3. Discontinued Operations - Cord Blood and Cord Tissue Stem Cell Storage Operations | On February 7, 2018, the Company announced that it entered into an Asset Purchase Agreement, dated as of February 6, 2018 (the “Purchase Agreement”), with California Cryobank Stem Cell Services LLC (“FamilyCord”). At a special meeting (“Special Meeting”) that took place on May 14, 2018, shareholders of the Company voted to approve the sale of essentially all the assets. Upon approval at the Special Meeting, the sale of assets occurred on May 17, 2018. DISCONTINUED OPERATIONS On May 17, 2018, the Company divested its Cord Blood and Cord Tissue Stem Cell Storage Operations (CBCTS) to California Cryobank Stem Cell Services LLC (“FamilyCord”) for $15.5 million cash plus the assumption of net liabilities of $473,538. The sale resulted in the recognition of an after-tax income of $13.9 million, which is reflected on net income from discontinued operations in the Condensed Consolidated Statements of Operations. The Company has classified the CBCTS assets and liabilities as held-for-sale as of December 31, 2017 in the accompanying Condensed Consolidated Balance Sheets and has classified the CBCTS operating results, net of tax, as discontinued operations in the accompanying Condensed Consolidated Statement of operations for all periods presented. Previously, CBCTS was included as the sole operations of the Company. Background Pursuant to the terms of the Purchase Agreement dated as of February 6, 2018, FamilyCord agreed to acquire from CBAI substantially all of the assets of CBAI and its wholly-owned subsidiaries and to assume certain liabilities of CBAI and its wholly-owned subsidiaries. FamilyCord agreed to pay a purchase price of $15,500,000 in cash at closing with $3,000,000 of the purchase price deposited into escrow to secure CBAI’s indemnification obligations under the Purchase Agreement. The sale, which was completed on May 17, 2018, did not include CBAI’s cash, accounts receivables, and certain other excluded assets and liabilities. The assets sold and liabilities transferred in the transaction were the sole revenue generating assets of the Company. The results of operations associated with the assets sold have been reclassified into discontinued operations for periods prior to the completion of the transaction. The following is a summary of assets and liabilities sold, and gain recognized, in connection with the sale of assets to FamilyCord: Other current assets $ 45,391 Total current assets 45,391 Customer contracts and relationships, net of amortization 953,490 Property, plant & equipment, less accumulated depreciation 23,685 Total assets $ 1,022,566 Deferred revenue $ 1,496,104 Total liabilities $ 1,496,104 The gain on sale of assets was reported during the period was determined as follows: Total assets sold $ 1,022,566 Total liability sold 1,496,104 Net liability sold 473,538 Cash received 12,500,000 Cash in escrow 3,000,000 Total consideration 15,500,000 Net gain from sales of assets $ 15,973,538 Additionally, the operating results and cash flows related to assets sold on May 17, 2018 are included in discontinued operations in the consolidated statements of operations and consolidated statements of cash flows for the six months ended June 30, 2018 and June 30, 2017. The following is summary of aggregate carrying amounts of the major classes of assets and liabilities classified as held-for-sale as of June 30, 2018 and December 31, 2017: June 30, 2018 December 31, 2017 ASSETS Inventory $ -- $ 45,762 Property and equipment, net of accumulated depreciation -- 35,152 Customer contracts and relationships, net of accumulated amortization -- 1,049,118 Total assets $ -- $ 1,130,032 LIABILITIES Deferred revenue $ -- $ 1,381,215 Total liabilities $ -- $ 1,381,215 Income From Discontinued Operations The sale of the majority of the assets and liabilities related to the cord blood and cord tissue stem cell operation represents a strategic shift in the Company’s business. For this reason, the results of operations related to the assets and liabilities held for sale for all periods are classified as discontinued operations. The following is a summary of the results of operations related to the assets held for sale for the six months ended June 30, 2018 and 2017: Six-Month Period Ended Six-Month Period Ended June 30, 2018 June 30, 2017 Revenue $ 1,108,381 $ 1,492,334 Cost of services (308,976 ) (346,930 ) Gross profit 799,405 1,145,404 Depreciation and amortization (99,231 ) (155,050 ) Income from Discontinued Operations 700,174 990,354 FamilyCord reimbursement 164,477 -- Gain on sale of assets 15,973,537 -- Income from discontinued operations before taxes 16,838,188 990,354 Income taxes (2,095,000 ) -- Net income from discontinued operations 14,743,188 990,354 The following is a summary of net cash provided by operating activities and investing activities for the assets held for sale for the six months ended June 30, 2018 and June 30, 2017: Six-Month Period Ended Six-Month Period Ended June 30, 2018 June 30, 2017 Cash provided by discontinued operations $ 1,087,004 $ 1,158,295 Cash provided by investing activities of discontinued operations $ 12,500,000 $ -- The following is a summary of the results of operations related to the assets held for sale for the three months ended June 30, 2018 and 2017: Three-Month Period Ended Three-Month Period Ended June 30, 2018 June 30, 2017 Revenue $ 405,502 $ 746,386 Cost of services (136,646 ) (175,996 ) Gross profit 268,856 570,390 Depreciation and amortization (27,431 ) (73,595 ) Income from Discontinued Operations 241,425 496,795 FamilyCord reimbursement 164,477 -- Gain on sale of assets 15,973,537 -- Income from discontinued operations before taxes 16,379,439 496,795 Income taxes (2,095,000 ) -- Net income from discontinued operations 14,248,439 496,795 The following is a summary of net cash provided by operating activities and investing activities for the assets held for sale for the three months ended June 30, 2018 and June 30, 2017: Three-Month Period Ended Three-Month Period Ended June 30, 2018 June 30, 2017 Cash provided by discontinued operations $ 526,869 $ 583,244 Cash provided by investing activities of discontinued operations $ 12,500,000 $ -- |