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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
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FORM 10KSB
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(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities and Exchange Act
of 1934 for the fiscal year ended December 31, 2007.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to ____________.
COMMISSION FILE NUMBER: 000-50746
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CORD BLOOD AMERICA, INC.
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(Name of small business issuer in its charter)
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FLORIDA 65-1078768
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(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)
501 SANTA MONICA BLVD., SUITE 700
SANTA MONICA, CALIFORNIA 90401
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(Address of Principal Executive Offices and Zip Code)
310-432-4090
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(Telephone number, including area code, of agent for service)
With copies to:
Darrin M. Ocasio, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, NY 10006
(212) 930-9700
(212) 930-9725 (fax)
Securities Registered under Section 12(b) of the Exchange Act
None
Securities registered under Section 12(g) of the Exchange Act Common
Stock, par value $.0001 per share
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act: [ ]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
State issuer's revenues for its most recent fiscal year: $5,811,267
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The aggregate market value of the registrant's common stock held by
non-affiliates on April 7, 2008 (based on the closing price of the OTC Bulletin
Board) on such date was approximately $3.6 million.
225,154,440 shares of the issuer's common stock, par value $.0001 per share,
were outstanding as of April 7, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
2007 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PART I.
Item 1. Description of Business 3
Item 2. Description of Property 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Management's Discussion and Analysis 14
Item 7. Financial Statements 19
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 42
Item 8B. Controls and Procedures 42
PART III.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 43
Item 10. Executive Compensation 44
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 45
Item 12. Certain Relationships and Related Transactions 46
Item 13. Exhibits and Reports 47
Item 14. Principal Accountant Fees and Services 53
Signatures 54
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this Form 10-KSB may
contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
Forward-looking statements include, without limitation, our ability to increase
income streams, to grow revenue and earnings, and to obtain additional cord
blood banking revenue streams. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of risks and
uncertainties. These risks and uncertainties include, but are not limited to:
o whether we will continue as a going concern; o whether we will
continue to increase revenues within our core business;
o whether we will generate revenues through offering additional stem
cell services and acquiring other businesses in the stem cell
industry;
o whether we will be successful in achieving our goals of diversifying
revenue streams and working towards profitability;
o whether we are able to meet our financing requirements, and to
ultimately achieve profitable operations
o whether we will gain tremendous value in building a database of
qualified leads with specific demographic information which can be
used to market a number of products and services;
o whether we will be able to further monetize our website traffic
through the use of our web properties, and therefore offset increasing
costs;
o whether we continue to develop new channel sales opportunities through
the addition of strategic referral partnerships with Obstetrics and
Gynecological practices and other healthcare professionals; and
o whether continuing to develop relationships with medical professionals
who work closely with expectant families will further enhance our
long-term growth and profitability.
Given such uncertainties, among others, undue reliance should not be placed on
these forward-looking statements. The Company's past performance is not
necessarily indicative of its future performance. The Company does not
undertake, and the Company specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments, events or
circumstances after the date of such statement.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Cord Blood America, Inc. ("CBAI"), formerly D & A Lending, Inc., was
incorporated in the State of Florida on October 12, 1999. We did not commence
business operations until we acquired Cord Partners, Inc., ("Cord Partners"), a
Florida corporation and wholly owned subsidiary of CBAI, as of March 31, 2004.
CBAI is primarily a holding company whose subsidiaries include Cord
Partners,("Cord") CorCell Co. Inc., CorCell Ltd., (CorCell), CBA Professional
Services, Inc. D/B/A BodyCells, Inc. ("BodyCells"), CBA Properties, Inc.
("Properties"), and Career Channel Inc, D/B/A Rainmakers International ("Rain").
CBAI and its subsidiaries engage in the following business activities:
o Cord specializes in providing private cord blood stem cell
preservation services to families.
o BodyCells is a developmental stage company and intends to be in the
business of collecting, processing and preserving peripheral blood and
adipose tissue stem cells allowing individuals to privately preserve
their stem cells for potential future use in stem cell therapy.
o Properties was formed to hold the corporate trademarks and other
intellectual property of CBAI.
o Rain specializes in creating direct response television and radio
advertising campaigns, including media placement and commercial
production.
We intend to continue the organic growth of CBAI through continued improvement
of internal processes, expanded channel development, direct response and
internet marketing efforts to facilitate increased prospective customer contact.
Additionally, we will be concentrating our efforts on building additional sales
channels through health insurance partners, obstetrics and gynecological
practices and other healthcare professionals, hospitals and other health care
influencers. We also hope to leverage our growth through mergers and/or
acquisitions of other stem cell preservation companies. We negotiated two
acquisitions in 2006, the first, Cryobank for Oncologic and Reproductive Donors
("Cryobank") and the second, Corcell's operating entity on October 13, 2006, and
which closed on February 28, 2007. On August 20, 2007, we completed the
acquisition of specific assets from CureSource, Inc. We are currently exploring
various acquisition opportunities and will continue to do so. We intend to
continue fund mergers and acquisitions from monies received from debt placements
and/or private placements.
In addition to our current plans related to cord blood banking, we will continue
to implement various growth strategies at Rain which continues to post
increasing profitability. We will focus on increasing revenues while keeping
operating expenses to a minimum.
INDUSTRY BACKGROUND OF CORD
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, umbilical cord and placenta. 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
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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 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
significant fee 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 Cord, 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. Stem cells have been
successfully recovered from cord blood after at least fifteen years of storage
in liquid nitrogen. However, these cells may be able to retain their usefulness
at least as long as the normal life span of an individual.
CORD
SERVICES PROVIDED BY CORD
Cord's customers are typically 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.
Through partnering with Progenitor Cell Therapies, Inc., Cord is able to
provide services to collect, test, process and preserve umbilical cord blood.
Private cord blood banking has been growing in acceptance by the medical
community and has become increasingly popular with families. For an initial fee
of approximately $1,925 and an annual storage fee of approximately $125 for each
year thereafter, Cord provides 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.
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COMPREHENSIVE TESTING. At the laboratory, the cord blood sample is tested
for stem cell concentration levels and blood type. The cord blood sample
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, 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.
At present, all of our cord blood units are tested, processed and stored at,
Progenitor Cell Therapies of Hackensack, New Jersey.
RISK FACTORS
An investment in our common stock involves a very significant risk. You should
carefully consider the following risks and uncertainties in addition to other
information in this prospectus in evaluating our company and its business before
purchasing shares of our company's common stock. Our business, operating results
and financial condition could be seriously harmed due to any of the following
risks. You could lose all or part of your investment due to any of these risks.
RISKS RELATED TO OUR BUSINESS
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION BY OUR INDEPENDENT AUDITORS
WHO HAVE RAISED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING
CONCERN
Our Independent Registered Public Accountants have added an explanatory
paragraph to their audit opinions issued in connection with our consolidated
financial statements which states that our financial statements raise
substantial doubt as to our ability to continue as a going concern. We have
experienced net losses from operations of $5,994,004 for the year ended December
31, 2007 and $5,688,732 for the year ended December 31, 2006. In addition, as of
December 31, 2007 we had a working capital deficit of $8,942,298 and a working
capital deficit of $6,878,777 as of December 31, 2006. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements do not include any adjustment
that might result from the outcome of this uncertainty. Assurances cannot be
given that adequate financing can be obtained 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, we may have to curtail our business
sharply or cease operations altogether. 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, we will be adversely affected and we may have to cease
operations.
WE MAY NOT BE ABLE TO INCREASE SALES OR OTHERWISE SUCCESSFULLY OPERATE OUR
BUSINESS, WHICH COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR FINANCIAL
CONDITION
We believe that the key to our success is to increase sales of our cord blood
preservation services as well as our advertising services and thereby increase
our revenues and available cash. Our success with regard to cord blood
preservation services will depend in large part on widespread market acceptance
of cryo-preservation of cord blood and our efforts to educate potential
customers and sell our services. Broad use and acceptance of our service
requires marketing expenditures and education and awareness of consumers and
medical practitioners. We may not have the resources required to promote our
services and their potential benefits. 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 or
to continue our operations.
Our efforts to increase our sales and revenues of advertising and direct
response marketing services could be adversely impacted by the need for direct
to consumer advertising services and the strength of the United States economy,
especially for the small to mid-sized businesses that comprise the majority of
our client base. Since downturns in the economy have generally had a more severe
effect upon smaller companies, especially single-product companies, any changes
or anticipated changes in the economy which cause these companies to reduce
their advertising, marketing and promotion budget could negatively impact our
advertising and direct response marketing business.
Because of our dependence on a limited number of customers, our failure to
attract new clients for our advertising business could impair our ability to
continue successful operations. The absence of a significant client base may
impair our ability to attract new clients. Our failure to develop and sustain
long-term relationships with our clients would impair our ability to continue
our direct response marketing business, as a significant number of our
agreements for advertising are for short-term or single project engagements. If
our clients do not continue to use our services, and if we are unable to replace
departing clients or generate new business in a timely or effective manner our
business could be significantly and adversely affected.
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We may not be able to increase our sales or effectively operate our business. To
the extent we are unable to achieve sales growth, we may continue to incur
losses. We may not be successful or make progress in the growth and operation of
our business. Our current and future expense levels are based on operating plans
and estimates of future sales and revenues and are subject to increase as
strategies are implemented. 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 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 affected 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 sales could be adversely affected.
WE MAY BE UNABLE TO MANAGE GROWTH, WHICH MAY IMPACT OUR POTENTIAL PROFITABILITY.
Successful implementation of our business strategy requires us to manage our
growth. Growth could place an increasing strain on our management and financial
resources. To manage growth effectively, we will need to:
o Establish definitive business strategies, goals and objectives
o Maintain a system of management controls
o Attract and retain qualified personnel, as well as, develop, train and
manage management-level and other employees
If we fail to manage our growth effectively, our business, financial condition
or operating results could be materially harmed, and our stock price may
decline.
WE ARE DEPENDENT UPON EXTERNAL FINANCING TO FUND OUR ONGOING OPERATIONS AND
IMPLEMENT OUR BUSINESS PLAN.
Currently, we are dependent upon external financing to fund our operations. It
is imperative that we receive this external financing to implement our business
plan and to finance ongoing operations. New capital may not be available and
adequate funds may not be sufficient for our operations, and may not be
available when needed or on terms acceptable to our management. Our failure to
obtain adequate additional financing may require us to delay, curtail or scale
back some or all of our operations and may hinder our ability to expand or
continue our business.
Any additional financing may involve dilution to our then-existing shareholders,
which could result in a decrease in the price of our shares.
WE ARE DEPENDENT UPON A THIRD PARTY FACILITY FOR THE STORAGE OF UMBILICAL CORD
BLOOD; IF OUR STORAGE ARRANGEMENTS TERMINATE OR THE FACILITY FAILS 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. On August
1, 2007, CBAI entered into an agreement with Progenitor Cell Therapy, LLC
("PCT") for testing, processing and storage of cord blood samples, and
terminated an agreement with Bergen Community Regional Blood Center ("Bergen").
If our agreement with PCT 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.
All cord blood collected from our customers is stored in Paramus, New Jersey. If
our storage arrangements with the facility terminate for any reason, 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.
Any material disruption in the 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, break-ins, tornadoes and similar events
for which we may not carry sufficient business interruption insurance to
compensate us for losses that may occur.
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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 that we provide are currently subject to FDA
regulations requiring infectious disease testing. The cord blood facility we use
has registered with the FDA as a cord blood banking service, listed its 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. Consistent with industry practice,
our cord blood collection kits have not been cleared as a medical device.
We may not be able to comply with any future regulatory requirements, including
product standards that may be developed after the date hereof. Moreover, the
cost of compliance with government regulations may adversely affect 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 services and impair
the ability to operate profitably in the future.
Of the states in which we provide cord blood banking services, only California,
New Jersey and New York currently require that cord blood banks be licensed. We
maintain the required licenses in each of these states. If other states adopt
requirements for the licensing of cord blood banking services, either the cord
blood storage facility, or we may have to obtain licenses to continue providing
services in those states.
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 AND OUR ABILITY TO RESPOND TO THE CHANGES.
The use of stem cells in the treatment of disease is a relatively new technology
and is subject to potentially revolutionary technological, medical and
therapeutic changes. Future technological and medical developments could render
the use of stem cells obsolete. 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. Therefore, changes in technology could affect the market for our
services and necessitate changes to those services. We believe that our future
success will depend largely on our ability to anticipate or adapt to such
changes, to offer on a timely basis, services that meet these evolving standards
and demand of our customers. Expectant parents may not use our services and our
services may not 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.
OUR MARKETS ARE INCREASINGLY COMPETITIVE AND, IN THE EVENT WE ARE UNABLE TO
COMPETE AGAINST LARGER COMPETITORS, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Cord blood banking and stem cell preservation is becoming an increasingly
competitive business. 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. Competitors with greater access to financial
resources may enter our markets and compete with us. Many of our competitors
have longer operating histories, larger customer bases, longer relationships
with clients, and significantly greater financial, technical, marketing, and
public relations resources than we do. Established competitors, who have
substantially greater financial resources and longer operating histories than
us, are able to engage in more substantial advertising and promotion and attract
a greater number of customers and business than we currently attract. While this
competition is already intense, if it increases, it could have an even greater
adverse impact on our revenues and profitability. In the event that we are not
able to compete successfully, our business will be adversely affected and
competition may make it more difficult for us to grow our revenue and maintain
our existing business.
The advertising and direct marketing service industry is highly competitive. We
compete with major national and international advertising and marketing
companies and with major providers of creative or media services. The client's
perception of the quality of our creative product, our reputation and our
ability to serve clients are, to a large extent, factors in determining our
ability to generate and maintain advertising business. Our size and our lack of
significant revenue may affect the way that potential clients view us.
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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.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL, WHICH COULD BE DETRIMENTAL TO
OUR OPERATIONS.
Our success largely depends on the efforts and abilities of our Chief Executive
Officer, Matthew L. Schissler. The loss of his services could materially harm
our business because of the cost and time necessary to find his successor. Such
a loss would also divert management's attention away from operational issues. We
do not presently maintain key-man life insurance policies on our Chief Executive
Officer. We also have other key employees who manage our operations and if we
were to lose their services, senior management would be required to expend time
and energy to find and train their replacements. To the extent that we are
smaller than our competitors and have fewer resources, we may not be able to
attract sufficient number and quality of staff.
EXPLANATION OF MATERIAL AGREEMENTS
BLOOD BANK SERVICE AGREEMENT
Pursuant to our Service Agreement with Bergen Community Regional Blood Center
("Bergen"), the blood center would test all cord blood received from CBAI 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. Bergen would be compensated for its services based
upon the number of umbilical cord blood units stored with it by Cord each month.
On August 1, 2007, CBAI entered into an agreement with Progenitor Cell Therapy,
LLC ("PCT") for testing, processing and storage of cord blood samples. As a
result of our agreement with PCT we terminated our agreement with Bergen. We
believe this transition from Bergen to PCT will provide additional leverage to
operating costs and efficiencies while maintaining the highest of quality
standards. Several other blood centers also provide the services currently
provided to us by PCT. If our agreement with PCT 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.
CORCELL ACQUISITION
On October 13, 2006, we entered into an Asset Purchase Agreement with Vita34 for
the assets of CorCell, Inc., to begin the process of acquiring the business of
collection, processing and storage of blood taken from umbilical cord after a
child is born. On February 28, 2007, we completed the acquisition. The
acquisition related to all rights to possession and custody of all acquired
samples owned by CorCell, Inc. and associated with the operations of CorCell,
Inc. which is predominantly the current customer base and revenues. The deal
also included the purchase of cryogenic freezers and other fixed assets used in
this umbilical cord blood samples business. Corcell is not PharmaStem licensed.
