10-Q 1 cbai_10q.htm QUARTERLY REPORT cbai_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
or
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
for the transition period from _________ to _________
 
CORD BLOOD AMERICA, INC.
(Exact Name of Small Business Registrant as Specified in its Charter)
 
FLORIDA
 
000-50746
 
90-0613888
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)

1857 HELM DRIVE
LAS VEGAS, NV 89119
 
89119
(Address of principal executive offices)
 
(Zip Code)

(702) 914-7250
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days. Yes þ No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company filer
þ

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.): Yes ¨ No þ

Number of shares of Cord Blood America, Inc. common stock, $0.0001 par value, outstanding as of September 30, 2013, 890,000,000 exclusive of treasury shares.
 



 
 
 
 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
 
INDEX TO FORM 10-Q
 
PART I. FINANCIAL INFORMATION
         
Item 1. 
Condensed Consolidated Financial Statements (Unaudited) 
   
3
 
           
 
Condensed Consolidated Balance Sheets (unaudited) September 30, 2013 and December 31, 2012 (audited)
   
3
 
           
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2013 and September 30, 2012 
   
4
 
           
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2013 and September 30, 2012 
   
6
 
           
 
Notes to Condensed Consolidated Financial Statements (unaudited) 
   
7
 
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 
   
24
 
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk 
   
28
 
           
Item 4T. 
Controls and Procedures
   
28
 
           
PART II. OTHER INFORMATION
           
Item 1.
Legal Proceedings 
   
29
 
           
Item 1A.
Risk Factors
   
30
 
           
Item 2. 
Unregistered Sales Of Equity Securities And Use Of Proceeds 
   
30
 
           
Item 3.
Defaults Upon Senior Securities 
   
31
 
           
Item 4.
Reserved 
   
31
 
           
Item 5.
Other Information 
   
31
 
           
Item 6.
Exhibits
   
32
 
           
Signatures 
   
35
 
 
 
2

 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012 (AUDITED)
 
   
September 30,
2013
   
December 31,
2012
 
ASSETS
 Current assets:                
Cash
 
$
595,316
   
$
393,832
 
Accounts receivable, net of allowance for doubtful accounts of $81,787 and $82,309
   
209,312
     
181,745
 
Prepaid expenses
   
371,020
     
91,911
 
Other current assets
   
380,808
     
367,506
 
Total current assets
   
1,556,456
     
1,034,994
 
Property and equipment, net of accumulated depreciation and amortization of $632,851 and $536,145
   
747,305
     
801,568
 
Customer contracts and relationships, net of accumulated amortization of $3,676,947 and $3,214,273
   
3,662,354
     
4,125,028
 
Investments and related party receivables
   
123,262
     
123,262
 
Other assets
   
76,179
     
22,754
 
Goodwill
   
244,053
     
244,053
 
Total assets
 
$
6,409,609
   
$
6,351,659
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
               
Accounts payable
 
$
515,463
   
$
538,278
 
Accrued expenses
   
1,065,954
     
776,636
 
Deferred revenue
   
1,744,104
     
1,616,797
 
Derivative liability
   
381,737
     
354,654
 
Interest on Promissory Notes
   
255,729
     
76,700
 
Promissory notes payable, net of unamortized discount of $49,363 and $269,620
   
1,202,638
     
1,095,380
 
Total current liabilities
   
5,615,625
     
4,458,445
 
Notes payable, net of unamortized discount of $39,135 and $206,411
   
220,394
     
653,809
 
Interest on promissory note
   
--
     
3,242
 
Deferred Revenue (long term portion)
   
883,394
     
719,736
 
Total liabilities
   
6,269,413
     
5,835,232
 
Stockholders' deficit:
               
Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding
   
--
     
--
 
Common stock, $.0001 par value, 890,000,000 shares authorized, 890,000,000 and 376,234,408 shares issued and outstanding, inclusive of treasury shares
   
711,107
     
659,732
 
Additional paid-in capital
   
51,988,452
     
50,871,033
 
Common stock held in treasury stock, 20,000 shares
   
(599,833
)
   
(599,833
)
Accumulated Other Comprehensive income (loss)
   
283,811
     
141,867
 
Accumulated equity (deficit)
   
(52,626,558
)
   
(51,218,693
)
Total cord blood stockholders’ equity (deficit)
   
(243,021
)
   
(145,894
)
Non-controlling interest
   
383,217
     
662,321
 
Total stockholders’ equity (deficit)
   
