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CBAI > SEC Filings for CBAI > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for CORD BLOOD AMERICA, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CORD BLOOD AMERICA, INC.


14-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

Forward Looking Statements

In addition to the historical information contained herein, we make statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about our future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and our ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in our periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

The following information should be read in conjunction with our September 30, 2012 condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with our condensed consolidated financial statements and notes thereto for the year ended December 31, 2011 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our annual Report on Form 10-K for the year ended December 31, 2011, as well as our quarterly reports and reports filed on Form 8-K for the relevant periods. We also urge you to review and consider our disclosures describing various risks that may affect our business, which are set forth under the heading "Risk Factors Related to our Business" in our annual Report on Form 10-K for the year ended December 31, 2011.

Recent Developments During the Quarter

Stellacure
Cord Blood America, Inc. (the "Company") entered into an Agreement on waiver of claims, Agreement on Purchase and Assignment of Claims, and Share Purchase Agreement (the "Agreement") with Medivision Betriebsgesellschaft mbH ("Medivision"), along with additional parties as set forth in the Agreement, pursuant to which the Company sold its ownership stake in stellacure GmbH, a German company ("stellacure") to Medivision, and whereby the transaction closed on September 28, 2012. Pursuant to the transaction, except for EUR 33,649.03, the Company waived repayment of its loan to stellacure in the principal amount of EUR 672,980.56 and stellacure's claims against the Company for the Company to pay stellacure the remaining amount under that loan agreement - $69,409.47 or approximately EUR 53,799- were discharged, as were any additional claims stellacure may have against the Company and vice versa. Further pursuant to the transaction: the Company sold and assigned to Medivision the remaining loan amount - EUR 33,649.03 - and its corresponding rights and obligations; Medivision is to pay the Company EUR 33,649.03; and Medivision received the Company's ownership interest in stellacure and paid the Company an additional EUR 51.00.


The other minority shareholders, with the exception of the German Red Cross, sold their positions in stellacure to Medivision pro rata to the Company's terms. A principal of Medivision was also a minority shareholder in stellacure prior to closure of the transaction.

CBA Professional Services, Inc.
On August 10, 2012, the Company filed Articles of Dissolution for CBA Professional Services, Inc., formerly D/B/A BodyCells, Inc., an inactive subsidiary.

Increase in Authorized Shares
On September 25, 2012, the Company's Articles of Incorporation were amended to increase the authorized common stock to 890,000,000 shares, par value $0.0001, up from 250,000,000. This amendment was adopted by the Company's Board of Directors on July 11, 2012, and its Shareholders at a Special Meeting of Shareholders called for this purpose on September 25, 2012.

Summary and Outlook of the Business

CBAI is primarily an umbilical cord blood stem cell preservation company with a particular focus on the acquisition of customers in need of family based products and services.

Cord

The umbilical cord blood stem cell preservation operations provide umbilical cord blood banking services to expectant parents throughout all 50 United States. Our corporate headquarters re-located to Las Vegas, NV from Los Angeles, CA in October 2009. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord blood testing, processing, and some storage were conducted by our outsourced laboratory partner, Progenitor Cell Therapy, LLC, (PCT) in New Jersey. In March 2010, Cord began to process and store cord blood in our own facility. Cord provides the following services to each customer.


? Collection Materials. A medical 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.

? Physician And Customer Support. 24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing any instruction necessary for the successful collection, packaging, and transportation of the cord blood & maternal blood samples.

? Transportation. 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 sample is tested for stem cell concentration levels, bacteria and blood type. The maternal blood sample is tested for infectious diseases. Cord reports these results to the newborn's mother.

? Cord Blood Preservation. After processing and testing, the cord blood unit is cryogenically frozen in a controlled manner and stored 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.

Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, primarily through organic growth.

Stellacure GmbH

Based in Hamburg Germany, Stellacure GmbH collects, processes and stores cord blood samples as a private bank for use in current or future medical therapies in Germany, Spain, and other European and Middle Eastern Countries.

Biocordcell Argentina S.A.

Based in Buenos Aires, Biocordcell Argentina S.A., processes and stores cord blood samples as a private bank for use in current or future medical therapies in Argentina, Uruguay and Paraguay.

Results of Operations for the Three-Months Ended September 30, 2012

For the three months ended September 30, 2012, total revenue increased to approximately $1.51 million from $1.33 million, over the same period of 2011 for a 14% increase. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. The processing fees increased approximately 9%, and the recurring revenues approximately 13% for the three months ended September 30, 2012 versus the prior comparative period of 2011. The remaining revenue consisted primarily of cord tissue related sales. Per segment, Cord increased its total revenues 9%, and Bio increased its revenues 25 % over the same period ending September 30, 2011. Cord remains focused on strategic organic growth which management hopes will provide sustainable operating cash flows, and, positive operating and net income.