ENABLE TRANSACTION
On November 26, 2007, we entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") pursuant to which we issued and sold an
aggregate of $1,931,106.20 principal amount of 0% Senior Convertible Notes (the
"Notes") to accredited investors (the "Purchasers") in a private placement. The
Notes were sold at a 20% discount. A portion of the principal amount of the
Notes in the amount of
8
$680,000 was paid by the Purchasers by converting $544,000 in interest owed by
the Company on outstanding notes. We received gross proceeds of approximately
$1,000,000, of which we used $155,000 for financing costs. As part of the
transaction, the Purchasers were also issued warrants (the "Purchaser Warrants")
to purchase 48,277,655 shares of the Company's Common Stock, $0.0001 par value
per share ("Common Stock"), at the exercise price of $0.037 per share.
On March 10, 2008, we reduced the warrant exercise price of the Purchaser
Warrants from $0.037 to $0.0086, so long as the Warrants were exercised by April
30, 2008, after which time the warrants exercise price would revert to $0.037,
subject to adjustment as provided in the Warrants.
THE 0% SENIOR CONVERTIBLE NOTES
The Notes are due on November 26, 2009. So long as the registration statement
that the Company is required to file pursuant to the Securities Purchase
Agreement and the registration rights agreement entered into in connection
therewith (the "Registration Rights Agreement") (the "Registration Statement"),
is effective, the Company will have the right to prepay, prior to the second
year anniversary of the issuance of the Notes, in cash all or a portion of the
Notes at 120% of the outstanding principal plus accrued interest to the date of
the prepayment. Beginning on May 26, 2008, and continuing on the same date of
each successive month thereafter, the Company shall repay 1/18th of the original
principal amount of the Notes either in cash or in Common Stock, at the
Company's option. If the Company elects to repay the Notes in common stock, the
number of shares issued will be based on the lesser of (i) 10% discount onto the
weighted average price of the 10 trading days immediately preceding (but not
including) the applicable repayment date or (ii) the then conversion price, as
adjusted.
The initial conversion price of the Notes is $0.03 per share. With certain
exceptions set forth in the Notes, if the Company issues common stock at a price
lower than the conversion price of the Notes, or issues convertible securities
with a conversion price lower than the conversion price of the Notes , then the
conversion price of the Notes will be reduced to such price. As a result of the
reduction of the Purchaser Warrants, the conversion price of the Notes has been
reduced to $0.0086, pursuant to Section 7(a) of the Notes.
The Notes contain certain covenants of the Company which the Company must adhere
to while the Notes are outstanding, including that:
o all payments due under the Notes (i) shall rank junior to all
indebtedness of the Company and its subsidiaries as of the issuance
date, (ii) shall rank pari passu with all other convertible notes and
(iii) shall rank senior to all indebtedness of the Company and its
subsidiaries incurred after the issuance date;
o the Company and its subsidiaries shall not incur any indebtedness if
such indebtedness (including the issuance of debt securities) will
result in the ratio at the time of such event(s) to fall below the
lesser of (i) 1.0 and (ii) the ratio existing as of the issuance date;
o the Company shall not enter or incur any liens and shall not permit
any subsidiary to incur indebtedness other than permitted
indebtedness;
o the Company and its subsidiaries shall not make any restricted
payments, except for subordinated debt or subsidiaries of the Company
may make restricted payments to the Company; and
o the Company shall not pay dividends.
Defaults under the Notes include the following:
o If the Registration Statement is required to be maintained effective
and such effectiveness lapses;
o If the Company's common stock is suspended from trading on its
principal trading market;
o A default under any notes executed by the Company;
o If the Company fails to pay interest or liquidated damages when due;
and
o If the Company fails to perform any covenant.
If an event of default occurs, the holders of the Notes may require the Company
to (i) redeem all or any portion of the Notes (ii) convert any portion of the
Notes then held by the holders into shares of common stock, equal to a number of
shares of common stock equal to the principal amount outstanding on the Notes
divided by 96% of the lowest daily volume weighted average price of the common
stock during the 30 trading days immediately prior to the date of such
conversion. Each portion of the Notes subject to redemption by the Company shall
be redeemed by the Company at a price equal to the conversion amount to be
redeemed. During the continuance of an event of default, the Notes shall accrue
interest on any unpaid principal amount at an annual rate equal to 12%.
The holders of the Notes shall not have the right to convert the Notes, to the
extent that after giving effect to such conversion, such holder would
beneficially own in excess of 9.99% of the shares of the Company's Common Stock
immediately after giving effect to such conversion.
9
As previously mentioned, we issued the Purchasers warrants to purchase
48,277,655 shares of the Company's Common Stock at an exercise price of $0.037
per share, which were subsequently reduced to $0.0086. The Purchaser Warrants
may be exercised any time until November 31, 2012.
The Purchaser Warrant holders may not exercise the Purchaser Warrants for a
number of shares of common stock in excess of that number of shares which upon
giving effect to such exercise would cause the aggregate number of shares
beneficially owned by the holder to exceed 9.99% of the outstanding shares of
the common stock following such exercise, except within 60 days of the
expiration of the Warrants.
In connection with this transaction, we executed a security agreement pursuant
to which we granted a security interest and lien on substantially all of our
assets. The lien shall terminate immediately when the Notes and all amounts due
in connection with the Notes are satisfied.
In connection with the transaction, the Company paid placement agent fees in the
amount of $90,000. In addition, we issued the placement agents, including their
employees and affiliates, an aggregate of 5,833,332 warrants (the "Broker
Warrants") to purchase the Company's Common Stock. The Broker Warrants have the
same terms as the Purchaser Warrants, except that, 2,916,666 of the Broker
Warrants have an exercise price of $0.03.
Pursuant to the Registration Rights Agreement, we filed a registration statement
to register the shares of common stock issuable upon exercise of the Purchaser
Warrants and conversion of the Notes. The initial registration statement was
filed on December 28, 2007 and declared effective by January 17, 2008.
SHELTER ISLAND LINE OF CREDIT
On November 26, 2007, the Company entered into a Second Amendment (the "Second
Amendment") 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, Ltd., a Nevada corporation (a subsidiary of the Company) ("Corcell"),
the Company, and Shelter Island Opportunity Fund, LLP ("Shelter Island"),
pursuant to which the Company may borrow an amount not to exceed $1,000,000,
exercisable at its option. Such funds may be drawn down in installments by the
Company in amounts of at least $200,000, or an integral multiple in excess
thereof. In connection with the transaction, the Company issued, executed and
delivered to the Shelter Island the following:
o A Security Agreement (the "Corcell Security Agreement");
o A Secured Original Issue Discount Debenture with a principal amount
not to exceed $1,000,000 (the "Debentures");
o A Common Stock Purchase Warrant to purchase 20,270,270 shares of
Common Stock (the "Shelter Island Warrants");
o A Put Option Agreement; and
o A Subordination Agreement
In the event the Company draws down on the line of credit, it will issue the
Debenture, which matures on May 26, 2010 (the "Maturity Date"). Annual interest
on the Debenture is the greater of (i) the sum of 4.00% plus the Prime Rate on
such date or (ii) 11.75%. Interest on the Debenture is payable in arrears (x)
prior to the Maturity Date, on the last trading day of the second month
immediately succeeding the month in which the first advance is made and on the
last trading day of each month thereafter until the Maturity Date, (y) in full
on the Maturity Date and (z) on demand after the Maturity Date.
The Company issued the Purchasers Shelter Island warrants to purchase 20,270,270
shares of the company's Common Stock at a purchase price of $0.037 per share.
The Shelter Island warrants may be exercised any time until November 31, 2012.
The Company has also granted Shelter Island a put option pursuant to the Second
Amendment pursuant to which Shelter Island can sell the shares issued to Shelter
Island under the Second Amendment back to the Company for the product of (i) the
aggregate of all advances made (whether or not they are then outstanding) by
Shelter Island to Corcell under the Debenture, and (ii) 60.00% (or, on a per put
share basis, such product divided by the total number of put shares) at any time
during the earlier to occur of the following put option exercise periods: (a)
the ten business day period commencing on the first anniversary of the closing
date, or (b) the ten business day period commencing on the date which is nine
months after the date that the registration statement for the registration of
the issued shares is declared effective by the Securities and Exchange
Commission.
In addition, Corcell, a subsidiary of the Company, entered into a Subordination
Agreement in which the Purchasers under the Enable transaction subordinated to
Shelter Island any security interest or lien that Purchasers may have in the
collateral of Corcell. The security interest of Shelter Island shall at all
times be senior to the security interest of the Purchasers.
10
CURESOURCE ASSET ACQUISITION
On August 20, 2007, we completed the acquisition of specific assets from
CureSource, Inc., for the aggregate purchase price of $106,500 in cash and
$10,000 paid in common restricted shares of the company, for a total purchase
price of $116,500. The asset purchase related to the existing customer samples
owned by CureSource, Inc. and associated with the operations of CureSource,
Inc., which predominantly is the current customer base and revenues.
BODYCELLS
BodyCells is a developmental stage company in the business of collecting,
processing and preserving peripheral blood and adipose tissue stem cells that
allows individuals to privately preserve their stem cells for potential future
use in stem cell therapy.
PROPERTIES
Properties holds all of the trademarks and other intellectual property of CBA
and its subsidiaries. The trademarks were applied for in the fourth quarter of
2004. The trademark, "Cord Partners" was registered with the United States
Patent and Trademark office on January 17, 2006.
RAIN
Rain was acquired on February 28, 2005 and is in the business of advertising.
Sources of revenue for Rain include: procuring and placing radio and
television advertising; per-inquiry advertising on radio and television;
production of radio and television commercials, procuring and setting up call
centers; editing, dubbing and distribution of radio and television commercials;
procuring and placing advertising sponsorships in motor sports, procuring and
creating telephone on-hold advertising messages; and procuring and placing print
advertising.
Costs of services associated with the revenues of Rain are as follows: set up
and per minute charges from the procured call center; set up, filming,
recording, creating graphics, editing, dubbing and distribution of commercials
produced; media venue fees for advertising procured; production of on-hold
messaging; digital equipment for on-hold messaging; motor sports sponsorship
inventory; and media venue fees for sales leads generated via per inquiry
advertising.
ADVERTISING AND DIRECT MARKETING
Rain offers its advertising and direct marketing customers a range of services
including:
o the placement of advertising in television and radio outlets;
o the production of advertising content, including television
commercials, and radio copy
o advertising and marketing consulting services relating to the
customer's marketing campaign.
o the placement of motor sports sponsorships; and
o the placement and production of on-hold advertising and messaging.
In performing its advertising agency services, Rain outsources commercial
production services to third party production companies.
Rain's advertising clients are typically small companies for whom its range of
services include, in addition to the placement of advertising, a range of
consulting services which can include assistance in not only developing an
advertising program, but helping the client to design or develop the particular
product or service, determine the appropriate market and design and implement an
overall marketing program and strategy.
FAMILY MARKETING
Family Marketing specializes in delivering leads generated through various forms
of internet advertising to corporate customers in the business of family based
products and services. In the summer of 2006, Company management decided to sell
this business and to redeploy resources to other areas. As a result, on
September 5, 2006, the Company entered into a Stock Purchase Agreement (the
"Purchase Agreement") with Noah Anderson, the President of Family Marketing and
at the time the Chief Technology Officer of the Company. Pursuant to the
Purchase
11
Agreement, the Company sold all assets including customers, websites and related
software and trademarks along with liabilities of Family Marketing to Mr.
Anderson, in exchange for a credit of $82,500 against receivables that Cord
Partners owed Family Marketing and the cancellation of $32,500 in severance
compensation to Mr. Anderson (the "Sale").
COMPETITION
The marketing communications business is highly competitive, with agencies of
all sizes and disciplines competing primarily on the basis of reputation and
quality of service to attract and retain clients and personnel. Companies such
as Integrated Media, Last Second Media, Media Associates, RevShare, Mercury
Media, ChoicePoint Precision Marketing and E&M Advertising generally serve large
corporations. We intend to seek a market niche by providing a full level of
service quality that users of direct marketing services may not receive from our
larger competitors. Most of our advertising clients are smaller companies that
would not typically be sought by the major advertising and marketing companies.
Our customers compete with products of many large and small companies, including
well-known global competitors. We market our customers with advertising,
promotions and other vehicles to build awareness of their brands in conjunction
with an extensive sales force including direct response advertising. We believe
this combination provides the most efficient method of marketing for these types
of products. We believe that we gain a certain level of competitive advantage by
utilizing cost savings from our direct response advertising sector for multiple
customers.
GOVERNMENT REGULATION
The Federal Trade Commission establishes and enforces various regulations put in
place to ensure fair advertising. Because we are not marketing our own products,
and only buying media for other customer products, our liabilities under such
practices are decreased and we protect against advertising any product that does
not meet the highest standards of the FTC guidelines.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
Traditionally, Rain has been dependent on a few major customers. However, in
2007, Rain diversified its advertising strategy and now many customers have
taken the place of a few major customers.
EMPLOYEES
As of December 31, 2007, we have fourteen employees, all of whom are full-time.
Our full time employees include our Chairman of the Board and Chief Executive
Officer, and customer service and sales personnel. We believe our relations with
all of our employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal office is located at 501 Santa Monica Blvd., Suite 700, Santa
Monica, CA 90401. The property is a suite of approximately 2,200 square feet.
The property is leased from an unaffiliated third party for a period of 5 years
ending September 2012. The monthly lease payments are approximately $9,500. The
Company also leases office space of approximately 900 square feet at 506 Santa
Monica Blvd., Suite 217, across the street from its principal office. This two
year term ends in February 2010 and leases for approximately $3,900 per month.
A second office is located at 1717 Arch Street, Suite 1410, Philadelphia, PA
90401. The property is a suite of approximately 7,000 square feet. The property
is leased from an unaffiliated third party for a period of 5 years, renewable
annually in September, ending in September 2012. The monthly lease payments are
approximately $14,000 per month. The Company has negotiated an early termination
to this lease prior to the September 2008 renewal date and relocated to smaller
space of approximately 1,000 square feet at 221 S. 12th St., #314S,
Philadelphia, PA 19106 at an approximate lease amount of $1400 per month..
We maintain fire and casualty insurance on our leased property in an amount
deemed adequate by management.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
None.
12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. Our Common Stock is traded on the OTC Bulletin Board,
under the symbol CBAI.OB.
The following table sets forth, for the periods indicated, the high and low bid
prices of the Company's Common Stock traded on the OTC Bulletin Board for fiscal
years ended December 31, 2007, and December 31, 2006. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
COMMON STOCK
-----------------------------
Fiscal Year 2007 HIGH LOW
---------------------- ---------- ----------
First Quarter $ 0.24 $ 0.087
Second Quarter $ 0.11 $ 0.041
Third Quarter $ 0.065 $ 0.034
Fourth Quarter $ 0.055 $ 0.016
COMMON STOCK
-----------------------------
Fiscal Year 2006 HIGH LOW
---------------------- ---------- ----------
First Quarter $ 0.20 $ 0.13
Second Quarter $ 0.27 $ 0.13
Third Quarter $ 0.15 $ 0.07
Fourth Quarter $ 0.15 $ 0.09
(b) Holders. As of April 7, 2008, our Common Stock was held by approximately 640
shareholders of record. Our transfer agent is Interwest Transfer Company, Inc.,
with offices at 1981 East 4800 South, Suite 100, P.O. Box 17136, Salt Lake City,
Utah 84117, phone number 801-272-9294. The transfer agent is responsible for all
record-keeping and administrative functions in connection with the common shares
of stock.
(c) Dividends. We have never declared or paid a cash dividend. There are no
restrictions on the common stock or otherwise that limit our ability to pay cash
dividends if declared by the Board of Directors. We do not anticipate declaring
or paying any cash dividends in the foreseeable future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the information indicated with respect to our
compensation plans as of December 31, 2007, under which our common stock is
authorized for issuance.