140,196
     
516,427
 
Total liabilities and stockholders’ deficit
   
6,409,609
     
6,351,659
 
 
See the accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
 
   
NINE-MONTH
PERIOD
   
NINE-MONTH
PERIOD
 
   
ENDED
   
ENDED
 
   
SEPTEMBER 30,
   
SEPTEMBER 30,
 
   
2013
   
2012
 
             
Revenue
 
$
4,427,223
   
$
4,639,131
 
Cost of services
   
(1,388,947
)
   
(1,266,783
)
Gross profit
   
3,038,276
     
3,372,348
 
Administrative and selling expenses
   
(3,543,941
)
   
(3,640,572
)
Change in value of contingent consideration
   
--
     
190,000
 
Income (loss) from operations
   
(505,665
)
   
(78,224)
 
Interest expense and change in derivative liability
   
(1,137,077
)
   
(1,088,554
)
Interest forgiven on notes payable
   
--
     
117,626
 
Other expenses
   
(44,227
)
   
--
 
Net Loss from continuing operations after provision for income taxes
   
(1,686,969
)
   
(1,049,152
)
Income taxes
   
--
     
--
 
Net Loss from continuing operations after provision for income taxes
   
(1,686,969
)
   
(1,049,152
)
Discontinued Operations:
               
Loss from discontinued operations, net of tax
   
--
     
(210,812
)
Gain (Loss) on sale of Stellacure, net of tax
   
--
     
(889,789)
 
Net income (loss) from discontinued operations
   
--
     
(1,100,601)
 
Net Income(Loss)
   
(1,686,969
)
   
(2,149,753
)
Net income (loss) attributable to Non-controlling interest
   
279,104
     
43,970
 
Net Income (loss) attributable to Cord Blood America
   
(1,407,865
)
   
(2,105,783
)
Basic loss per share
               
               Continuing operations
 
 $
--
   
 $
--
 
Discontinued operations
 
$
--
   
$
--
 
Net basic earnings per share
   
--
     
  --
 
                 
Weighted average common shares outstanding
               
Basic weighted average common shares outstanding
   
700,137,201
     
236,529,620
 
                 
Net loss before income taxes
   
(1,686,969
)
   
(2,149,753
)
Other comprehensive income:
               
Foreign currency translation adjustments
   
141,944
     
20,135
 
Income tax expense related to the other items of comprehensive income
   
--
     
--
 
Comprehensive income (loss), net of tax
   
(1,545,025)
     
(2,129,618)
 
Non-controlling interest
   
279,104
     
43,970
 
Comprehensive income (loss) attributable to Cord Blood America
   
(1,265,921
)    
(2,085,648
)
 
See the accompanying notes to condensed consolidated financial statements.
 
 
4

 

CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

   
THREE-MONTH
PERIOD
   
THREE-MONTH
PERIOD
 
   
ENDED
   
ENDED
 
   
SEPTEMBER 30,
   
SEPTEMBER 30,
 
   
2013
   
2012
 
             
Revenue
 
$
1,487,002
   
$
1,514,051
 
Cost of services
   
(474,862
)
   
(422,498
)
Gross profit
   
1,012,140
     
1,091,553
 
Administrative and selling expenses
   
(1,266,149
)
   
(1,124,600
)
Change in value of contingent consideration
   
--
     
--
 
Income (loss) from operations
   
(253,009
)
   
(33,047)
 
Interest expense and change in derivative liability
   
(337,725
)
   
(70,797
)
Interest forgiven on notes payable
   
--
     
--
 
Other expenses
   
--
     
--
 
Net Income (loss) from continuing operations before provision for income taxes
   
(591,734
)
   
(103,844)
 
Income taxes
   
--
     
--
 
 Net Income (loss) from continuing operation after provision for income taxes      (591,734     (103,844
 Discontinued Operations:                
Loss from discontinued operations, net of tax       --      
(27,947
)
Gain (Loss) on sale of Stellacure, net of tax
      --      
     (889,789)
 
Net income (loss) from discontinued operations
   
--
     
(917,736
)
Net Income (Loss)
   
(591,734
)
   
(1,021,580)
 
Net income (loss) attributable to Non-Controlling Interest
   
137,901
     
28,062
 
Net income (loss) attributable to Cord Blood America
   
(453,833
)
   
(993,518)
 
                 
Basic loss per share
               
Continuing operations
 
$
--
   
$
--
 
Discontinued operations
   
--
     
--
 
Net basic earnings per share
   
--
     
--
 
                 
Weighted average common shares outstanding
               
Basic weighted average common shares outstanding
   
864,218,560
     
249,999,364
 
                 
                 
Net Income (loss) before income taxes
 
$
(591,734
)
 
$
(1,021,580)
 
Other Comprehensive Income:
               
Foreign currency translation adjustments
   
66,856
     
19,694
 
Income tax expense related to the items of other comprehensive income
   
--
     
--
 
Comprehensive income (loss), net of tax
   
(524,878)
     