Cost of Services as a percentage of revenue remained consistent at approximately 28% for the period ended September 30, 2012 compared to the same prior period of 2011. The cost of services include transportation of the umbilical cord blood from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses. Gross profit increased by approximately $0.13 million or 14% to $1.09 million for the period ending September 30, 2012 from the prior three month period of 2011. The Company anticipates that through the growth and expansion of its Cord business, and continuing efficiencies in its own facilities, direct costs should continue to decrease and gross profits should continue to improve.


Administrative and selling expenses for the three months ended September 30, 2012 were $l.12 million as compared to $1.36 million for the comparative period of 2011 representing a 17% decrease. These expenses are primarily related to marketing/advertising, professional services, allocated facility related expenses and wages for personnel. Generally, each functional unit within administrative and selling expenses has reduced expenses from the prior comparative period. The Company continues to evaluate its expenses and their relationship to revenues for alignment. Depreciation and amortization are included as an administrative expense. For the three month period ending September 30, 2012, depreciation and amortization was approximately $0.20 million versus $0.19 million for the prior comparative period of 2011.

The Company's loss from operations was $0.03 million versus a loss of $.40 million for the comparative period, a reduction of 92%. The Company's net loss was $0.99 million for the period ended September 30, 2012, an increase of of approximately $0.01 million compared to the comparative period net loss of $.98 million. Included in this loss is a one- time expense related to the sale of stellacure of $0.92 million through discontinued operations which accounted for 94% of the total loss for the three month period in 2012.

Results of Operations for the Nine-Months Ended September 30, 2012

For the nine months ended September 30, 2012, the Company's total revenue increased to approximately $4.64 million from $3.93 million, for a18% increase over the same period of 2011. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. The processing fees increased approximately 23%, and the recurring revenues approximately 16% for the nine months ended September 30, 2012 versus the prior comparative period of 2011. Other revenue consisted of franchise revenue and cord tissue related sales. Per segment, Cord increased its total revenues by 10%, and Bio increased its revenues by 34% over the prior comparative nine month period. Cord remains focused on strategic organic growth which management hopes will provide sustainable operating cash flows and net income.

Cost of services as a percentage of revenue decreased from 29% to 27%. The cost of services includes transportation of the umbilical cord blood from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses. Gross profit increased by approximately $0.60 million or 22% to $3.37 million from the prior comparative period. The Company anticipates that through the growth and expansion of its Cord business, and continuing efficiencies in its own facilities, direct costs should continue to decrease and gross profits will continue to improve.

Administrative and selling expenses for the nine months ended September 30, 2012 were $3.64 million as compared to $4.81 million for the comparative period of 2011 representing a 24% decrease. These expenses are primarily related to marketing/advertising, professional services, allocated facility, including utilities, expenses, and wages for personnel. Generally, each functional unit within administrative and selling expenses has reduced expenses. The Company continues to evaluate its expenses and their relationship to revenues for alignment. Depreciation and amortization are included as an administrative expense. For the nine month period, depreciation and amortization was $0.60 million versus $0.57 million for the prior comparative period of 2011.

The Company's loss from operations was $0.08 million versus a loss of $2.04 million for the comparative period, resulting in a reduction of 96%. Included in the income from operations total is a $0.19 million reversal in the accrual for the Bio 2011 earn out. The Company's net loss was $2.11 million for the period ended September 30, 2012, a decrease of $1.72 million compared to the comparative period net loss of $3.83 million. A one-time loss of $1.10 million related to the sale of Stellacure through discontinued operations, and one time gains in net income attributed to the reversal in the Bio accrual for the 2011 earn out, and the debt restructuring with the retirement of the JMJ Financial Notes which resulted in the forgiveness of accrued interest in the amount of $0.12 million, and a decrease in the derivative liability are included in the net loss for the nine months ended September 30, 2012.


Liquidity and Capital Resources

Total assets at September 30, 2012 were $7.32 million, compared to $7.35 at December 31, 2011. Total liabilities at September 30, 2012 were $6.00 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue $1.80 million, $0.61 million and $2.17 respectively. At December 31, 2011, total liabilities were $8.23 consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue $2.26 million, $0.87 and $1.93 million respectively.