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
ISSUED EXERCISE PRICE OF EQUITY COMPENSATION PLANS
UPON EXERCISE OF OUTSTANDING OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
OPTIONS, WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
(A) (B) (C)
---------------------------- ------------------- -------------------------
Equity compensation plans approved by
security holders 6,027,862 $0.28 1,972,138
-------------------------------------- ------------------------------ ------------------- -------------------------
Equity compensation plans not approved
by security holders N/A
-------------------------------------- ------------------------------ ------------------- -------------------------
Total 6,027,862 1,972,138
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY AND OUTLOOK OF THE BUSINESS
CBAI is 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. We also provide television, radio and internet advertising services to
businesses that sell family based products and services.
We operate two core businesses:
o Cord operates the umbilical cord blood stem cell preservation
operations,
o Rain operates the television, radio, on-hold and motor sports
advertising operations
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 are located in Los Angeles, CA. Cord also
maintains offices in Philadelphia, Pennsylvania, which were the former offices
of the CorCell operations and are leased from CorCell, Inc. 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
storage is conducted by our outsourced laboratory partner, formerly Bergen
Community Regional Blood Services, located in Paramus, New Jersey. On August 1,
2007, CBAI entered into an agreement with Progenitor Cell Therapy, LLC, (PCT)
for testing, processing and storage of cord blood samples. The Company believes
this transition from Bergen to PCT will provide additional leverage to operating
costs and efficiencies while maintaining the highest of quality standards. We
provide the following services to each customer. In addition, some storage
services are provided by ThermoFisher of Rockville, Maryland.
o COLLECTION MATERIALS. We provide 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.
o 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 for the successful
collection, packaging, and transportation of the cord blood & maternal
blood samples.
o TRANSPORTATION. We coordinate the transportation of the cord blood
unit to our laboratory partner, Progenitor Cell Therapies, immediately
following birth. This process utilizes a private medical courier,
Airnet, for maximum efficiency and security.
o 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. We
report these results to the newborn's mother.
o 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.
We believe Cord's revenue and gross profit will benefit from the asset purchase
of CorCell. Going forward, management will continue to assess the market
conditions, particularly related to the cost of customer acquisition, and
whether organic growth or continued M&A activity will lead CBAI closer to
profitability.
RAIN
Rain, the television, radio, on-hold and motor sports advertising operations,
are located in the corporate headquarters in Los Angeles, CA. The offices were
relocated from Carlsbad, CA in September 2006. Rain provides advertising and
direct marketing customers a range of services including:
o the placement of advertising in television, radio, on-hold and motor
sports outlets;
o the production of advertising content, including television
commercials and radio copy, which is outsourced to third party
production companies; and
14
o advertising and marketing consulting services which can include
assistance in not only developing an advertising program, but helping
the client to develop the particular product or service, determine the
appropriate market and design and implement an overall marketing
program and strategy.
A majority of Rain's revenues are earned via direct response media buys and per
inquiry campaigns. For direct response, we currently buy television and radio
schedules for our clients on a national and local level. Our national television
outlets include Directv, DISH Network, Comcast Digital, national cable networks
and various local cable interconnects. We buy time with numerous national radio
networks including Premiere Radio, Clear Channel, Westwood One and Jones Radio
Network, along with a variety of local radio stations. For per inquiry
advertising, we focus on national campaigns. The placements are made using our
internal media buyers and other agencies with which we have formed strategic
marketing alliances. We also generate revenues through the commercial production
aspect of our business using production partners in Florida and California. Our
on-hold advertising is placed on a client's telephone system. Production is
outsourced to AudioMenu of Fort Lauderdale, FL. Motor sports sponsorship is
placed on vehicles in various motor sports circuits. Most advertising has been
placed with BAM Racing; LLC. In January of 2008 we entered in a non-exclusive
agreement with BAM Racing, LLC. The agreement compensates for sales of
sponsorship of NASCAR Sprint Cup Team #49.
BODYCELLS
We are continuing to pursue other growth opportunities by acquisition or
internal growth. The development of BodyCells, which is anticipated to
facilitate the collecting, processing and preserving of peripheral blood and
adipose tissue stem cells allowing individuals to privately preserve their stem
cells for potential future use in stem cell therapy, is currently suspended
pending the identification of an alternative lab to partner.
CONSOLIDATION
On February 28, 2005, Cord Blood entered into a purchase and sale
agreement to purchase 100% of the outstanding shares of Rain through a share
exchange. Because Cord Blood and Rain were entities under common control, this
transaction was accounted for in a manner similar to a pooling of interests.
The shareholders of Rain were issued 3,656,000 shares of common stock in Cord
Blood for all of their outstanding shares of Rain.
GOING CONCERN
Our consolidated financial statements have been prepared assuming we will
continue as a going concern. We had net losses of $5,944,004 for the year ended
December 31, 2007. We had an accumulated deficit of approximately $18,000,000
and a working capital deficit of $8,942,298 as of December 31, 2007. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern. Our financial statements do not include any adjustment that
might result from the outcome of this uncertainty. Assurances cannot be given
that adequate financing can be obtained 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, we may have to curtail our business sharply or
cease operations altogether. 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 effected and we may have
to cutrail or cease operations.
CRITICAL ACCOUNTING POLICIES
We define critical accounting policies as those that are important to the
portrayal of our financial condition and results of operations and require
estimates and assumptions based on our judgment of changing market conditions
and the performance of our assets and liabilities at any given time. In
determining which accounting policies meet this definition, we considered our
policies with respect to the valuation of our assets and liabilities and
estimates and assumptions used in determining those valuations. We believe 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:
o determination of the level of allowance for bad debt;
o deferred revenue; and
o revenue recognition
15
ACCOUNTS RECEIVABLE
Accounts receivable consist of the amounts due for the processing and storage of
umbilical cord blood, 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
periodically and adjusted for accounts deemed uncollectible by management.
Amounts are written off when all collection efforts have failed.
DEFERRED REVENUE
Deferred revenue for Cord 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. For Cord customers who have enrolled
in the Annual Payment Option, revenue is recognized in the amount of each
payment, as received. Deferred revenue for Rain consists of payments for per
inquiry leads that have not yet been delivered or media buys that have not yet
been placed.
REVENUE RECOGNITION
We recognize revenue under the provisions of Staff Accounting Bulletin ("SAB")
104 "Revenue Recognition". Cord provides a combination of products and services
to customers. This combination arrangement is evaluated under Emerging Issues
Task Force (Issue 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.
Cord Blood recognizes revenue from both enrollment fees and processing fees upon
the completion of processing. Storage fees are recognized ratably over the
contractual storage period, unless the customer enrolls in the Annual Payment
Option.
Rain generates revenue from packaged advertising services, including media
buying, marketing and advertising production services. Rain's advertising
service revenue is recognized when the media ad space is sold and the
advertising occurs. Rain's advertising production service revenue is derived
through the production of an advertising campaign including, but not limited to
audio and video production, establishment of a target market and the development
of an advertising campaign.
Our revenue recognition policy involves significant judgments and estimates
about the ability to collect. We assess the probability of collection based on a
number of factors, including past transaction history and/or the
creditworthiness of our clients' customers, which is based on current published
credit ratings, current events and circumstances regarding the business of our
client's customer and other factors that we believe are relevant. If we
determine that collection is not reasonably assured, we defer revenue
recognition until such time as collection becomes reasonably assured, which is
generally upon receipt of cash payment.
COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
CRYOBANK
On January 24, 2006, CBAI completed the acquisition of certain assets from
Cryobank for Oncologic and Reproductive Donors, Inc., a New York corporation,
for the purchase price of $120,000 in cash and $140,000, or 703,518,
unregistered shares of CBAI's common stock. The acquisition related to our
collecting, testing, processing and preserving umbilical cord blood and included
the assets and liabilities associated with approximately 750 umbilical cord
blood samples, as well as three cryogenic freezers used for the storage of such
umbilical cord blood samples.
CORCELL
On February 28, 2007, CBAI completed the acquisition of specific assets from
Corcell for the aggregate purchase price of $5,653,707 in cash and restricted
common stock of the Company and assumption of liabilities. The acquisition
related to existing customer samples owned by Corcell and the associated
operations of Corcell, which predominantly is the current customer base and its
related revenues.
On February 28, 2007, and related to this transaction, the Company entered into
a Promissory Note with CorCell whereby, the Company (i) issued to CorCell a
Promissory Note bearing interest at the rate of 10.5% with an aggregate
principal amount of $250,000, due 4 months from the date of issuance, unless
redeemed prior thereto by CorCell. The Promissory Note is subject to
acceleration upon an event of default, as defined in the Promissory Note.
CorCell was also granted 1,666,667 shares of restricted common stock of the
Company as collateral.
On February 28, 2007, and related to this transaction, the Company entered into
a Convertible Note with CorCell. Pursuant to the Convertible Note, the Company
(i) issued to CorCell a Convertible Note bearing interest at the rate of 9% with
an aggregate principal amount of $212,959, due 6 months from the date of
issuance, unless redeemed prior by CorCell. The Convertible Note also is subject
to acceleration upon an event
16
of default, as defined in the Convertible Note. At the option of CorCell, the
Convertible Note may be converted into restricted common stock at $0.101 per
share, with possible adjustment.
CURESOURCE
On August 20, 2007, we completed the acquisition of specific assets from
CureSource, Inc., for the aggregate purchase price of $106,500 in cash and
$10,000 paid in common restricted shares of the company, for a total purchase
price of $116,500. The asset purchase related to the existing customer samples
owned by CureSource, Inc. and associated with the operations of CureSource,
Inc., which predominantly is the current customer base and revenues.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2006
For the year ended December 31, 2007, our total revenue increased $2.5 million
or 74% to $5.8 million due to two factors: Rain's revenues increased from
approximately $2.2 million in 2006 to approximately $2.6 in 2007, or 20%, as a
result of additional marketing and exposure for our Radio and Television
Advertising services, which resulted in the addition to our customer base and
increased revenue from existing customers. Cord's revenues increased $2.1
million or 180% to $3.2 million, primarily due to the Company's acquisition of
more umbilical cord samples along with customer lists.
Cost of services increased by approximately $791,000 as a result of
substantially higher revenues, but Gross Profit increased from 8.5% of revenues
to 34.0% as economies of scale, especially for the Company's Cord division,
start impacting the Company's results. The Company anticipates that through the
continued growth and expansion of its Cord business, they will increasingly
benefit from economies of scale in that business segment.
Administrative and selling expenses increased by approximately $2.1 million or
54.2% from the prior comparative period to $5.9 million. With the acquisition of
CorCell, the Company has temporarily increased some of its administrative
expenses, until it completes its integration plans. These include an increase in
capital raising expenses and financial consulting charges and fees of $793,000,
loan discounts expensed of $218,000, office, rent and related expenses of
$150,000 and increases of $502,000 in depreciation and amortization, a
consequence of the acquisition of additional equipment and customer lists. The
Company also entered into a consulting arrangement whereby it issued shares in
exchange for negotiating credit terms with its trade suppliers. The Company
expensed fully these charges, totaling approximately $1.4 million. On the other
hand, the cost-cutting measures implemented in 2006 are now being felt for the
entire period. These include a decrease in total labor costs of $222,000, a
reduction in marketing costs of $339,000,. The Company has had to raise
additional debt to finance both its acquisitions as well as its operating
losses. Interest costs remained approximately the same, going from $2,113,000 in
the year ended December 31, 2006 to $2,083,000 in 2007. All interest charges
during the year have been accrued.
Our net loss from continuing operations increased slightly from the comparative
period, increasing 5.4% to $5,994,000.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses from continuing operations of $5,994,000 and
$5,688,732 for the years ended December 31, 2007 and 2006, respectively. At
December 31, 2007, we had $338,828 in cash. However, at December 31, 2007, we
had a working capital deficit of $8,942,298. We will continue to carry a deficit
until such time, if ever, that we can increase our assets and reduce our
significant liabilities which are currently composed of notes payable, accounts
payable and accrued expenses. While reducing the working capital deficit is our
long-term goal, we do not foresee this occurring in the near future. We
currently collect cash receipts from operations through both of our
subsidiaries: Cord and Rain. In addition, the CorCell business also collects
cash receipts through its Pennsylvania office. However, all corporate expenses
such as legal, auditing, investor relations and interest are currently being
paid through Cord. Cord's cash flows from operations are not currently
sufficient to fund operations in combination with these corporate expenses.
Because of this shortfall, we have had to obtain additional capital through
other sources as discussed in Note 7, Notes and Loans Payable.
Since inception, we have financed cash flow requirements through the issuance of
common stock and warrants for cash, services and loans. 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 equity offerings and borrowings to the extent necessary to
provide working capital. Financing may not be available, and, if available, it
may not be available on acceptable terms. Should we secure such financing, it
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. If our
cash flows from operations are significantly less than projected, then we would
either need to cut back on our budgeted spending, look to outside sources for
additional funding or a combination of the two. If we are 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.
17
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF DECEMBER 31, 2007
As of December 31, 2007, total assets increased 821% to $6,733,000, compared to
$731,000 as of December 31, 2006. Items of significance include an increase in
Customer Lists and Customer Contracts of over $4.6 million as a consequence of
the Company's acquisitions, and an increase of approximately $1.2 million of
deferred financing costs resulting from the recording of deferred financing
costs resulting from the issuance of warrants and convertible debentures on the
financing of its acquisition of CorCell
As of December 31, 2007, total liabilities increased 43% to approximately $9.9
million as compared to approximately $6.9 million as of December 31, 2006.
Significant items include increases in accounts payable and accrued expenses of
approximately 109%, to approximately $2.8 million, which is primarily
attributable to the Company's purchase of the liabilities of CorCell. There was
also an 11% increase in promissory notes payable and related derivative
liability, or approximately $566,000 which is primarily as a result of this same
acquisition, along with re-financing of its existing debt, new debt of
$1,162,000, and issuance of derivative liability for $5,435,000, offset by a
reduction in value of $6,885,000.
At December 31, 2007, we had a working capital deficit of approximately
$8,942,298. We will continue to carry a deficit until such time, if ever, that
we can increase our assets and reduce our significant liabilities which are
currently composed of notes payable, accounts payable and accrued expenses.
While reducing the working capital deficit is our long-term goal, we do not
foresee this occurring in the near future.
OFF-BALANCE SHEET ARRANGEMENTS
We do 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
Recently Issued Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 ("FIN No. 48"), to create a single
model to address accounting for uncertainty in tax positions. FIN No. 48
clarifies the accounting for income taxes by prescribing a minimum recognition
threshold in which a tax position be reached before financial statement
recognition. FIN No. 48 also provides guidance on de-recognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN No. 48 is effective for fiscal years beginning
after December 15, 2006. The Company adopted FIN No. 48 as of January 1, 2007,
as required. The adoption of FIN No. 48 did not have an impact on the Company's
financial position and results of operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not expand the use of fair value in any
new circumstances. In February 2008, the FASB issued Staff Position No. FAS
157-1, which amended SFAS No. 157 to exclude SFAS No. 13, Accounting for Leases,
and other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under Statement 13. However,
this scope exception does not apply to assets acquired and liabilities assumed
in a business combination. Also in February 2008, the FASB issued Staff Position
No. FAS 157-2, which delayed the effective date of SFAS No. 157 for
non-financial assets and liabilities, except those items recognized at fair
value on an annual or more frequently recurring basis to fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years. The
Company does not expect SFAS No. 157 will have a significant impact on the
Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS No. 159"). SFAS No. 159 permits entities
to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company does not expect SFAS No.
159 will have a significant impact on the Company's consolidated financial
statements.
In June 2007, the FASB ratified the consensus on Emerging Issues Task Force
("EITF") Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards ("EITF 06-11"). EITF 06-11 requires companies to
recognize the income tax benefit realized from dividends or dividend equivalents
that are charged to retained earnings and paid to employees for non-vested
equity-classified employee share-based payment awards as an increase to
additional paid-in capital. EITF 06-11 is effective for fiscal years beginning
after September 15, 2007. The adoption is not expected to have a significant
impact on the Company's consolidated financial statements.
