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CBAI > SEC Filings for CBAI > Form 10-K on 1-Apr-2013All Recent SEC Filings

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

Form 10-K for CORD BLOOD AMERICA, INC.


1-Apr-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Cord's operations provide umbilical cord blood banking services to expectant parents throughout all 50 United States and Puerto Rico. The Company's 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 for a period of time through outsourced laboratory partners, Bergen Community Blood Services and Progenitor Cell Therapy, LLC, (PCT). In March 2010, Cord began to process and store cord blood in its own facility in Las Vegas. Cord provides the following services to each customer.


? Collection Materials. A medical kit that contains all of the materials and instructions 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 infectious disease 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. The cord blood sample is tested for stem cell concentration levels and blood type. The maternal samples are 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 twenty five years when stored in this manner and theoretically could be maintained at least as long as the normal life span of an individual.

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., collects, processes and stores cord blood samples as a private bank for use in current or future medical therapies in Argentina, Uruguay and Paraguay.

Critical Accounting Policies

CBAI defines critical accounting policies as those that are important to the portrayal of its financial condition and results of operations and require estimates and assumptions based on the Company's judgment of changing market conditions and the performance of its assets and liabilities at any given time. In determining which accounting policies meet this definition, the Company considered its policies with respect to the valuation of our assets and liabilities and estimates and assumptions used in determining those valuations. The Company believes the most critical accounting issues that require the most complex and difficult judgments and that are particularly susceptible to significant change to our financial condition and results of operations include the following:

? determination of the level of allowance for bad debt

? deferred revenue

? revenue recognition

? valuation of derivative instruments

Accounts Receivable

Accounts receivable consist of the amounts due for the processing and storage of umbilical cord blood, placenta collection and whole cord blood collection, advertising, commercial production and internet lead generation. Accounts receivable relating to deferred revenues are netted against deferred revenue for presentation purposes. The allowance for doubtful accounts is estimated based upon historical experience. The allowance is reviewed quarterly and adjusted for accounts deemed uncollectible by management. Amounts are written off when all collection efforts have failed.


Deferred Revenue

Deferred revenue consists of payments for enrollment in the program and processing of umbilical cord blood by customers whose samples have not yet been collected, as well as the pro-rata share of annual storage fees for customers whose samples were stored during the year.

Revenue Recognition

CBAI recognizes revenue under the provisions of ASC 605-25 (previously Staff Accounting Bulletin 104 "Revenue Recognition"). CBAI provides a combination of products and services to customers. This combination arrangement is evaluated under ASC 605-25-25 (previously Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"). ASC 605-25-25 addresses certain aspects of accounting for arrangements under multiple revenue generating activities.

Cord, Stellacure and Bio recognize revenue from both enrollment fees and processing fees upon the completion of processing while revenue from storage fees are recognized ratably over the contractual storage period.

Franchise revenues which are part of Bio's current income are recognized in accordance with ASC 952-605-3, according to requirements for recognizing franchise revenues after "franchise agreement" services are completed and substantially performed. Further, in accordance with ASC 952-605-25-7, the installment or cost recovery accounting method is used to account for a franchise fee revenue only in those exceptional cases when revenue is collectible over an extended period and no reasonable basis exists for estimated collectability

Results of Operations for the Year Ended December 31, 2012 Compared To the Year Ended December 31, 2011

For the year ended December 31, 2012, the Company's total revenue increased to approximately $6.00 million from $5.08 million, an increase of $0.92 million or an 18% 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 17%, and the recurring revenues approximately 13% for the year ended December 31, 2012 versus the prior comparative period of 2011. Two secondary sources of revenue are franchise fees and placenta related sales. As a percentage of revenue in 2012 these two sources were approximately 8% of sales compared to 5% in the comparative year ending period of 2011. Per segment, Cord increased its total revenues by 10% and Bio increased its revenues by over 35% the prior comparative twelve 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 31% to 30%. 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 $0.69 million or 20% to $4.20 million from year ending 2011 to year ending 2012. 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 year ended December 31, 2012 were $5.63 million as compared to $6.75 million for the comparative period of 2011 representing a 17% 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 year ended 2012, depreciation and amortization was $0.79 million as compared to the 2011 year ending period total of $0.78 million.