At September 30, 2012, the company had $0.37 million in cash an increase by $0.15 million form the prior comparative period of 2011. The Company currently collects cash receipts from operations through Cord and both of its subsidiaries, Bio and Stellacure. Cash flows from operations are currently sufficient to fund operations. During the three month period ended September 30, 2012 there was no increase in notes payable for purposes of working capital or investment in affiliate companies. Net cash used in operating activities for the nine month period ending September 30, 2012 decreased approximately $1.62 million from the prior comparative period of 2011. Net cash used in investing activities decreased by $0.76 million, primarily due to the company limiting additional investment in unconsolidated foreign affiliates during the nine month period ending September 30, 2012. Net cash provided by financing activities decreased from $2.06 million for the nine months ending September 30, 2011 to $0.43 million for the nine month period ending September 30, 2012. This represents a decrease of approximately 83%.

Since inception, the Company has financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. Over the past two quarters, the Company has reduced operating expenses, ended investment in its unconsolidated affiliates and received no additional funding from outside sources for working capital. The Company plans to continue to operate on its cash flows from operations by aligning its expenses with its revenues. If cash flows from operations are significantly less than projected, then the company would need to either cut back on its budgeted spending, look to outside sources for additional funding or a combination of the two. The Company currently does not have any financing agreements in place for additional funding. If the Company is unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, we could be forced to curtail or possibly cease operations.

Inflation

In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosure not applicable to smaller reporting companies.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). Our management, including our chief executive officer and our chief financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. Following this review and evaluation, management collectively determined that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our chief executive officer, our chief operations officer, and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our disclosure controls and procedures are related to a lack of segregation of duties due to the size of the accounting department and to the limited financial resources of the Company. We hired a full time Accountant in January 2011 and a new Controller in April 2011, and we expect his familiarization with the Company will continue to enhance our disclosure controls. We are working closely with the Accountants in our foreign subsidiaries to implement stronger accounting controls. These efforts will enable to further of segregation of duties.

However, any controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


PART II. - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or around September 21, 2011, Lindsay Bays, et. al filed a case against the Company, along with additional defendants Corcell, Inc., Progenitor Cell Therapy, LLC, and Bergen Community Blood Center in the Circuit Court of Kanawha County, West Virginia, case number 11-C-1664, alleging claims of breach of contract, negligence, and other related claims. After the filing, the case was removed by the defendants to the United States District Court for the Southern District of West Virginia, where it was Civil Action No. 2:11-0939. The Plaintiff alleges that she entered into a contract with Corcell, Inc. for the collection and storage of her child's cord blood. She claims that though her child was accepted as a candidate for autoreinfusion treatment of her child's cerebral palsy in the Duke University Pediatric Blood and Marrow Transplant Program, her child was unable to participate, purportedly due to the defendants' actions in labeling and shipping the blood. She sought monetary damages for injuries and losses, punitive damages, interest and attorneys' fees. On or around December 5, 2011, the Company filed a Motion to Dismiss the action. Defendants Progenitor Cell Therapy, LLC and Bergen Community Blood Center also filed motions to dismiss.

On or around May 8, 2012, the Court denied the Company's Motion to Dismiss, without prejudice, and further ordered that the Plaintiffs be given leave until July 16, 2012 to conduct jurisdictional discovery regarding the Company's and CorCell's contacts with the state of West Virginia and granting the Company leave to, by motion, renew its challenge to personal jurisdiction no later than July 23, 2012. The Court granted motions to dismiss for lack of personal jurisdiction filed by defendants Progenitor Cell Therapy, LLC and Bergen Community Blood Center. On July 18, 2012, Plaintiff and the Company filed a Stipulation of Dismissal Pursuant to Rule 41(A), dismissing the case against Cord Blood America, Inc., without prejudice. In the event Plaintiff files another case involving these circumstances, the Company will continue to vigorously defend against the claims.

ITEM 1A. Risk Factors.

A description of our risk factors can be found in " Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2011. There were no material changes to those risk factors during the nine months ended September 30, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE

Repurchase of Shares

The Company did not repurchase any of our shares during the Quarter ended September 30, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

NONE


ITEM 6.  EXHIBITS

The following documents are included as exhibits to this Form 10Q:

EXHIBIT    DESCRIPTION

  2.0      Form of Common Stock Share Certificate of Cord Blood America, Inc. (1)

 3.1(i)    Amended and Restated Articles of Incorporation of Cord Blood American,
           Inc. (1)

3.1(ii)    Articles of Amendment to Articles of Incorporation (7)

3.1(iii)   Articles of Amendment to the Articles of Incorporation of Cord Blood
           America, Inc.(12)

3.1(iv)    Articles of Amendment to the Articles of Incorporation of Cord Blood
           America, Inc. (23)

 3.1(v)    Articles of Amendment to the Articles of Incorporation of Cord Blood
           America, Inc. (23)

3.1(vi)    Articles of Amendment to the Articles of Incorporation of Cord Blood
           America, Inc. (26)

 3.2(i)    Amended and Restated Bylaws of Cord Blood America, Inc. (1)