In June 2007, the FASB ratified the consensus reached on EITF Issue No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services Received for
Use in Future Research and Development Activities ("EITF 07-3"), which requires
that nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and
amortized over the period that the goods are delivered or the related services
are performed, subject to an assessment of recoverability. EITF 07-3 will be
effective for fiscal years beginning after December 15, 2007. The Company does
not expect that the adoption of EITF 07-3 will have an impact on the Company's
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements ("SFAS No. 160") and a revision to SFAS No.
141, Business Combinations ("SFAS No. 141R"). SFAS No. 160 modifies the
accounting for noncontrolling interest in a subsidiary and the deconsolidation
of a subsidiary. SFAS No. 141R establishes the measurements in a business
combination of the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree. Both of these related statements are
effective for fiscal years beginning after December 15, 2008. The Company has
not determined the impact that the adoption of these two statements will have on
the consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin 110 ("SAB 110"),
which expresses the views of the Staff regarding use of a "simplified" method,
as discussed in SAB 107, in developing an estimate of expected term of "plain
vanilla" share options in accordance with Statement of Financial Accounting
Standards No. 123. SAB 110 will allow, under certain circumstances, the use of
the simplified method beyond December 31, 2007 when a Company is unable to rely
on the historical exercise data. The Company does not anticipate the adoption of
SAB 110 having a material impact on our financial statements.
18
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to the Consolidated Financial Statements F-8
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Cord Blood America, Inc.
We have audited the accompanying consolidated balance sheet of Cord Blood
America, Inc. and Subsidiaries as of December 31, 2007, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years ended December 31, 2007 and 2006. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards established by the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cord Blood America,
Inc. and Subsidiaries as of December 31, 2007, and the results of their
operations and their cash flows for the years ended December 31, 2007 and 2006,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated 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 has sustained recurring operating losses,
continues to consume cash in operating activities, and has insufficient working
capital and an accumulated deficit at December 31, 2007. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants
Encino, California
April 14, 2008
20
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
ASSETS
2007
------------
Current assets:
Cash $ 338,828
Accounts receivable, net of allowance for doubtful accounts of $35,000 92,559
Prepaid expenses 67,544
Supplies 5,345
------------
Total current assets 504,276
------------
Property and equipment, net of accumulated depreciation and amortization of $204,806 138,370
Deposits 10,683
Customer contracts and relationships, net of amortization of $438,533 4,868,967
Defererd financing costs 1,210,109
Domain name, net of amortization of $73 326
Other assets 670
------------
Total assets $ 6,733,401
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 999,393
Accrued expenses 1,830,809
Deferred revenue 1,043,260
Due to stockholders 188,955
Capital lease obligations, 3,734
Derivatives Liability 1,309,854
Promissory notes payable, net of unamortized discount of $4,086,914 4,523,533
------------
Total current liabilities 9,899,538
Stockholders' deficit:
Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding --
Common stock, $.0001 par value, 300,000,000 shares authorized, 195,558,923 shares issued and outstanding 19,569
Additional paid-in capital 31,985,408
Common stock held in treasury, 46,266,667 shares (17,159,833)
Accumulated deficit (18,011,281)
------------
Total stockholders' deficit (3,166,137)
------------
Total liabilities and stockholders' deficit $ 6,733,401
============
See the accompanying notes to consolidated financial statements.
21
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
YEAR ENDED DECEMBER 31,
------------------------------
2007 2006
------------- -------------
Revenue $ 5,811,267 $ 3,328,336
Cost of Services 3,838,018 3,047,423
------------- -------------
Gross Profit 1,973,249 280,913
Administrative and Selling Expenses 5,883,998 3,816,565
------------- -------------
Loss From Operations (3,910,749) (3,535,652)
Interest Expense (2,083,255) (2,112,505)
Other Income 0 2,755
------------- -------------
Net Loss Before Income Taxes (5,994,004) (5,645,402)
Income Taxes 0 0
------------- -------------
Loss From Continuing Operations (5,994,004) (5,645,402)
Discontinued Operations (See Note 14) (0) (43,330)
------------- -------------
Net Loss $ (5,994,004) $ (5,688,732)
============= =============
Basic and Diluted Loss Per Share:
Continuing Operations $ (0.04) $ (0.14)
Discontinued Operations (0.00) (0.00)
------------- -------------
Net Loss $ (0.04) $ (0.14)
------------- -------------
Weighted Average Common Shares Outstanding 141,940,070 41,469,655
============= =============
See the accompanying notes to consolidated financial statements.
22
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2007 AND 2006
COMMON STOCK ADDITIONAL
---------------------- PAID-IN TREASURY ACCUMULATED
SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
---------- ---------- ------------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 2005 73,471,857 $ 7,347 $ 16,448,476 (11,560,000) $ (8,136,851) $ (3,241,028)
Shares Issued to vendor 2,500,000 250 349,750 350,000
Issuance of common stock upon loan
conversion 818,794 82 74,918 -- -- 75,000
Shares Issued for Cryobank asset
purchase 703,518 70 139,930 -- -- 140,000
Stock issued for services 321,270 32 49,218 -- -- 49,250
Shares issued in connection with debt 500,000 50 59,950 -- -- 60,000
Shares issued in connection with
modification of debt terms 1,239,000 124 136,166 136,290
Shares issued as deposit on CorCell
acquisition 2,563,636 256 299,744 300,000
Share based compensation 251,313 251,313
Shares issued as fees in connection
with raising capital 1,000,000 100 90,900 91,000
Treasury shares 5,000,000 500 4,999,500 (5,000,000) --
Amortization of warrants expense -- -- 1,260,862 -- -- 1,260,862
Net Loss -- -- -- -- (5,688,732) (5,688,732)
---------- ---------- ------------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 2006 88,118,075 8,811 24,160,727 (16,560,000) (13,825,583) (6,216,045)
Reclassification of derivative
liability upon issuance of FSP 00-19-2 1,808,306 1,808,306
Shares issued for services 47,058,136 4,706 3,419,546 2,424,252
Shares issued for CorCell acquisition 18,694,795 1,883 1,915,511 1,917,394
Issuance of common shares for debt
conversion 18,834,092 1,883 1,071,033 1,072,916
Shares issued for CureSource
acquisition 196,080 20 9,980 10,000
Issuance of warrants 830,717 830,717
Share-based compensation 2,368,336 237 227,234 227,471
Shares issued for financing 12,122,742 1,212 630,867 632,079
Share-based compensation 8,275 8,275
Treasury shares 8,166,667 817 599,016 (599,833) --
Reclassification of derivative
liability upon conversion of debt 112,502 112,502
Net Loss (5,994,004) (5,994,004)
---------- ---------- ------------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 2007 195,558,923 $ 19,569 $ 31,985,408 (17,159,833) $(18,011,281) $ (3,166,137)
========== ========== ============= =========== ============ =============
See the accompanying notes to consolidated financial statements.
23
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006
2007 2006
----------- -----------
Cash Flows from Operating Activities
Net Loss $(5,994,004) $(5,688,732)
Adjustments to reconcile net loss to net cash used in operating activities
Issuance of stock for services 2,299,893 535,540
Excess value of derivative liability over related loan proceeds 2,091,489 --
Amortization of deferred financing costs 217,623 --
Amortization of loan discount 2,742,498 1,426,646
Share based compensation 227,471 251,313
Amortization of deferred consideration 1,260,862 --
Provision for uncollectible accounts 24,900 19,420
Depreciation and amortization 521,856 39,752
Change in value of derivative liability (4,663,638) --
Loss on disposal of assets -- 16,354
Changes in operating assets and liabilities
Accounts receivable 279,862 89,867
Supplies 10,343 --
Prepaid expenses 58,686 6,729
Deposits 12,250 --
Deferred costs (74,886) --
Accounts payable 91,193 663,023
Accrued expenses 920,080 403,344
Deferred revenue (27,993) 30,767
----------- -----------
Net cash used in operating activities (1,262,377) (2,205,977)
Cash Flows from Investing Activities
Purchase of property and equipment (2,937) (16,083)
Acquisition of Cryobank -- (120,000)
----------- -----------
Acquisition of CorCell business (1,878,047) --
----------- -----------
Acquisition of CureSource (106,500) --
Net cash used in investing activities (1,987,484) (136,083)
Cash Flows from Financing Activities
Proceeds from the issuance of notes payable 3,612,685 415,000
Payments on notes payable (821,705) (31,794)
Payments on capital lease obligations (6,381) (804)
Proceeds from advances from shareholders 246,408 15,974
Payments on advances from shareholders (102,636) (49,937)
Proceeds from issuance of common stock 638,752 --
----------- -----------
Net cash provided by financing activities 3,567,123 348,439
----------- -----------
Net increase (decrease) in cash and cash equivalents 317,262 (1,993,621)
Cash and Cash Equivalents, beginning of year 21,566 2,015,187
----------- -----------
Cash and Cash Equivalents, end of year $ 338,828 $ 21,566
=========== ===========
See the accompanying notes to consolidated financial statements.
24
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006
2007 2006
---------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 749,093 $ 1,482
========== ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Issuance of common shares in connection with acquisition of CorCell $1,917,394 $ --
========== ========
Issuance of common shares in connection with acquisition of CureSource $ 10,000 $ --
========== ========
Conversion of debt into common shares 822,916
========== ========
Payment of notes payable with common shares 250,000
========== ========
Payment of accounts payable with common shares 205,196
========== ========
Shares issued for purchase of Cryobank assets $ $140,000
========== ========
Shares issued for debt issuance costs $ 244,683 $ 60,000
========== ========
Shares issued to vendors $ $350,000
========== ========
Shares issued as deposit for Corcell $ $300,000
========== ========
Shares issued as fees for raising capital $ $ 91,000
========== ========
See the accompanying notes to consolidated financial statements.
25
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Cord Blood America, Inc. ("CBAI"), formerly D&A Lending, Inc., was incorporated
in the State of Florida on October 12, 1999. CBAI's headquarters are located in
Los Angeles, California. CBAI is primarily a holding company whose subsidiaries
include Cord Partners, Inc.,("Cord", CorCell Co. Inc., CorCell Ltd.,
("CorCell"), CBA Professional Services, Inc. D/B/A BodyCells, Inc.
("BodyCells"), CBA Properties, Inc. ("Properties"), Career Channel Inc, D/B/A
Rainmakers International ("Rain"), and Family Marketing, Inc. ("Family"). CBAI
and its subsidiaries engage in the following business activities:
o Cord specializes in providing private cord blood stem cell
preservation services to families.
o BodyCells is a developmental stage company and intends to be in the
business of collecting, processing and preserving peripheral blood and
adipose tissue stem cells allowing individuals to privately preserve
their stem cells for potential future use in stem cell therapy.
o Properties was formed to hold the corporate trademarks and other
intellectual property of CBAI.
o Rain specializes in creating direct response television, radio,
on-hold and motor sports advertising campaigns, including media
placement and commercial production.
o Family specialized in delivering leads through internet based lead
generation to corporate customers in the business of family based
products and services. Family was disposed of through a sale, which
was completed in the third quarter of 2006. (see Note 14, Discontinued
Operations)
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. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that may be
necessary in the event CBAI cannot continue as a going concern. CBAI continues
to search for additional capital to allow it to focus on successfully reaching
its objectives and being profitable (see Note 16, Subsequent Events).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Going Concern
The accompanying financial statements of Cord Blood America, Inc. and its
Subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America, which contemplate
continuation of the Company as a going concern. CBAI has experienced recurring
net losses from operations, which losses have caused an accumulated deficit of
approximately $18 million as of December 31, 2007. In addition, CBAI has
consumed cash in its operating activities of approximately $1,262,377 for the
year ending December 31, 2007 and has a working capital deficit of $8,942,298 as
of December 31, 2007. These factors, among others, raise substantial doubt about
CBAI's ability to continue as a going concern.
Management has been able, thus far, to finance the losses and the growth of the
business, through private placements of its common stock, the issuance of debt
and proceeds from the Equity Distribution Agreement and Securities Purchase
Agreement, and expects to continue to raise funds through debt and equity
instruments. CBAI is continuing to attempt to increase revenues within its core
businesses. In addition, CBAI is exploring alternate ways of generating revenues
through acquiring other businesses in the stem cell industry. In addition, the
Company has taken steps to reduce its overall spending through the reduction of
headcount. The ongoing execution of CBAI's business plan is expected to result
in operating losses over the next twelve months. There are no assurances that
CBAI will be successful in achieving its goals of increasing revenues and
reaching profitability.
26
In view of these conditions, CBAI's ability to continue as a going concern is
dependent upon its ability to meet its financing requirements, and to ultimately
achieve profitable operations. Management believes that its current and future
plans provide an opportunity to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that may be necessary in the event CBAI cannot
continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of CBAI and its
wholly owned subsidiaries, Cord, BodyCells, Properties, Rain and Family.
Significant inter-company balances and transactions have been eliminated upon
consolidation.
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 reporting periods. Actual results could differ materially from those
estimates.
Accounts Receivable
Accounts receivable consist of the amounts due for the processing and storage of
umbilical cord blood, advertising, commercial production and internet lead
generation. Accounts receivable relating to deferred revenues are netted against
deferred revenues for presentation purposes. The allowance for doubtful accounts
is estimated based upon historical experience. The allowance is reviewed
periodically and adjusted for accounts deemed uncollectible by management.
Amounts are written off when all collection efforts have failed.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expense as
incurred while major replacement and improvements are capitalized as additions
to the related assets. Sales and disposals of assets are recorded by removing
the cost and accumulated depreciation from the related asset and accumulated
depreciation accounts with any gain or loss credited or charged to income upon
disposition.
Intangible Assets
Intangible assets include primarily customer contracts and relationships as part
of the acquisition of the CorCell and CureSource assets in 2007 (Note 3).
Intangible assets are stated at cost. Amortization of intangible assets is
computed using the sum of the years' digits method, over an estimated useful
life of 18 years. Estimated amortization expense for the next five years is as
follows: 2008:$439,000; 2009: $413,000; 2010: $387,000; 2011: $361,000; 2012:
$335,000.
27
Impairment of Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets might not be recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an
asset, a significant change in the extent or manner in which an asset is used,
or a significant adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount
is not recoverable through its undiscounted cash flows and measures the
impairment loss based on the difference between the carrying amount and fair
value.
Deferred Revenue
Deferred revenue for Cord 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. Deferred revenue for Rain consists of
payments for per inquiry leads that have not yet been delivered or media buys
that have not yet been placed.
Valuation of Derivative Instruments
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
requires that embedded derivative instruments be bifurcated and assessed, along
with free-standing derivative instruments such as warrants, on their issuance
date and in accordance with EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" to
determine whether they should be considered a derivative liability and measure
at their fair value for accounting purposes. In determining the appropriate fair
value, the Company uses the Black-Scholes option pricing formula. At December
31, 2007, the Company adjusted its derivative liability to its fair value, and
reflected the increase in fair value of $4,663,638 in its statement of
operations, as a reduction of interest expense.
Revenue Recognition
CBAI recognizes revenue under the provisions of Staff Accounting Bulletin
("SAB") 104 "Revenue Recognition". Cord provides a combination of products and
services to customers. This combination arrangement is evaluated under Emerging
Issues Task Force (Issue 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.
Cord recognizes revenue from both enrollment fees and processing fees upon the
completion of processing while storage fees are recognized ratably over the
contractual storage period.
Rain generates revenue from packaged advertising services, including media
buying, on-hold and motor sports advertising campaigns, marketing and
advertising production services. Rain's advertising service revenue is
recognized when the media ad space is sold and the advertising occurs. Rain's
advertising production service revenue is derived through the production of an
advertising campaign including, but not limited to, audio and video production,
establishment of a target market and the development of an advertising campaign.
Rain recognizes revenue generated from packaged advertising services provided to
our clients using the "Gross" basis of Emerging Issues Task Force No. 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent", ("EITF 99-19").