The Company's loss from continuing operations was $2.39 million versus a loss of $5.87 million for the comparative period, resulting in a reduction of 59%. 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 $3.50 million for the year ended December 31, 2012, a decrease of $3.01 million compared to the comparative period net loss of $6.51 million. A one-time loss of $1.10 million related to the sale of Stellacure through discontinued operations, contributed approximately 33% to the overall net loss for the year ended 2012.


Liquidity and Capital Resources

Total assets at December 31, 2012 were $6.35 million, compared to $7.35 at December 31, 2011. The decrease in the total assets is related to the reserve recorded on the related party receivables from China Stem Cells, Ltd and Vidaplus and the impairment recorded on the Vidaplus equity investment along with the deconsolidation of Stellacure. The total liabilities at December 31, 2012 were $5.84 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue $1.80 million, $0.54 million and $2.34 million 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. $1.70 million of the decrease in total liabilities was related to the elimination of the Stellacure operation and the repayment of promissory notes payable of $1.69 million. The net impact of these changes resulted in total assets exceeding total liabilities by $0.52 million for the period ending December 31, 2012 and a net change of $1.4 million over the comparative period of 2011.

At December 31, 2012, the company had $0.39 million in cash, an increase by $0.21 million or 116% from the prior comparative period of 2011. The Company currently collects cash receipts from operations through Cord and its subsidiary Bio. Cash flows from operations are currently sufficient to fund operations as net cash used in operating activities for the year ended December 31, 2012, decreased $1.71 million or 112% from the prior comparative period of 2011, and resulted in Company operations generating $0.19 of cash for the year ending 2012. During the last 9 months of 2012 there was no increase in notes payable for purposes of working capital or investment in affiliate companies. As a result, net cash used in investing activities decreased by $0.54 million and net cash provided by financing activities decreased from $2.71 million for the year ended December 31, 2011 to $0.43 million for the year ended 2012. This represents a decrease of approximately 84%.

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 nine months, the Company has reduced operating expenses, ended investment in its unconsolidated affiliates, sold its 51% ownership in stellacure GmbH which required ongoing capital, 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 its products, the Company could be forced to curtail or possibly cease operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-04, Fair Value Measurement ("ASU 2011-04"), which amended ASC 820, Fair Value Measurements ("ASC 820"), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 was effective for us beginning January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on the Company's consolidated financial statements or disclosures.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income ("ASU 2011-05"). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 was effective for us beginning January 1, 2012 and is to be applied retrospectively. The adoption of ASU 2011-05 did not have a material effect on the Company's consolidated financial statements or disclosures.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment ("ASU 2011-08"), which amends the guidance in ASC 350-20, Intangibles-Goodwill and Other - Goodwill. ASU 2011-08 provides entities with the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, the entities are required to perform a two-step goodwill impairment test. ASU 2011-08 was effective for the Company beginning January 1, 2012. The adoption of ASU 2011-08 did not have a material effect on the Company's consolidated financial statements or disclosures.


In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The amendments in this update require enhanced disclosures around financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or
(2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The amendments are effective during interim and annual periods beginning after December 31, 2012. The Company does not expect this guidance to have any impact on its consolidated financial position, results of operations or cash flows.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amended the guidance in ASU 2011-08 to simplify the testing of indefinite-lived intangible assets other than goodwill for impairment. ASU 2012-02 becomes effective for annual and interim impairment tests performed for fiscal years beginning on or after September 15, 2012 and earlier adoption is permitted. The Company does not expect this guidance to have any impact on its consolidated financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's consolidated financial statements and supplemental schedule and notes thereto as of December 31, 2012 and 2011, and for each of the two years then ended, together with the independent registered public accounting firm's reports thereon, are set forth on pages F-1 to F-23 of this Annual Report.

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