  10.0     Patent License Agreement dated as of January 1, 2004 between PharmaStem
           Therapeutics, Inc. and Cord Partners, Inc. (2)



 10.1    Board Compensation Plan (3)

 10.2    Second Amendment, dated November 26, 2007, to the Securities Purchase
         Agreement, dated as of February 14, 2007, as amended by the First
         Amendment, dated as of April 9, 2007, by and among CorCell, Cord Blood
         America, Inc., and Shelter Island (4)

 10.3    CorCell Security Agreement, dated as of November 26, 2007, by and
         between Cord Blood America, Inc., and Shelter Island (4)

 10.4    Put Option Agreement, dated as of November 26, 2007, by and between Cord
         Blood America, Inc. and Shelter Island (4)

10. 5    Subordination Agreement, dated November 26, 2007, by and between Cord
         Blood America, Inc., CorCell, Career Channel, Inc., the Purchasers and
         Shelter Island (4)

 10.6    Securities Purchase Agreement between the Company and Tangiers dated
         June 27, 2008 (5)

 10.7    Registration Rights Agreement between the Company and Tangiers dated
         June 27, 2008 (5)

 10.8    Employment Agreement between the Company and Joseph Vicente (6)

 10.9    Employment Agreement between the Company and Matthew Schissler (6)


10.10    Fourth Amendment to Securities Purchase Agreement, dated June 3, 2008,
         by and among CorCell, Ltd., the Company, Career Channel, Inc., a Florida
         corporation d/b/a Rainmakers International, and Shelter Island
         Opportunity Fund, LLC (8)

10.11    Form of Common Stock Purchase Warrant to Purchase Shares of Common Stock
         of the Company (8)

10.12    Form of Lock Up Agreement. (8)

10.13    Amendment No. 1 to Securities Purchase Agreement, dated November 25,
         2008 (9)

10.14    Amendment No. 1 to Securities Purchase Agreement dated January 22, 2009
         (10)

10.15    Amendment Agreement, dated as of February 20, 2009, by and among Shelter
         Island Opportunity Fund, LLC, Corcell Ltd. and Cord Blood America, Inc.
         (11)

10.16    Lease for Las Vegas Facility

10.17    2011 Flexible Stock Option Plan

10.18    Compensatory Arrangement for Certain Officers Effective July 13, 2009,
         Stock Options (13)

10.19    Compensatory Arrangement for Certain Officers Effective December 31,
         2009, Stock Options (14)

10.20    Convertible Promissory Note Executed January 6, 2010 between Cord Blood
         America, Inc. and JMJ Financial (15)

10.21    Entered on March 24, 2010 into Investment Agreement to Acquire Majority
         Interest in Stellacure (16)

10.22    Material Agreement between Company and Pyrenees Capital (16)

10.23    Convertible Promissory Note Executed March 24, 2010 between CBAI and JMJ
         Financial (16)

10.24    Convertible Promissory Note Executed March 26, 2010 between CBAI and JMJ
         Financial (16)

10.25    Compensatory Arrangement for Certain Officers Executed July 1, 2010.
         Stock Options (17)

10.26    Senior Secured Note Agreement between Cord Blood America, Inc. and
         Shelter Island Opportunity Fund Executed July 21, 2010. (18)

10.27    Executed Stock Purchase Agreement on September 20, 2010 to Acquire
         Majority Interest in BioCordcell Argentina, SA. (19)

10.28    On March 20, 2011 Cord Blood America, Inc. Entered into a Note and
         Warrant Purchase Agreement with St. George Investments. (21)


 10.29     On January 12, 2011, Cord Blood America, Inc, Entered into a Convertible
           Promissory Note with JMJ Financial and a Liquidated Damages Agreement
           (21).

 10.30     On January 19, 2011, Cord Blood America, Inc. Entered into a Liquidated
           Damages Agreement with Tangiers Capital, LLC. (21)

 10.31     Departure of Directors or Appointment Certain Officers; Election and of
           Directors, Appointment of Certain Officers on May 15, 2012 (22)

 10.32     Entered into Agreement on June 22, 2012 with Shareholders of BioCells
           (23)

 10.33     On June 29, 2012, Cord Blood America, Inc. closed a Securities Purchase
           Agreement with Tonaquint, Inc.(24)

 10.34      On June 29, 2012, Cord Blood America, Inc. closed a Final and Full
           Payment Agreement with JMJ Financial, Inc. (24)

 10.35     Employment Agreement between the Company and Stephen Morgan (25)

 10.36     On September 28, 2012, Cord Blood America, Inc. sold interest in
           stellacure GmbH to Medivision mbH.(27)

   21      List of Subsidiaries (5)

  31.1     Certification of the registrant's Chief Executive Officer and Chief
           Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
           2002 ((Filed Herewith)
. . .
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