Rain's revenue recognition policy involves significant judgments and estimates
about the ability to collect. We assess the probability of collection based on a
number of factors, including past transaction history and/or the
creditworthiness of our clients' customers, which is based on current published
credit ratings, current events and circumstances regarding the business of our
client's customer and other factors that we believe are relevant. If we
determine that collection is not reasonably assured, we defer revenue
recognition until such time as collection becomes reasonably assured, which is
generally upon receipt of cash payment. Rain recognizes revenue generated
through per inquiry advertising as the per inquiry leads are delivered to the
customer.
28
Cost of Services
Costs for Cord are incurred as umbilical cord blood is collected. These costs
include the transportation of the umbilical cord blood from the hospital to the
lab, the labs' processing fees, and royalties. Cord expenses costs in the period
incurred and does not defer any costs of sales. Costs for Rain include
commercial productions costs, lead generation costs and media buys.
Advertising
Advertising costs are expensed when incurred. Advertising expense totaled
approximately $425,000 and $756,000 for the years ended December 31, 2007 and
2006, respectively.
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. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance based on
the portion of tax benefits that more likely than not will not be realized.
There was a valuation allowance equal to 100% of deferred tax assets as of
December 31, 2007.
Accounting for Stock Option Plan
The Company's share-based employee compensation plans are described in Note 10.
On January 1, 2006, the Company adopted SFAS 123(R), "Accounting for Stock-based
Compensation (Revised 2004)" ("123(R)"), which requires the measurement and
recognition of compensation expense for all share-based payment awards made to
employees, non-employee directors, and consultants, including employee stock
options. SFAS 123(R) supersedes the Company's previous accounting under APB 25
and SFAS 123, for periods beginning in fiscal 2006. In March 2005, the
Securities and Exchange Commission issued SAB 107 relating to SFAS 123(R). The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
Net Loss Per Share
Net loss per common share is calculated in accordance with SFAS No. 128,
Earnings per Share. Basic net loss per share is computed by dividing the net
loss by the weighted average common shares outstanding of 141,940,070 and
41,469,655 for the years ended December 31, 2007 and 2006, respectively.
Outstanding options to acquire common stock and warrants are not included in the
computation of net loss per common share because the effects of inclusion are
anti-dilutive.
Reclassification
Certain numbers in the prior year have been reclassified to conform to the
current years' presentation.
Concentration of Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
their contractual obligations to be similarly affected by changes in economic or
other conditions described below.
Relationships and agreements which could potentially expose the Company to
concentrations of credit risk consist of the use of one source for the
processing and storage of all umbilical cord blood and one source for the
development and maintenance of a website. The Company believes that alternative
sources are available for each of these concentrations.
Financial instruments that subject the Company to credit risk could consist of
cash balances maintained in excess of federal depositary insurance limits. The
Company maintains its cash and cash equivalent balances with high credit quality
financial institutions. At times, cash and cash equivalent balances may be in
excess of Federal Deposit Insurance Corporation limits. To date, the Company has
not experienced any such losses, and believes it is not exposed to any credit
risk related to such balances.
29
NOTE 3. ACQUISITIONS
ACQUISITION OF CORCELL
On October 13, 2006, the Company entered into an agreement with CorCell, Inc.
under which CBAI started the process of acquiring the CorCell Business of
collection, processing and storage of blood taken from umbilical cord after a
child is born . On February 28, 2007, the Company completed the acquisition of
certain assets from CorCell, Inc., (a Delaware Company) a subsidiary of Vita34
A.G., in exchange for $ 1,878,047 in cash, two promissory notes totaling
$462,959 in addition to $300,000 of shares previously issued in 2006
$1,917,394 value paid in common restricted shares of the company and the
assumption of net liabilities in the amount of $1,093,978. The Acquisition
related to all rights to possession and custody of all acquired samples owned by
CorCell, Inc., and associated with the operations of CorCell, Inc. which is
predominantly the current customer base and revenues. The deal also included the
purchase of cryogenic freezers and other fixed assets used in this umbilical
cord blood samples business. The purchase price was allocated as follows:
Accounts receivable $ 352,234
Fixed assets 224,979
Other current assets 141,258
Customer list 4,935,236
Total purchase price $5,653,707
ACQUISITION OF THE ASSETS OF CURESOURCE, INC.
On August 20, 2007, CBAI completed the acquisition of certain assets from
CureSource, Inc., a South Carolina corporation for the purchase price of
$106,500 in cash and $10,000 in stock, or 196,080, unregistered shares of CBAI's
common stock (the "Acquisition"). The Acquisition related to the purchase of
approximately 340 umbilical cord blood samples, as well as one cryogenic freezer
used for the storage of such umbilical cord blood samples. The entire purchase
price was allocated to customer contracts and relationships, which are being
amortized over 18 years.
NOTE 4. PROPERTY AND EQUIPMENT
At December 31, 2007, property and equipment consist of:
Useful Life (Years)
Furniture and fixtures 5 $ 69,477
Computer equipment 3 116,396
Freezer equipment 2 157,303
--------
343,176
Less accumulated depreciation (204,806)
--------
$138,370
========
For the years ended December 31, 2007 and 2006, depreciation expense totaled
$103,332 and $19,669 respectively.
30
NOTE 5. ACCRUED EXPENSES
The components of accrued expenses at December 31, 2007 are summarized as
follows:
Accrued salaries and benefits $ 53,801
Accrued interest and related financing expenses 1,633,199
Other accrued expenses 128,309
Deferred Rent 15,500
----------
$1,830,309
==========
NOTE 6. CAPITAL LEASE OBLIGATIONS
Through December 31, 2007, Cord Blood entered into capital leases for computer
equipment. The capital leases expire at various dates in 2008 and 2009. Assets
under capital lease are capitalized using interest rates appropriate at the
inception of the lease. At December 31, 2007 and 2006, these leased assets are
included in property and equipment as computer equipment amounting to $13,420
and $13,420 respectively.
NOTE 7. NOTES AND LOANS PAYABLE, AND DERIVATIVE LIABILITIES
At December 31, 2007, notes and loans payable consist of:
Secured Convertible Debenture payable to Cornell Capital Partners, secured by substantially
all of the Company's assets, interest at 10% per annum, principal and interest
due on December 23, 2008 $1,534,250
Secured Convertible Debenture
payable to Enable Capital, secured by substantially all of the Company's assets,
interest at 10% per annum, principal and interest due on December 23, 2008 2,311,250
Promissory Note payable to Strategic Working Capital Fund, L.P., interest at 8% per annum, due August 2, 2008 317,232
0% Convertible Debenture payable to Enable Capital, effective interest rate of 72% per annum,
(considering the loan discount) repayable in eighteen monthly installments, commencing May, 2008 1,931,105
Secured Original Discount Debenture payable to Shelter Island Opportunity Fund, LLP, interest at 11.25% per annum,
27 equal payments remaining, maturing in March, 2010 2,055,492
2nd Secured Discount Debenture payable to Shelter Island Opportunity Fund, LLP, interest at 11.25% per annum, 4
equal payments remaining, maturing in April, 2008 153,333
Advance on credit card sales 3,050
Convertible Note payable to CorCell, Inc., interest at 8% per annum, repayable in six equal monthly instalments,
commencing in December 2007 212,959
Promissory Note payable to CorCell, Inc., interest at 10.5% per annum, due March, 2008 91,776
----------
8,610,447
Less: Unamortized Discount 4,086,914
----------
$4,523,533
==========
Following are the significant terms of the above notes and loans payable:
Cornell
On June 27, 2006, CBAI entered into an agreement with Cornell. The agreement
amends certain terms of the SP Agreement, the Registration Rights Agreement and
the Pledge and Escrow Agreement entered into on September 9, 2005. Pursuant to
the agreement, the following changes were agreed to by both parties. First, the
time for CBAI to increase its authorized common stock to 200 million was
extended to August 18, 2006. Second, the deadline for CBAI to have the second
Registration Statement declared effective by the SEC was extended to September
30, 2006. Third, CBAI waived the Conversion Restriction which restricts Cornell
from converting any amounts of the outstanding principal of the Debentures at
the Market Conversion Price prior to September 9, 2006. Fourth, in the event
that CBAI does not have a sufficient number of authorized shares of Common Stock
to issue Conversion Shares upon a conversion of the Debentures, CBAI is hereby
authorized to issue to Cornell such number of shares otherwise reserved as
Pledge Shares to Cornell and reduce the number of Pledged Shares by the amount
of such issuance. The number of shares included in the amended registration
statement has been reduced to 55,840,448.
On October 13, 2006, CBAI entered into an agreement with Cornell. The agreement
adjusts certain terms as a result of such issuances by the company described
below: Secured Convertible Debenture issued on September 9, 2005; Secured
Convertible Debenture issued on December 23, 2005; Common Stock Purchase Warrant
issued September 9, 2005; Common Stock Purchase Warrant issued September 9,
2005; Common Stock Purchase Warrant issued September 9, 2005; Pursuant to the
agreement, the
31
following changes have been agreed to by both parties: The Conversion Price (as
defined in the Convertible Debentures) shall be adjusted pursuant to Section
3(c)(iv) of the convertible debentures such that the Conversion Price in effect
from this date forward shall be equal to $0.101 per share. The conversion price
calculated as a 4% discount based on the stock price remained unchanged. The
Warrant Exercise Price and the number of Warrant Shares (each as defined in the
warrants) shall be adjusted pursuant to Section 8(a) of the Warrant such that
the Warrant Exercise Price in effect from this date forward shall be equal to
$0.101 per share. All other terms and conditions of the referenced agreements
remain unchanged. In addition, Cornell converted $25,000 of its Note in exchange
for CBAI issuing 299,043 common shares from treasury at a share price of $0.084.
On December 8, 2006, Cornell converted a further $50,000 of its Note in exchange
for CBAI issuing 519,751 common shares from treasury at a share price of
$0.0962. At December 31, 2006, the outstanding balance on the Note payable to
Cornell was $4,925,000.
During 2007, Cornell converted $822,916 of its debt into 13,339,629 shares of
common stock of the Company, and was repaid $250,000 in shares of common stock..
Liquidated damages in the amount of $1,227,300 have been accrued for an event of
default under the terms of this note, and are recorded as accrued expenses at
December 31, 2007.
The conversion feature of these debentures is recorded as a derivative liability
under EITF 00-19. The Black Scholes value of the conversion feature was $284,340
at December 31, 2007.
Warrants issued in connection with these debentures were also considered
derivative liabilities, but with the issuance of FSP 00-19-2, and the sequencing
of awards under paragraph 11 of EITF 00-19, these warrants no longer qualified
as derivative liabilities, and were reclassified to retained earnings at January
1, 2007.
Strategic
On August 2, 2006, CBAI entered into a Subscription Agreement with Strategic
Working Capital Fund, L.P. ("Strategic"). Pursuant to the Subscription
Agreement, CBAI (i) issued to Strategic a Promissory Note bearing interest at
the rate of 8% with an aggregate principal amount of $285,000 and (ii) delivered
500,000 unregistered shares of its Common Stock (the "Shares") to Strategic. The
Promissory Note is due one year from the date of issuance, unless redeemed prior
by Strategic but in any event no earlier than the third month following issuance
of the note. The Promissory Note also is subject to acceleration upon an event
of default, as defined in the Note. Pursuant to the Subscription Agreement,
Strategic was granted registration rights for the Shares in the event that CBAI
proposes to register any other shares of its common stock.
On December 5, 2006, CBAI issued 1,239,000 restricted common shares in exchange
for Strategic providing a three month extension on the promissory note. As of
December 31, 2007 the outstanding balance on the note including accrued and
unpaid interest was $317,232.
32
Advance on Credit Card Sales
On September 5, 2006, Cord received a $93,000 advance on future credit card
sales. Repayment terms on this advance call for the 20% capture of certain
credit card sales until the sum of $130,200 has been paid. At December 31, 2007,
the outstanding principal balance was $3,050.
Convertible Note Payable - Enable
In November 2007, the Company contracted a 0% convertible debenture with Enable
Capital for a face amount of $1,931,106, and net proceeds of $1,369,000. The
note is convertible at $0.03 per share or 96% of market price as defined. The
Company used $544,000 of the proceeds to pay down its accrued interest to
Cornell. In connection with this convertible note, the Company issued a warrant
to purchase 48,277,655 shares of the Company's common stock at an exercise price
of $0.037 per share. The Company performed an analysis under EITF 00-19, and
found that the conversion feature and the related warrants do not qualify as
derivative liabilities. Therefore, the Company applied the provisions of APB 14,
EITF 98-5 and 00-27. $602,361 of the proceeds was allocated to the debt, while
$830,717 was allocated to the warrants. The value of the warrants was
established using the Black-Scholes pricing model with the following
assumptions: expected life of 5 years; stock volatility of 163%, risk-free
interest rate of 3.23%, and no dividend. With the consideration of the loan
discount of $1,328,745, the interest rate is 72%. In connection with this
financing, warrants to purchase 5,833,334 shares of stock were issued to Midtown
Partners. These warrants were valued at $219,175, and were recorded as deferred
financing costs.
In November 2007, Enable Capital also assumed $2,311,250 of the note payable to
Cornell.
Note Payable - Shelter Island.
In February 2007, as part of the financing for the CorCell acquisition, the
Company contracted a note payable in the amount of $2,300,000 with Shelter
Island, for proceeds of $2,000,000. In connection with this note, the Company
also issued warrants to purchase 36,000,000 shares of common stock at a price of
$0.05 per share. In connection with this financing, the placement agent was paid
$75,000 and was issued warrants to purchase 4,000,000 shares of the Company's
common stock. The Company also contracted another agreement with Shelter Island,
for which it has not yet obtained the proceeds. In connection with this
agreement, the Company has issued warrants to purchase 20,270,270 shares of
common stock at $0.037 per share. The Company conducted an analysis under EITF
00-19, and accounted for the warrants as derivative liabilities. The total value
of warrants was $5,310,142 at the date of issuance, using the Black-Scholes
pricing model with the following assumptions: expected life of 5 years; stock
volatility of 163%, risk-free interest rate of 3.23%, and no dividend.
$2,000,000 of these warrants were recorded as loan discount, $1,218,653 was
recorded as deferred financing costs to be amortized on a straight line basis
over the life of the loan, and $2,091,489 was recorded as interest expense,
representing the excess of the derivative liability over the amount of the note.
Note Payable - CorCell
In March 2007, the Company contracted a $212,959 note payable with CorCell, in
connection with the acquisition of the CorCell business. In connection with this
note, the Company issued warrants to purchase shares of common stock at a price
of $0.05 per share. The Company conducted an analysis under EITF 00-19, and
accounted for the warrants as derivative liabilities. The total value of
warrants was $125,401 at the date of issuance, using the Black-Scholes pricing
model with the following assumptions: expected life of 5 years; stock volatility
of 165%, risk-free interest rate of 5.11%, and no dividend.
The Company recorded a change in value of derivative liability of $4,663,638 for
the year ended December 31, 2007, and reclassified $112,502 of derivative
liability to equity with respect to the conversion feature of the portion of the
convertible note with Cornell that has been converted during the year.
33
NOTE 8. COMMITMENTS AND CONTINGENCIES
Agreements
Progenitor Cell Therapy, LLC
On August 1, 2007, CBAI entered into an agreement with Progenitor Cell Therapy,
LLC ("PCT") for testing, processing and storage of cord blood samples. As a
result of our agreement with PCT we terminated our agreement with Bergen. The
Company believes this transition from Bergen to PCT will provide additional
leverage to operating costs and efficiencies while maintaining the highest of
quality standards. This agreement expires on June 30, 2012. There is a 90 day
written advance for early termination where depending on the party terminating,
various clauses to termination apply.
