS. Commencing on February 15, 2005, and continuing on the fifteenth day of each calendar month thereafter through and including July 15, 2005, the Maker shall pay to the Payee or other holder hereof an amount equal to five percent (5%) of the Maker's consolidated revenues, determined in accordance with generally accepted accounting principles applied on consistent basis with prior periods, for the immediately preceding calendar month. Any amount paid to the Payee or other holder hereof shall be applied first to interest accrued to the date of such payment and then to the principal amount of this Note then outstanding. The entire principal amount of this Note, together with any and all unpaid interest accrued thereon, shall be finally due and payable on August 15, 2005.
PRE-PAYMENT. The principal amount of this Note and any interest accrued thereon may be prepaid in whole or in part at any time prior to maturity without premium or penalty of any kind.
EVENTS OF DEFAULT. The occurrence of any one or more of the following events or conditions shall constitute an "Event of Default" under this Note:
(a) The Maker shall fail for any reason to make any payment, whether of principal, interest or otherwise, when due and payable pursuant to the provisions of this Note;
(b) The Maker shall fail to observe or to perform any or all of its material agreements, covenants and obligations, or shall otherwise breach, violate or default under, any material agreement, note, mortgage, lease, contract, guaranty or other instrument to which it is a party or by which it or a substantial portion of its properties or assets are bound;
(c) A final judgment shall be entered against the Maker which is not satisfied or bonded in full within sixty (60) days after the date of the entry thereof;
(d) Any or all of the assets and properties of the Maker shall be levied upon, seized or attached;
(e) The Maker shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) file a voluntary petition under any bankruptcy, insolvency or other law for the relief or aid of debtors, (iii) make any assignment for the benefit of its creditors or (iv) enter into any composition agreement;
(f) An involuntary petition shall be filed against the Maker under any bankruptcy, insolvency or other law for the relief or aid of debtors, which involuntary petition is not dismissed within sixty (60) days after the date of the filing thereof;
(g) Any court of competent jurisdiction shall find that the Maker is insolvent or bankrupt;
(h) A receiver or trustee shall be appointed for the Maker or for all or a substantial portion of its assets and properties; or
(i) The Maker shall cease to conduct its business, adopt any plan of liquidation, liquidate or dissolve.
REMEDIES. Upon the occurrence of any Event of Default, at the option of the Payee or other holder hereof:
(1) all amounts outstanding hereunder, whether principal, interest or otherwise, shall become immediately due and payable;
(2) simple interest shall accrue on the then outstanding principal amount hereof from the date of any such Event of Default to the date of payment in full of the then outstanding principal amount hereof at the highest rate of interest permitted by the laws of the State of Florida; and
(3) the Maker shall pay all reasonable costs and expenses of collection of this Note, including without limitation reasonable attorneys' fees, costs and expenses, paid or incurred by the Payee or other holder hereof, whether paid or incurred in connection with collection by suit or otherwise.
WAIVERS. The Maker and each endorser of this Promissory Note severally waives demand, protest, presentment and notice of maturity, non-payment or protest and any and all requirements necessary to hold each of them liable as a maker or endorser hereof.
The waiver by the Payee or other holder of this Promissory Note of the Maker's prompt and complete performance of, or default under, any provision of this Promissory Note shall not operate nor be construed as a waiver of any subsequent breach or default and the failure by the Payee or other holder hereof to exercise any right or remedy which it may possess hereunder shall not operate nor be construed as a bar to the exercise of any such right or remedy upon the occurrence of any subsequent breach or default.
GOVERNING LAW. This Note shall be governed by, and shall be construed and interpreted in accordance, with the laws of the United States of America and the State of Florida, without giving effect to the principles of conflicts of laws thereof.
ENTIRE AGREEMENT. This Note constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and arrangements, both oral and written, between the parties with respect to such subject matter. This Note may not be modified, amended, altered or changed unless by a written instrument executed and delivered by the Maker.
BENEFITS; BINDING EFFECT. This Note shall be for the benefit of, and shall be binding upon, the parties hereto and their respective successors and assigns.
HEADINGS. The headings contained in this Note are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions hereof.
IN WITNESS WHEREOF, the Maker, by and through its undersigned officer thereunto duly authorized, has executed and delivered this Note on August 12, 2004.
CORD BLOOD AMERICA, INC.
By /s/Matthew L. Schissler
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Matthew L. Schissler,
Chairman and Chief Executive Officer
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