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CBAI > SEC Filings for CBAI > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for CORD BLOOD AMERICA, INC.

Form 10-Q for CORD BLOOD AMERICA, INC.


14-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

Forward Looking Statements

In addition to the historical information contained herein, the Company makes 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 the Company's future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and 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 the Company's periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect 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 the Company's June 30, 2013 condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with its condensed consolidated financial statements and notes thereto for the year ended December 31, 2012 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, as well as its quarterly reports and reports filed on Form 8-K for the relevant periods. The Company also urges you to review and consider itsdisclosures describing various risks that may affect its business, which are set forth under the heading "Risk Factors Related to the Company Business" in its Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Developments During the Quarter

The Company announced on May 20, 2013 that it was now offering the collection and storage of mesenchymal stem cells through the cord tissue, and offers this service, branded CordMatrix, as both a stand alone offering and in combination with the umbilical cord blood.

Summary and Outlook of the Business

CBAI is primarily an umbilical cord blood and cord tissue 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 and cord tissue 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 processes and stores cord blood and cord tissue in its own facility. 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 and cord tissue 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 and cord tissue and maternal blood samples.

? Transportation. Manage all logistics for transporting the cord blood and cord tissue unit to the Company's 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 and cord tissue 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.

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

Results of Operations for the Three-Months Ended June 30, 2013

For the three months ended June 30, 2013, total revenue decreased to approximately $1.49 million from $1.70 million, a decrease of 12% over the same period of 2012. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. The remaining revenue consisted primarily of tissue related products which increased at 2%. Per segment, Cord had a decrease of its total revenues of 2%, and Bio had a decrease in its revenues of 25% over the same period ending June 30, 2013. Bio's decrease in revenues were largely impacted by a year over year adjustment to the currency exchange rate of approximately 17%, an increase in the discounts provided for enrollment/processing fees even though the total number of units processed for the period remained consistent with the prior period. The Company 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 increased to 32% for the period ended June 30, 2013 compared to 28% the same prior period of 2012. The cost of services include transportation of the umbilical cord blood and cord tissue 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 decreased by approximately $0.21 million or 17% to $1.01 million for the period ending June 30, 2013 from the prior three month period of 2012. Increases in Bio's expenses and currency adjustments were primary contributors to the reported decrease. The Company anticipates that through the growth and expansion of its Cord business, tighter cost controls and continuing efficiencies in its own facilities, direct costs should decrease and gross profits should improve.


Administrative and selling expenses for the three months ended June 30, 2013 were $1.17 million as compared to $1.22 million for the comparative period of 2012 representing a 4% decrease. These expenses are primarily related to marketing/advertising, professional services, allocated facility related expenses and wages for personnel. 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 June 30, 2013 and June 30, 2012, depreciation and amortization was approximately $0.19 million.

The Company's loss from operations was $0.16 million versus an operating income of $0.20 million for the comparative period. Included in the income from operations total for 2012 was one-time $0.19 million reversal in the accrual for the Bio 2011 earn out. The Company's net loss was $0.51 million for the period ended June 30, 2013, a decrease of $0.67 million compared to the comparative period net income of $0.16 million. The primary contributors to the increase in the loss of net income in the comparative period of 2013 versus 2012 were the reversal in the Bio accrual for the 2012 earn out, the debt restructuring with the retirement of the JMJ Financial Notes which resulted in the forgiveness of accrued interest in the amount of $117,626 and an increase in the derivative and interest liability associated with claims of default made by Tonaquint, and disputed by the Company. Successful resolution of the dispute could result in a reduction to the accrued interest and derivative liability balances. Additionally, in the three month period ending June 30, 2013, the Company expensed $44,227 relating to previously unpaid fees from October 2009 through December 2011 as discovered in the state of Nevada sales and abatement tax audit, which covered the period through March 2013. The Company is current with its obligations to the state, and anticipates no further expenses for past due obligations.

Results of Operations for the Six-Months Ended June 30, 2013

For the six months ended June 30, 2013, the Company's total revenue decreased to approximately $2.94 million from $3.13 million, for a 6.0% decrease over the same period of 2012. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. Other revenue consisted of primarily tissue related products which increased at 24%. Per segment, Cord's revenues decreased less than 1% and Bio's revenues decreased by 14% over the prior comparative period. Bio's decrease in revenues were largely impacted by a year over year adjustment to the currency exchange rate of approximately 14%, along an increase in the discounts provided for enrollment/processing fees even though the total number of units processed for the preiod remained consistent with the prior period. In addition, during the six months ended June 30, 2012, Bio incurred $80,000 of franchise fees, none of which were incurred during the six months ended June 30, 2013. 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 increased to 31% for the period ended June 30, 2013 compared to 27% the same prior period of 2012. The cost of services includes transportation of the umbilical cord blood and cord tissue 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 decreased by approximately $0.25 million or 11 % to $2.03 million from the prior comparative six month period. Increases in Bio's expenses and currency adjustments were primary contributors to the reported decrease. The Company anticipates that through the growth and expansion of its Cord business, tighter cost controls and continuing efficiencies in its own facilities, direct costs should decrease and gross profits should improve.

Administrative and selling expenses for the six months ended June 30, 2013 were $2.27 million as compared to $2.46 million for the comparative period of 2012 representing a 7% 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 6 month period, depreciation and amortization was $0.39 million versus $0.40 million for the prior comparative period of 2012.

The Company's loss from operations was $0.25 million versus an operating income of $0.01 million for the comparative period. Included in the income from operations total for 2012 was one-time $0.19 million reversal in the accrual for the Bio 2011 earn out. The company's net loss was $1.10 million for the period ended June 30, 2013, a decrease of $0.15 million compared to the comparative period net loss of $0.95 million. Contributing to the net loss in the six month period ending June 30, 2013 was an increase in the interest expense and derivative liability associated with claims of default made by Tonaquint, and disputed by the Company. Successful resolution of the dispute could result in a reduction to the accrued interest and derivative liability balances. In the six month period ending June 30, 2013, the Company expensed $44,227 relating to previously unpaid fees from October 2009 through December 2011 as discovered in the state of Nevada sales and abatement tax audit, which covered the period through March 2013. The Company is current with its obligations to the state, and anticipates no further expenses for past due obligations.


Liquidity and Capital Resources

Total assets at June 30, 2013 were $6,397,695, compared to $6,351,659 at December 31, 2012. Total liabilities at June 30, 2013 were $5,909,991consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $1,435,972, $489,222 and $2,486,138 respectively. At December 31, 2012, total liabilities were $5,835,232 consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $1,749,189, $538,278 and $2,336,533 respectively.

For the period ending June 30, 2013, the company had $0.61 million in cash, an increase of 56% from $0.39 million at December 31, 2012. The Company currently collects cash receipts from operations through Cord and its subsidiary, Bio-cells. During the six month period ended June 30, 2013 there was no increase in notes payable for purposes of working capital or investment in affiliate companies. Net cash provided by operating activities for the six month period ending June 30, 2013 was $0.35 million, versus a net use of cash of $0.18 million from the prior comparative period of 2012, an improvement of $0.53 million or 288%. Net cash used in investing activities decreased by $0.13 million. Net cash provided by financing activities decreased $0.44 million from the prior comparative period ending June 30, 2012. The Company did not have any financing activities during six month period ending June 30, 2013, and cash flow from operations continue to be sufficient to fund operations.

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 five consecutive quarters, the Company has reduced operating expenses, ended investment in its foreign 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 the Company operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on the Company's business and operations.


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