Pharmastem
In March 2004, Cord entered into a Patent License Agreement with the holder of
patents utilized in the collection, processing, and storage of umbilical cord
blood to settle litigation against Cord for alleged patent infringements. The
Patent License Agreement calls for royalties of 15% of processing and storage
revenue, with a minimum royalty of $225 per specimen collected, on all specimens
collected after January 1, 2004 until the patents expire in 2010. During the
year ended December 31, 2007 and 2006, Cord incurred $89,102 and $211,395
respectively, in royalties to the Patent License Agreement. At December 31,
2007, $246,446 is included in accounts payable and accrued expenses relating to
these fees.
Operating Leases
CBAI leases office space, computer software and office equipment which expires
at various times through 2012. Commitments for minimum future rental payments,
by year and in the aggregate, to be paid under the operating leases as of
December 31, 2007, are as follows:
2008 $187,389
2009 184,050
2010 147,968
2011 146,685
2012 140,764
--------
$806,856
========
The total lease payments are recorded as rent expense on a straight-line basis
over the lease periods, resulting in a deferred rent liability of $10,077, which
is included in accrued expenses in the accompanying Balance Sheet. Total lease
expense for operating leases, including those with terms of less than one year,
amounted to approximately $277,282 and $120,527 for the years ended December 31,
2007 and 2006, respectively.
Employment Agreements
On January 1, 2006, CBAI entered into one-year employment agreements with three
executive officers, Matthew L. Schissler, Sandra D. Anderson and Noah J.
Anderson (the "Executive Agreements"). Pursuant to the Executive Agreements with
Matthew L. Schissler, Mr. Schissler serves as Chairman and Chief Executive
Officer of CBAI at an annual salary of $150,000 through December 31, 2006. The
Executive Agreement entitles Mr. Schissler to receive a net year-end performance
bonus of $25,000, which is included in accrued expenses as part of wages payable
in the accompanying Balance Sheet, as well as certain other benefits. Mr.
Schissler is subject to non-competition and confidentiality requirements. CBAI
may terminate Mr. Schissler's Executive Agreement at any time without cause. In
such event, no later than the Termination Date specified in the Termination
Notice (both as defined in the Executive Agreement), CBAI shall pay to Mr.
Schissler an amount in cash equal to the sum of his Compensation determined as
of the date of such Termination Notice through the remaining term of the
Executive Agreement.. Although Matthew L. Schissler never signed a renewal to
the one year employment agreement, he serves as our Chairman and Chief Executive
Officer at an annual salary of $150,000 through December 31, 2007. Mr. Schissler
received a management performance bonus from the Rain subsidiary of $36,000, as
well as certain other benefits.
34
Pursuant to the Executive Agreement with Sandra Anderson, Ms. Anderson was
serving as Chief Financial Officer of CBAI at an annual salary of $108,000
through December 31, 2006. The Executive Agreement entitled Ms. Anderson to
receive a quarterly performance bonus of up to $5,500 as well as certain other
benefits. Ms. Anderson is subject to non-competition and confidentiality
requirements. CBAI may terminate this Executive Agreement at any time without
cause. In such event, not later than the Termination Date specified in the
Termination Notice (both as defined in the Executive Agreement, CBAI shall pay
to Ms. Anderson an amount in cash equal to the sum of her Compensation for 90
days determined as of the date of such Termination Notice Agreement (as defined
in the Executive Agreement). On September 8, 2006 CBAI notified Ms. Anderson of
its intention to cancel its contract with her effective September 8, 2006. CBAI
satisfied all of its obligations at the termination of this contract.
Pursuant to the Executive Agreement with Noah J. Anderson, Mr. Anderson will
serve as Chief Technology Officer of CBAI and President of Family at an annual
salary of $108,000 through December 31, 2006. The Executive Agreement entitles
Mr. Anderson to receive a quarterly performance bonus of up to 10% of Gross
Profit of Family, a year-end bonus of up to 10% of Net Income of Family as well
as certain other benefits. Mr. Anderson is subject to non-competition and
confidentiality requirements. CBAI may terminate this Executive Agreement at any
time without cause. In such event, not later than the Termination Date specified
in the Termination Notice (both as defined in the Executive Agreement), CBAI
shall pay to Mr. Anderson an amount in cash equal to the sum of his Compensation
for 90 days determined as of the date of such Termination Notice Agreement (as
defined in the Executive Agreement). On September 8, 2006 CBAI notified Mr.
Anderson of its intention to cancel its contract with him effective September 8,
2006. CBAI satisfied all of its obligations at the termination of this contract.
Compensation of the Board of Directors
On January 26, 2006, CBAI's Board of Directors approved a Board Compensation
Plan (the "Plan") effective through 2008. The Plan calls for all Board members
(five) to receive shares of the Company's common stock to be issued as
compensation for 2006 and 2007, in an amount equal to $10,000 per year.
Shares issued as compensation for one year of service in 2008 will be based on
$10,000 divided by the closing stock price on the last business day of 2007.
NOTE 9. RELATED PARTY TRANSACTIONS AND COMMITMENTS
Advances from Officers
In prior years, the Company received non-interest bearing advances from officers
of CBAI. During the year ended December 31, 2007, $44,499 of this advance was
repaid and the balance remaining amounted to $684. In addition, on May 11, 2007,
Ms. Stephanie Schissler, who is the spouse of the Company's Chief Executive
Officer, loaned $121,500 to the Company, to be repaid in 36 equal monthly
installments of $3,908. The Company signed a Promissory Note, which carries
interest at the rate of 10% per annum. In addition, the Company pledged as
security 2,500,000 common shares to be held in treasury until the loan is paid
off. At December 31, 2007, the balance remaining on this loan was $100,717
On June 14, 2007, Ms. Stephanie Schissler loaned a further $76,950 to the
Company, to be repaid in 36 equal monthly installments of $2,483. The Company
signed a Promissory Note, which carries interest at the rate of 10% per annum.
In addition, the Company pledged as security 2,250,000 common shares to be held
in treasury until the loan is paid off. At December 31, 2007, the balance
remaining on this loan was $65,667
On June 14, 2007, Mr. Matt Schissler loaned $25,650 to the Company, to be repaid
in 36 equal monthly installments of $828. The Company signed a Promissory Note,
which carries interest at the rate of 10% per annum. In addition, the Company
pledged as security 750,000 common shares to be held in treasury until the loan
is paid off. At December 31, 2007, the balance remaining on this loan was
$21,887.
Consulting Agreement
On January 1, 2006, CBAI entered into a one-year consulting agreement with
Stephanie Schissler, CBAI's former President and Chief Operating Officer. Ms.
Schissler is the spouse of the Company's Chief Executive Officer. The agreement
entitles Ms. Schissler to a $10,000 per month retainer and stock option
incentives for her services in relation to strategic corporate planning and
other business related matters. The agreement automatically renews for a second
year, unless a 60-day written notice of cancellation is provided by either CBAI
or Ms. Schissler.
35
NOTE 10. STOCK OPTION PLAN
The Company's Stock Option Plan permits the granting of stock options to its
employees, directors, consultants and independent contractors for up to 8.0
million shares of its common stock. The Company believes that such awards
encourage employees to remain employed by the Company and also to attract
persons of exceptional ability to become employees of the Company.
The Company adopted the provisions of SFAS No. 123R, Share-Based Payment ("SFAS
No. 123(R)"), which requires the measurement and recognition of compensation
expense for all stock-based awards made to employees and non-employee directors.
The fair value of stock options granted in 2007 was $8,275, based on the
following assumptions:
2007
-------
Risk-free interest rate 4.68%
Expected life 6 years
Dividend yield 0.00%
Volatility 276.80%
The Company's computation of expected volatility is based on the historical
daily volatility of its publicly traded stock. For option grants issued during
the year ended December 31, 2007 and 2006, the Company used a calculated
volatility for each grant. The Company's computation of expected life were
estimated using the simplified method provided for under Staff Accounting
Bulletin 107 ("SAB 107"), which averages the contractual term of the Company's
options of ten years with the average vesting term of three years for an average
of six years. In December 2007, Staff Accounting Bulletin 110 ("SAB 110") was
released which permits the continued use of the simplified method when a Company
is unable to rely on the historical exercise data. Since the Company is still in
its relatively early stages, it will continue with the simplified method. The
dividend yield assumption of zero is based upon the fact the Company has never
paid cash dividends and presently has no intention of paying cash dividends. The
risk-free interest rate used for each grant is equal to the U.S. Treasury rates
in effect at the time of the grant for instruments with a similar expected life.
The estimated fair value of our stock-based awards, less expected forfeitures,
is amortized over the awards' vesting period. Options granted since 2005 are
either vested immediately or had a one year vesting period.
36
The following table summarizes stock option activity for the years ended
December 31, 2007 and 2006:
WEIGHTED AVERAGE
----------------------------------
CONTRACTUAL
EXERCISE PRICE REMAINING LIFE,
OPTION SHARES PER SHARE IN YEARS
------------- -------------- ---------------
Outstanding at January 1, 2006 6,639,189 $ 0.28
Granted --
Exercised --
Expired/Forfeited (1,178,000) 0.24
------------- --------------
Outstanding at December 31, 2006 4,423,189 0.29
Granted 90,000 0.10
Exercised --
Expired/Forfeited (121,668) 0.24
------------- -------------- ---------------
Outstanding at December 31, 2007 5,461,189 $ 0.28 7.0
============= ============== ===============
Exercisable at December 31, 2007 4,391,521 $ 0.29 5.4
============= ============== ===============
37
No amounts relating to employee stock-based compensation have been capitalized.
Under provisions of SFAS 123(R), the Company recorded $9,000 and $251,000 of
employee stock-based compensation for the years ended December 31, 2007 and
2006, respectively.
As of December 31, 2007, there was $35,000 of unrecognized compensation expense
related to options for which service has not yet been rendered.
NOTE 11. WARRANT AGREEMENTS
CBAI issued 111,464,592 warrants during the year ending December 31, 2007 in
connection with its financings.
The following table summarizes the warrants outstanding and exercisable at
December 31, 2007:
WARRANTS OUTSTANDING
& EXERCISABLE WEIGHTED EXERCISE PRICE MATURITY DATE
-------------------- ----------------------- --------------
1,000,000 $0.1875 9/16/2009
14,285,000 $0.101 9/9/2010
8,285,000 $0.101 9/9/2010
40,000,000 $0.101 2/14/2012
71,464,592 $0.037 11/26/2012
--------------------
135,034,592 $0.068
NOTE 12. INCOME TAXES
The Company has loss carryforwards that it can use to offset a certain amount of
taxable income in the future. The loss carryforwards are subject to significant
limitations due to change in ownership. The Company is currently analyzing its
amount of loss carryforwards, but has recorded a valuation allowance for the
entire benefit due to the uncertainty of its realization.
NOTE 13. STOCKHOLDERS' DEFICIT
Common Stock
As of December 31, 2007 CBAI had 195,558,923 shares of Common Stock outstanding.
An additional 7,266,667 treasury shares have been issued in 2007, resulting in a
total of 46,266,667 shares issued and remaining in the Company's treasury.
NOTE 14. DISCONTINUED OPERATIONS
On September 5, 2006, the Company entered into a Stock Purchase Agreement (the
"Anderson Agreement") with Noah Anderson, the President of Family Marketing,
Inc., a wholly-owned subsidiary of the Company ("Family"), and Chief Technology
Officer of the Company. Mr. Anderson also is the spouse of Ms. Anderson, the
Company's former Chief Financial Officer. Pursuant to the Anderson Agreement,
the Company sold all assets and liabilities of Family to Mr. Anderson, in
exchange for a credit of $82,500 in Family's outstanding receivables carried by
Cord Partners, Inc., and cancellation of $32,500 in severance compensation.
The Company follows the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No.144"), related to the
accounting and reporting for segments of a business to be disposed of. In
accordance with SFAS No. 144, the definition of discontinued operations includes
components of an entity whose cash flows are clearly identifiable.
Following is a summary of the discontinued results of operations and the loss on
sale of Family for the years ended December 31, 2006:
YEAR ENDED
DECEMBER 31,
2007 2006
---------- ---------
Revenue $ -- $ 558,260
Cost of services -- 135,240
Operating Expenses -- 340,520
---------- ---------
Net Income (Loss) from Discontinued Operations -- 82,500
Loss on Sale of Discontinued Operations -- (125,830)
---------- ---------
Loss from Discontinued Operations $ -- $ (43,330)
========== =========
38
NOTE 15. SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," requires that public business enterprises report financial and
descriptive information about its reportable operating segments. CBAI has three
operating segments. Cord generates revenues related to the processing and
preservation of umbilical cord blood. Rain generates revenues related to
television and radio advertising. Family generated revenues related to internet
advertising. (see Note 14, Discontinued Operations). 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 table below presents certain financial
information by business segment for the year ended December 31, 2007:
ADIPOSE/ RADIO/
UMBILICAL PERIPHERAL TELEVISION SEGMENTS CONSOLIDATED
CORD BLOOD BLOOD ADVERTISING TOTAL TOTAL
----------- ----------- ----------- ----------- ------------
Revenue from External
Customers $ 3,144,639 -- $ 2,666,628 $ 5,811,267 $ 5,811,267
Interest Expense 2,083,255 -- -- 2,083,255 2,083,255
Depreciation and Amortization 521,856 -- -- 521,856 521,856
Segment Income (Loss) (5,822,825) -- 171,179 (5,944,004) 5,944,004)
Segment Assets $ 6,722,198 -- $ 11,203 $ 6,733,401 $ 6,733,401
=========== =========== =========== =========== ============
The table below presents certain financial information by business segment for
the year ended December 31, 2006:
ADIPOSE/ RADIO/
UMBILICAL PERIPHERAL TELEVISION SEGMENTS CONSOLIDATED
CORD BLOOD BLOOD ADVERTISING TOTAL TOTAL
----------- ----------- ----------- ----------- ------------
Revenue from External
Customers $ 1,136,549 -- $ 2,191,787 $ 3,328,336 $ 3,328,336
Interest Expense 2,111,686 -- 819 2,112,505 2,112,505
Depreciation and Amortization 39,720 -- 32 39,752 39,752
Segment Income (Loss) (5,723,479) (61,429) 139,506 (5,645,402) (5,645,402)
Segment Assets $ 631,710 96 $ 99,527 $ 731,333 $ 731,333
=========== ============ =========== ==========================
39
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 8B. 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 principal executive officer, our principal operations officer, and our
principal financial officer, have reviewed and evaluated the effectiveness of
our disclosure controls and procedures as of a date within ninety (90) days of
the filing date of this Form 10-KSB annual report. Following this review and
evaluation, management collectively determined that our disclosure controls and
procedures are 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.
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.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
of the Exchange Act). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
placecountry-regionUnited States of America.
Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Based on its evaluation, the Company's Chief Executive Officer identified a
major deficiency that existed in the design or operation of our internal control
over financial reporting that it considers to be a "material weakness". The
Public Company Accounting Oversight Board has defined a material weakness as a
"significant deficiency or combination of significant deficiencies that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will note be prevented or detected."
The deficiency in our internal control related to a lack of segregation of
duties due to the size of the accounting department. We are in the process of
improving our internal control over financial reporting in an effort to
remediate this deficiency.
This Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this Annual Report.
ITEM 8B. OTHER INFORMATION
None.
40
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
OFFICERS AND DIRECTORS
The following table sets forth the names and positions of our executive officers
and directors. Our directors are elected at our annual meeting of stockholders
and serve for one year or until successors are elected and quality. Our Board of
Directors elects our officers, and their terms of office are at the discretion
of the Board, except to the extent governed by an employment contract.
Our directors, executive officers and other significant employees, their ages
and positions are as follows:
NAME AGE POSITION WITH THE COMPANY
--------------------- ------------ ------------------------------------
Matthew L. Schissler 36 Chairman and Chief Executive Officer
Joseph R. Vicente 44 Director and Vice President
Timothy McGrath 42 Director
Richard J. Neeson 57 Director
MATTHEW L. SCHISSLER is one of our founders and has served as Chairman of the
Board and Chief Executive Officer of since January 2003. From April 2001 until
January 2003, Mr. Schissler was the President and Chief Executive Officer of
Rain, 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.
JOSEPH R. VICENTE has been a director of CBAI since April 2004. Since November
2004 Mr. Vicente has also served as a Vice President of CBAI. From July 2002
through October 2004, Mr. Vicente was an independent consultant where he
provided strategic consulting services to organizations on acquisitions,
operational practices and efficiencies, and sales management. From July 1993
through April 2002, he was a Senior Vice President at TMP Worldwide, Inc. where
he held various strategic, operational, and sales management positions.
TIMOTHY MCGRATH has been a director of CBAI since March 2006. Mr. McGrath has
served in an executive capacity for the past twelve years and is currently the
Vice President of Finance and Accounting for BioE, Inc. From October 1999
through September 2005 Mr. McGrath served as Vice President and Chief Financial
Officer of Orphan Medical, Inc.
RICHARD J. NEESON has been a director of CBAI since June 2007. Mr. Neeson has
been with Independence Blue Cross ("IBC") since November 1993, when he joined
IBC as President and Chief Operating Officer of QCC, Inc., the holding company
for IBC's for-profit subsidiaries. At IBC, Mr. Neeson has been primarily
responsible for acquisitions, joint ventures and strategic partnerships,
including negotiation, contract development and oversight. Mr. Neeson has also
been responsible for oversight of IBC's investments in several partially owned
subsidiaries, including NewSeasons, since its formation in 1996. Mr. Neeson has
been actively involved in the management of New Season's operations since
inception. IBC purchased its partners interest in NewSeasons in 2001, and at
that time, Mr. Neeson took on the additional role of President and Chief
Executive Officer of NewSeasons on a full-time basis. Since June 2004, Mr.
Neeson has also been chairman of Vita34 International AG, a German umbilical
cord blood blank. Mr. Neeson is a 1972 graduate of the University of Notre Dame
with a BA in Economics, and a 1981 graduate of the University of Connecticut
with a MBA in Finance/Management.
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 proceeding 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 in any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended, or vacated.
41
AUDIT COMMITTEE AND FINANCIAL EXPERT
As of April 2, 2007, our board of directors has determined that Cord Blood has
one audit committee financial expert, Mr. Timothy McGrath, and two committee
members serving on its audit committee. Prior to March 1, 2006, Sandra Smith and
Matthew Schissler performed some of the same functions of an audit committee,
such as: recommending a firm of independent certified public accountants to
audit the annual financial statements; reviewing the independent auditors'
independence, the financial statements and their audit report; and reviewing
management's administration of the system of internal accounting controls. On
April 6, 2006, the board adopted its written audit committee charter.
CHANGES IN NOMINATING PROCEDURES
None
CODE OF ETHICS
We adopted a Code of Ethics on April 13, 2005 that applies to all of our
directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. The Code of Ethics
was attached as Exhibit 14.1 to our registration statement filed on Form SB-2 on
May 2, 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPANIES
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers and persons who own more than 10% of the issued
and outstanding shares of Cord Blood's common stock to file reports of initial
ownership of common stock and other equity securities and subsequent changes in
that ownership with the SEC and the NYSE. Officers, directors and greater than
ten percent stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. To our knowledge, based solely on a
review of the copies of such reports furnished to us and written representations
that no other reports were required, during the fiscal year ended December 31,
2007 all Section 16(a) filing requirements applicable to our officers, directors
and greater than 10% beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our chief executive
officer for each of our last two completed fiscal years. No other officer
received compensation greater than $100,000 for either fiscal year.
CHANGE IN
PENSION
VALUE AND NON-
NON-EQUITY QUALIFIED ALL
NAME & STOCK OPTION INCENTIVE PLAN DEFERRED OTHER
PRINCIPAL SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
POSITION YEAR ($) ($) ($) ($) ($) EARNINGS ($) ($) ($)
---------- ----- --------- ------- --------- -------- -------------- -------------- ------------ -------
Matthew L. 2007 150,000 0 0 0 0 0 36,000 186,000
Schissler
2006 150,000 25,000 10,000 55,068 0 0 240,068
Chairman,
Chief
Executive
Officer
42
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END.
The following table sets forth information with respect to the outstanding
equity awards of our principal executive officers and principal financial
officers during 2007, and each person who served as an executive officer of Cord
Blood as of December 31, 2007:
OPTION AWARDS STOCK AWARDS
------------------------------------------------------------------------------------- ----------------------------------------------
EQUITY INCENTIVE
INCENTIVE PLAN
PLAN AWARDS:
AWARDS: MARKET OR
EQUITY MARKET NUMBER PAYOUT
INCENTIVE NUMBER VALUE OF VALUE
PLAN OF OF UNEARNED OF
AWARDS: SHARES SHARES SHARES, UNEARNED
NUMBER OR OR UNITS SHARES,
NUMBER NUMBER OF UNITS UNITS OR UNITS OR
OF OF SECURITIES OF OF OTHER OTHER
SECURITIES SECURITIES UNDERLYING STOCK STOCK RIGHTS RIGHTS
UNDERLYING UNDERLYING OF THAT THAT THAT THAT
UNEXERCISED UNEXERCISED UNEXERCISED OPTION HAVE HAVE HAVE HAVE
OPTIONS OPTIONS UNEARNED EXERCISE OPTION NOT NOT NOT NOT
(#) (#) OPTIONS PRICE EXPIRATION VESTED VESTED VESTED VESTED
NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE (#) ($) (#) ($)
--------- -------------- ------------------ ------------- ---------- ----------- --------- --------- ------------ ------------
Matthew L. 250,000 0 250,000 0.25 4/29/14 0 0 0 0
Schissler 20,255 0 0 0.18 7/1/15 0 0 0 0
1,600,000 0 0 0.31 9/12/15 0 0 0 0
250,000 0 0 0.20 12/31/15 0 0 0 0
COMPENSATION OF DIRECTORS
DIRECTOR COMPENSATION FOR YEAR ENDING DECEMBER 31, 2007
The following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year ended
December 31, 2007.
NONQUALIFIED
FEES EARNED NON-EQUITY DEFERRED
OR PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
------------------------------------------------------------------------------------------------------------------------
Matthew -- $10,000 (1) -- -- -- -- $10,000
Schissler
Timothy McGrath -- $10,000 -- -- -- -- $10,000
Richard Neeson -- $10,000 -- -- -- -- $10,000
Joseph R. -- $10,000 -- -- -- -- $10,000
Vicente
(1) These stock awards were awarded in his capacity as a director. He also
received additional stock option awards in his capacity as an executive
officer (see first table in Item 10 above).
In January 2006, we implemented a standard arrangement for the compensation of
our directors. On January 26, 2006 the Company's board of directors approved a
board compensation plan through 2008. Shares issued as compensation for one year
of service in 2007 and 2006 are based on the closing stock price of the last
business day of 2007 and on the closing stock price on January 25, 2006,
respectively, divided by $10,000. Shares issued as compensation for one year of
service in 2008 will be based on the closing stock price of the last business
day of 2007, divided by $10,000.
EMPLOYMENT AGREEMENTS
On January 1, 2006, we entered into one year employment agreements with
executive officer, Matthew L. Schissler. Pursuant to the employment agreement
with Matthew L. Schissler, Mr. Schissler serves as our Chairman and Chief
Executive Officer at an annual salary of $150,000 through December 31, 2006. The
agreement entitles Mr. Schissler to receive a net year-end performance bonus of
$25,000, a management performance bonus from the Rain subsidiary of $36,000 as
well as certain other benefits. Mr. Schissler is subject to non-competition and
confidentiality requirements. We may terminate this Agreement at any time
without cause. In such event, not later than the termination date specified in
the termination notice, we shall pay to Mr. Schissler an amount in cash equal to
the sum of the Mr. Schissler's Compensation determined as of the date of such
termination notice through the remaining term of the agreement.
43
Although Matthew L. Schissler never signed a renewal to the one year employment
agreement, he serves as our Chairman and Chief Executive Officer at an annual
salary of $150,000 through December 31, 2007. Mr. Schissler received a
management performance bonus from the Rain subsidiary of $36,000, as well as
certain other benefits. Mr. Schissler is subject to non-competition and
confidentiality requirements. We may terminate this Agreement at any time
without cause. In such event, not later than the termination date specified in
the termination notice, we shall pay to Mr. Schissler an amount in cash equal to
the sum of the Mr. Schissler's Compensation determined as of the date of such
termination notice through the remaining term of the agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December 19, 2007 (unless otherwise
indicated), certain information with respect to the beneficial ownership of our
common stock by each stockholder known by us to be the beneficial owner of more
than 5% of our common stock and by each of our current directors and executive
officers. Each person has sole voting and investment power with respect to the
shares of common stock, except as otherwise indicated. Information relating to
beneficial ownership of common stock by our principal stockholders and
management is based upon information furnished by each person using "beneficial
ownership" concepts under the rules of the Securities and Exchange Commission.
Under these rules a person is deemed to be a beneficial owner of a security if
that person has or shares voting power, which includes the power to vote or
direct the voting of the security or investment power, which includes the power
to vote or direct the voting of the security. The person is also deemed to be a
beneficial owner of any security of which that person has a right to acquire
beneficial ownership within 60 days. Under the Securities and Exchange
Commission rules, more than one person may be deemed to be a beneficial owner of
the same securities and a person may be deemed to be a beneficial owner of
securities as to which he or she may not have any pecuniary beneficial interest.
Shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise or conversion of options are deemed to
be outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
The applicable percentage of ownership is based on 225,154,440 shares of our
Common Stock issued and outstanding as of April 7, 2008.
AMOUNT AND NATURE OF
NAME AND TITLE BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------------ -------------------------------------- --------------------------------
Matthew L. Schissler 11,272,045 (1) 7.26%
Chairman and CEO
Enable Growth Partners LP 16,826,895 (3) 9.99%
One Ferry Building, Ste. 255
San Francisco, CA 94111
Enable Opportunity Partners LP 16,826,895 (3) 9.99%
One Ferry Building, Ste. 255
San Francisco, CA 94111
Pierce Diversified Strategy Master 16,826,895 (3) 9.99%
Fund LLC, Ena
One Ferry Building, Ste. 255
San Francisco, CA 94111
Independence Blue Cross (4) 14,681,366 9.45%
1901 Market Street
Philadelphia, PA 19103
CorCell, Inc. (5) 18,498,715 (6) 11.91%
1717 Arch Street, Suite 1410
Philadelphia, PA 19103
Fuselier Holdings 14,475,000 9.32%
1207 Hampshire Lane
Richardson, TX 75808
All Executive Officers 21,391,079 13.9%
and Directors as a Group
(3 Persons)
(1) Includes 2,3750,555 currently exercisable options held by Mr. Schissler
(although out of the money), and 3,068,290 shares and 962,625 options held by
Stephanie Schissler, Mr. Schissler's wife (also out of the money). Mr. Schissler
disclaims beneficial ownership of the shares beneficially owned by his wife.
44
(3) Enable Growth Partners LP, Enable Opportunity Partners LP, and Pierce
Diversified Strategy Master Fund LLC, Ena are affiliates of each other and
beneficially own convertible notes and warrants pursuant to which they
contractually agreed that their beneficial ownership in the aggregate shall not
exceed 9.99% of the shares of the Company's common stock immediately after
giving effect to conversion or exercise of such notes and warrants.
(4) Richard J. Neeson, a director of CBAI, is a Senior Vice President of
Independence Blue Cross. Mr. Neeson disclaims beneficial ownership of the shares
owned by Independence Blue Cross.
(5) CorCell, Inc. is a wholly owned subsidiary of Vita34 International AG
("Vita34"). Richard J. Neeson, a director of CBAI, is the chairman of Vita34.
Mr. Neeson disclaims beneficial ownership of the shares owned by CorCell, Inc.
(6) Includes 3,101,000 shares issuable upon conversion of a convertible note.
Does not include 1,666,667 treasury shares held by Corcell, Inc. as collateral
for a promissory note.
(7) Includes 2,507,750 shares beneficially owned by RHK Midtown Partners & Co.,
LLC. Mr. Kreger disclaims beneficial ownership of the shares beneficially owned
by RHK Midtown Partners & Co., LLC.
The address for each of the named persons, unless otherwise indicated, is c/o
Cord Blood America, Inc., 501 Santa Monica Blvd., Suite 700, Santa Monica, CA
90401.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2007, we have entered into transactions 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 a member of the immediate family of any of the foregoing named persons
or entities, as follows:
(1) On January 1, 2006, we entered into a one year consulting
agreement with Stephanie Schissler, our former President and
Chief Operating Officer. The agreement entitles Ms. Schissler to
a $10,000 per month retainer and stock option incentives for her
services in relation to strategic corporate planning and other
business related matters. The agreement automatically renews for
a second year, unless a 60 day written notice of cancellation is
provided by us or Ms. Schissler.
(2) In prior years, the Company received non-interest bearing
advances from officers of CBAI. During the year ended December
31, 2007, $44,499 of this advance was repaid and the balance
remaining amounted to $684. In addition, on May 11, 2007, Ms.
Stephanie Schissler, who is the spouse of the Company's Chief
Executive Officer, loaned $121,500 to the Company, to be repaid
in 36 equal monthly installments of $3,908. The Company signed a
Promissory Note, which carries interest at the rate of 10% per
ANNUM. In addition, the Company pledged as security 2,500,000
common shares to be held in treasury until the loan is paid off.
At December 31, 2007, the balance remaining on this loan was
$100,717.
(3) On June 14, 2007, Ms. Stephanie Schissler loaned a further
$76,950 to the Company, to be repaid in 36 equal monthly
installments of $2,483. The Company signed a Promissory Note,
which carries interest at the rate of 10% per annum. In addition,
the Company pledged as security 2,250,000 common shares to be
held in treasury until the loan is paid off. At December 31,
2007, the balance remaining on this loan was $65,667.
45
(4) On June 14, 2007, Mr. Matt Schissler loaned $25,650 to the
Company, to be repaid in 36 equal monthly installments of $828.
The Company signed a Promissory Note, which carries interest at
the rate of 10% per annum. In addition, the Company pledged as
security 750,000 common shares to be held in treasury until the
loan is paid off. At December 31, 2007, the balance remaining on
this loan was $21,887.
(5) In March of 2004, Cord became a party to a Web Development and
Maintenance Agreement with Gecko Media, Inc. Stephen Weir, a
director of Cord Blood, 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. On May 5, 2006, Cord entered into a new Web
Development and Maintenance Agreement (the "Web Agreement") for
the development and maintenance of a website with a company
whose president is a member of the board of directors of Cord
Blood. The Web Agreement replaced the agreement that expired on
March 31, 2006. The Web Agreement calls for fees of $10,000 per
month from April 2006 until termination in April 2008. At the
beginning of each annual term, CBAI will issue to Gecko Media
so many shares of common stock of CBAI as will total a value of
$10,000 at the closing sales price of CBAI stock on the date of
issuance. Subsequent to the period ended December 31, 2006 this
was terminated pursuant to the terms of the Agreement.
(6) Family Marketing, Inc., ("Family") specialized in delivering
leads generated through various forms of internet advertising
to corporate customers in the business of family based products
and services. On September 5, 2006, the Company entered into a
Stock Purchase Agreement (the "Purchase Agreement") with Noah
Anderson who at the time was the Chief Technology Officer of
CBAI. Pursuant to the Purchase Agreement, the Company sold all
assets including customers, websites and related software and
trademarks along with liabilities of Family Marketing to Mr.
Anderson, in exchange for a credit of $82,500 against
receivables that Cord Partners, Inc., owed Family and the
cancellation of $32,500 in severance compensation to Mr.
Anderson (the "Sale").
BOARD DETERMINATION OF INDEPENDENCE
Messrs. McGrath and Neeson are each "independent" as that term is defined under
the National Association of Securities Dealers Automated Quotation system.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT DESCRIPTION
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2.0 Form of Common Stock Share Certificate of Cord Blood America, Inc. (1)
3.0 Amended and Restated Articles of Incorporation of Cord Blood American,
Inc. (1)
3.1 Amended and Restated Bylaws of Cord Blood America, Inc. (1)
5.1 Opinion of Sichenzia Ross Friedman Ference LLP (31)
10.0 Patent License Agreement dated as of January 1, 2004 between PharmaStem
Therapeutics, Inc. and Cord Partners, Inc. (2)
10.1 Web Development and Maintenance Agreement dated March 18, 2004 by and
between Gecko Media, Inc. and Cord Partners, Inc. (1)
10.2 Stock Option Agreement dated April 29, 2004 by and between Cord Blood
America, Inc. and Matthew L. Schissler (1)
10.3 Stock Option Agreement dated April 29, 2004 by and between Cord Blood
America, Inc. and Joseph R. Vicente (1)
10.4 Stock Option Agreement dated April 29, 2004 by and between Cord Blood
America, Inc. and Gecko Media, Inc. (1)
46
10.5 License Agreement by and between Cord Partners, Inc. and Premier Office
Centers, LLC (2)
10.6 Purchase and Sale of Future Receivables Agreement between AdvanceMe,
Inc. and Cord Partners, Inc. (2)
10.7 Promissory Note dated August 12, 2004 made by Cord Blood America, Inc.
to the order of Thomas R. Walkey (2)
10.8 Loan Agreement dated September 17, 2004 by and between Cord Blood
America, Inc. and Thomas R. Walkey (3)
10.9 Promissory Note dated January 17, 2005 made by CBA Professional
Services, Inc. to the order of Joseph R. Vicente (4)
10.10 Exchange Agreement dated February 28, 2005 by and between Cord Blood
America, Inc. and Career Channel, Inc. (5)
10.10 Standby Equity Distribution Agreement dated March 22, 2004 between
Cornell Capital Partners, LP and Cord Blood America, Inc. (6)
10.12 Placement Agent Agreement dated March 22, 2005 between Newbridge
Securities Corporation, Cornell Capital Partners, LP and Cord Blood
America, Inc. (6)
10.13 Registration Rights Agreement dated March 22, 2004 between Cornell
Capital Partners, LP and Cord Blood America, Inc. (6)
10.14 Escrow Agreement dated March 22, 2004 between Cord Blood America, Inc.,
Cornell Capital Partners, LP and David Gonzalez, Esq. (6)
10.15 Promissory Note to Cornell Capital Partners for $350,000 (7)
10.16 Warrant for 1,000,000 shares of common stock to Cornell Capital
Partners (7)
10.17 Pledge and Escrow Agreement with Cornell Capital Partners (7)
10.18 Exchange Agreement with Family Marketing Inc. (8)
10.19 Amended and Restated Promissory Note with Cornell Capital Partners for
$600,000 (9)
10.20 Amendment Agreement to a Promissory Note with Cornell Capital Partners
(10)
10.21 Promissory Note to Cornell Capital Partners for $500,000 (11)
10.22 Warrant to Purchase Common Stock by Cornell Capital Partners (12)
10.23 Security Agreement between Family Marketing Inc. and Cornell Capital
Partners (12)
10.24 Security Agreement between Career Channel Inc. and Cornell Capital
Partners (12)
10.25 Security Agreement between CBA Professional Services Inc. and Cornell
Capital Partners (12)
10.26 Security Agreement between CBA Properties Inc. and Cornell Capital
Partners (12)
10.27 Security Agreement between Cord Blood America Inc. and Cornell Capital
Partners (12)
10.28 Security Agreement between Cord Partners Inc. and Cornell Capital
Partners (12)
10.29 Pledge and Escrow Agreement by Cord Blood America, Inc, Cornell Capital
Partners, and David Gonzalez, Esq. (12)
47
10.30 Insider Pledge and Escrow Agreement by Cornell Capital Partners, Cord
Blood America, Inc., Matthew L. Schissler, and David Gonzalez, Esq.
(12)
10.31 Investor Registration Rights Agreement between Cord Blood America, Inc.
and Cornell Capital Partners (12)
10.32 Securities Purchase Agreement between Cord Blood America, Inc. and
Cornell Capital Partners (12)
10.33 Warrant to Purchase Common Stock by Cornell Capital Partners (12)
10.34 Secured Convertible Debenture issued by Cord Blood America, Inc. to
Cornell Capital Partners (12)
10.35 Secured Convertible Debenture issued by Cord Blood America, Inc. to
Cornell Capital Partners (13)
10.36 Amended and Restated Secured Convertible Debenture issued by Cord Blood
America, Inc. to Cornell Capital Partners (13)
10.37 Termination Agreement between Cord Blood America, Inc. to Cornell
Capital Partners (13)
10.38 Employment Agreement dated January 1, 2006 by and between Cord Blood
America, Inc. and Matthew L. Schissler (14)
10.39 Consulting Agreement dated January 1, 2006 by and between Cord Blood
America, Inc. and Stephanie Schissler (14)
10.40 Stock Option Schedule dated January 1, 2006 by and between Cord Blood
America, Inc. and Stephanie Schissler (14)
10.41 Asset Purchase Agreement between Cord Partners, Inc. and Cryobank for
Oncologic and Reproductive Donors, Inc. (15)
10.42 Board Compensation Plan (16)
10.42 Web Development and Maintenance Agreement with Gecko Media, Inc. (17)
10.43 Investment Banking Agreement with Kings Pointe Capital, Inc. (18)
10.44 Investment Banking Agreement with FAE Holdings, Inc. (18)
10.45 Investment Banking Agreement with First SB Partners, Inc. (18)
10.46 Agreement with Cornell Capital Partners, LP (19)
10.47 Subscription Agreement with Strategic Working Capital Fund, L.P. (20)
10.48 Promissory Note for the Benefit of Strategic Working Capital Fund, L.P.
(20)
10.49 Funds Escrow Agreement with Strategic Working Capital Fund, L.P. (20)
10.50 Severance Agreement, dated September 8, 2006, between the Company and
Sandra Anderson (21)
10.51 Stock Purchase Agreement, dated September 5, 2006, between the Company
and Noah Anderson (21)
10.52 Asset Purchase Agreement, executed October 13, 2006, between the
Company and CorCell, Inc. (22)
10.53 Stock Purchase Agreement, executed October 13, 2006, between the
Company and Independence Blue Cross (22)
10.54 Existing Samples Purchase Agreement, executed October 13, 2006, between
the Company and Independence Blue Cross (22)
48
10.55 Registration Rights Agreement, executed October 13, 2006, between the
Company and Independence Blue Cross (22)
10.56 Existing Samples Purchase Agreement, executed October 13, 2006, between
the Company and CorCell, Inc. (22)
10.57 Bill of Sale, executed October 13, 2006, between the Company and
CorCell, Inc. (22)
10.58 Assumption Agreement, executed October 13, 2006, between the Company
and CorCell, Inc. (22)
10.59 Trademark Assignment, executed October 13, 2006, between the Company
and CorCell, Inc. (22)
10.60 Non-Competition Agreement, executed October 13, 2006, between the
Company and CoCell, Inc. (22)
10.61 Office Sublease, executed October 13, 2006, between the Company and
CoCell, Inc. (22)
10.62 Employment Agreement Assignment, executed October 13, 2006, between the
Company and Bruce Ditnes (22)
10.63 Employment Agreement Assignment, executed October 13, 2006, between the
Company and Jill Hutt (22)
10.64 Employment Agreement Assignment, executed October 13, 2006, between the
Company and Antonia Lafferty (22)
10.65 Employment Agreement Assignment, executed October 13, 2006, between the
Company and Marcia Laleman (22)
10.66 Employment Agreement Assignment, executed October 13, 2006, between the
Company and Marion Malone (22)
10.67 Employment Agreement Assignment, executed October 13, 2006, between the
Company and George Venianakis (22)
10.68 Technology License Agreement, executed October 13, 2006, between the
Company and Vita34AG (22)
10.69 Agreement by and between Cord Blood America, Inc and Cornell Capital
Partners, LP executed October 13, 2006 (23)
10.70 Promissory Note dated October 23, 2006 between the Company and Bergen
Regional Community Blood Services (24)
10.71 Stock Pledge, Escrow and Security Agreement dated October 23, 2006 for
the benefit Bergen Regional Community Blood Services (25)
10.72 Placement Agency Agreement ,dated December 18, 2006, by and between the
Company and Stonegate Securities, Inc. (26)
10.73 Consulting Agreement dated June 1, 2007, by and between Cord Blood
America, Inc. and Midtown Partners & Co., LLC (27)
10.74 Exclusive Consulting Agreement, dated May 21, 2007, by and between Cord
Blood America, Inc. and Jean R. Fuselier, Sr. (27)
10.75 Exclusive Consulting Agreement, dated May 21, 2007, by and between
Fuselier Holding, LLC and Cord Blood America, Inc. (27)
10.76 Promissory Note in the amount of $121,500 to Stephanie Schissler (28)
10.77 Promissory Note in the amount of $76,950 to Stephanie Schissler (28)
49
10.78 Promissory Note in the amount of $25,650 to Matthew L. Schissler (28)
10.79 Pledge Agreement, dated September 28, 2007, between Cord Blood America,
Inc., and Stephanie Schissler, relating to note in the amount of
$121,500 (28)
10.80 Pledge Agreement, dated September 28, 2007, between Cord Blood America,
Inc., and Stephanie Schissler, relating to note in the amount of
$76,950 (28)
10.81 Pledge Agreement, dated September 28, 2007, between Cord Blood America,
Inc., and Matthew L. Schissler (28)
10.82 Asset Purchase Agreement, dated August 20, 2007, among Cord Partners,
Inc., Cord Blood America, Inc., and CureSource, Inc. (29)
10.83 Form of Senior Convertible Note (30)
10.84 Form of Warrant to Purchase Common Stock (30)
10.85 Secured Original Issue Discount Debenture, by Corcell (30)
10.86 Common Stock Purchase Warrant, dated November 26, 2007, by Cord Blood
America, Inc. (30)
10.87 Securities Purchase Agreement, dated November 26, 2007, by and among
Cord Blood America, Inc., Enable Growth Partners LP, and the other
Purchasers (30)
10.88 Security Agreement, dated November 26, 2007, among Cord Blood American,
Inc. and the Purchasers (30)
10.89 Registration Rights Agreement, dated November 26, 2007, among Cord
Blood America, Inc. and the Purchasers (30)
10.90 Second Amendment, dated November 26, 2007, to the Securities Purchase
Agreement, dated as of February 14, 2007, as amendmed by the First
Amendment, dated as of April 9, 2007, by and among Corcell, Cord B lood
America, Inc., and Shelter Island (30)
10.91 Corcell Security Agreement, dated as of November 26, 2007, by and
between Cord Blood America, Inc., and Shelter Island (30)
10.92 Put Option Agreement, dated as of November 26, 2007, by and between
Cord Blood America, Inc. and Shelter Island (30)
10.93 Subordination Agreement, dated November 26, 2007, by and between Cord
Blood America, Inc., Corcell, Career Channel, Inc., the Purchasers and
Shelter Island (30)
10.94 Manufacturing Support Services Agreement, dated August 1, 2007, by and
between Cord Blood American, Inc. and Progenitor Cell Therapy, LLC (31)
10.95 Form of Sublease, dated October 1, 2006, by and between CorCell, Inc.
and Cord Blood America, Inc. (31)
21 List of Subsidiaries (32)
23.1 Consent of Rose, Snyder & Jacobs (32)
23.2 Consent of Sichenzia Ross Friedman Ference LLP (included in Exhibit
5.1)
31.1 Certification of the registrant's Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Filed Herewith)
50
32.1 Certification of the Company's Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed
Herewith)
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(1) Filed as an exhibit to Registration Statement on Form 10-SB filed on May 6,
2004.
(2) Filed as an exhibit to Amendment No. 1 to Form 10-SB filed on August 23,
2004.
(3) Filed as an exhibit to Amendment No. 2 to Registration Statement on Form
10-SB filed on October 6, 2004.
(4) Filed as an exhibit to Current Report on Form 8-K filed on January 17, 2005.
(5) Filed as an exhibit to Current Report on Form 8-K filed on March 1, 2005.
(6) Filed as an exhibit to Current Report on Form 8-K filed on March 28, 2005.
(7) Filed as an exhibit to Current Report on Form 8-K filed on May 2, 2005.
(8) Filed as an exhibit to Current Report on Form 8-K filed on May 3, 2005.
(9) Filed as an exhibit to Current Report on Form 8-K filed on June 24, 2005.
(10) Filed as an exhibit to Current Report on Form 8-K filed on July 7, 2005.
(11) Filed as an exhibit to Current Report on Form 8-K filed on July 21, 2005.
(12) Filed as an exhibit to Current Report on Form 8-K filed on September 12,
2005.
(13) Filed as an exhibit to Current Report on Form 8-K filed on December 23,
2005.
(14) Filed as an exhibit to Current Report on Form 8-K filed on January 6, 2006.
(15) Filed as an exhibit to Current Report on Form 8-K filed on January 18,
2006.
(16) Filed as an exhibit to Current Report on Form 8-K filed on February 8,
2006.
(17) Filed as an exhibit to Current Report on Form 8-K filed on May 5, 2006.
(18) Filed as an exhibit to Current Report on Form 8-K filed on June 1, 2006.
(19) Filed as an exhibit to Current Report on Form 8-K filed on June 29, 2006.
(20) Filed as an exhibit to Current Report on Form 8-K filed on August 2, 2006.
(21) Filed as an exhibit to Current Report on Form 8-K filed on September 11,
2006.
(22) Filed as an exhibit to Current Report on Form 8-K filed on October 13,
2006.
(23) Filed as an exhibit to Current Report on Form 8-K filed on October 17,
2006.
(24) Filed as an exhibit to Current Report on Form 8-K filed on October 27,
2006.
(25) Filed as an exhibit to Current Report on Form 8-K filed on October 23,
2006.
(26) Filed as an exhibit to Current Report on Form 8-K filed on December 29,
2006.
(27) Filed as an exhibit to Current Report on Form 8-K filed on June 6, 2007.
51
(28) Filed as an exhibit to Current Report on Form 8-K filed on October 3, 2007.
(29) Filed as an exhibit to Current Report on Form 8-K filed on August 21, 2007.
(30) Filed as an exhibit to Current Report on Form 8-K filed on November 30,
2007.
(31) Filed as an exhibit to Registration Statement on Form SB-2 filed on
December 28, 2007.
(32) Filed as an exhibit to Post-Effective Amendment No. 1 to Registration
Statement on Form SB-2 filed on January 25, 2008.
52
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES]
The following table sets forth the aggregate fees billed to us by our principal
accountant, Rose, Snyder, Jacobs for the periods indicated.
2007 2006
-------- --------
Audit fees (1) $139,540 $ 83,450
Tax fees -- 1,250
Total $139,540 $ 84,750
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(1) Includes fees for audit committee reports and out of pocket expenses.
During 2005, we did not have an audit committee and therefore, the above
services were unable to be pre-approved using any audit committee pre-approval
policies and procedures. As of April 3, 2006, our board of directors has
determined that Cord Blood has one audit committee financial expert, Mr. Timothy
McGrath, and two committee members serving on its audit committee. On April 6,
2006, the board adopted its written audit committee charter.
53
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 15, 2008 CORD BLOOD AMERICA, INC.
By:/s/ Matthew L. Schissler
---------------------------------------
Name: Matthew L. Schissler
Title: Chief Executive Officer,
Principal Executive Officer,
Principal Accounting Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE DATE
--------- ----
/s/ Matthew L. Schissler
-------------------
Matthew L. Schissler Chairman of the Board and April 15, 2008
Chief Executive Officer
/s/ Joseph Vicente
--------------------
Joseph Vicente Director April 15, 2008
/s/ Timothy McGrath
--------------------
Timothy McGrath Director April 15, 2008
/s/ Rick Neeson
--------------------
Rick Neeson Director April 15, 2008
54