(1,001,886)
 
Non-controlling interest
   
137,901
     
28,062
 
Comprehensive income (loss) attributable to Cord Blood America
 
$
(386,457
)
 
$
(973,824)
 
 
See the accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2013 AND 2012
 
   
NINE-MONTH
   
NINE-MONTH
 
   
PERIOD ENDED
   
PERIOD ENDED
 
   
SEPTEMBER 30,
   
SEPTEMBER 30,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Consolidated net loss
 
$
(1,686,969
)
 
$
(2,149,753
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
(Income)/loss from discontinued operations
   
--
     
1,100,601
 
Shares issued (cancelled) relating to services, net
   
--
     
45,902
 
Amortization of loan discount
   
387,533
     
900,554
 
Depreciation and amortization
   
577,804
     
595,184
 
Stock option expense
   
--
     
33,794
 
Change in value of derivative liability
   
418,321
     
180,647
 
Change in value of contingent consideration
   
--
     
(190,000)
 
Interest forgiven on notes payable
   
--
     
(117,626)
 
Shares issued as payment of interest on convertible notes
   
63,866
     
68,498
 
Bad debt
   
17,090
     
(22,337)
 
Foreign currency translation
   
141,944
     
20,135
 
Accrued interest receivable on investment (China Stem Cells)
   
--
     
(18,000)
 
Net change in operating assets and liabilities
   
413,455
     
(674,663
)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS
   
333,034
     
(227,064
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payments for purchase of property and equipment
   
(131,550
)
   
162,724
 
Loan receivable issued to China Stem Cells
   
--
     
--
 
Loan Receivable issued to VidaPlus
   
--
     
(179,428
)
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS
   
(131,550)
     
(16,704
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
                 
Proceeds from issuance of notes payable
   
--
     
--
 
Proceeds from issuance of common shares for cash
   
-
     
6,108
 
Proceeds from issuance of note payable, related party
   
-
     
1,545,000
 
Repayment of Notes payable, related party
   
--
     
(1,117,730)
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
--
     
433,378
 
                 
CASH FLOW FROM DISCONTINUED OPERATIONS
               
Operating cash flows
   
--
     
(1,974)
 
Investing cash flows
   
-- 
     
--
 
Financing cash flows
   
-- 
     
--
 
Subtotal net cash provided by discontinued operations
   
--
     
(1,974)
 
NET INCREASE IN CASH
   
201,484
     
187,636
 
                 
Cash balance at beginning of period   $
393,832
    $
181,550
 
Cash balance at end of period   $
595,316
    $
369,186
 
Supplemental Disclosures:                
Interest Paid   $
--
    $
2,080
 
Summary of non-cash transactions:                
Conversion of debt into common shares                
    $
782,249
    $
1,556,886
 
 
See the accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
CORD BLOOD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
 
Note 1.  Organization and Description of Business

Cord Blood America, Inc. ("CBAI" or the “Company”), formerly D&A Lending, Inc., was incorporated in the State of Florida on October 12, 1999. In October, 2009, CBAI re-located its headquarters from Los Angeles, California to Las Vegas, Nevada. CBAI's wholly-owned subsidiaries include Cord Partners, Inc., CorCell Companies, Inc., CorCell, Ltd., (Cord Partners, Inc, CorCell Companies, Inc. and CorCell, Ltd. are sometimes referred to herein collectively as “Cord”), CBA Properties, Inc. ("Properties"), and Career Channel, Inc. formerly D/B/A Rainmakers International ("Rain"). In September 2010, CBAI purchased a majority interest in Biocordcell Argentina S.A. (“Bio”). CBAI and its subsidiaries engage in the following business activities:

CBAI and Cord specializes in providing private cord blood and cord tissue stem cell storage services to families to families throughout the United States and Puerto Rico.

Biocordcell Argentina S.A. specializes in providing private cord blood stem cell storage to families in Argentina, Uruguay and Paraguay.

Properties was formed to hold corporate trademarks and other intellectual property.
 
In March 201, CBAI purchased a majority interest in Stellacure GmbH, a company providing private cord blood processing and storage services to families in Germany, Spain and Italy. On September 28, 2012, the Company sold its ownership interest in Stellcure, and the results of Stellacure and its disposal are reported as discontinued operations.
 
The accompanying consolidated 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 consolidated 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.
 
 
7

 
 
Note 2.  Summary of Significant Accounting Policies
 
Basis of Presentation and Going Concern

The accompanying financial statements of CBAI 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. The Company has experienced recurring net losses from operations, which losses have caused an accumulated deficit of approximately $52.66 million as of September 30, 2013. In addition, CBAI has notes and loans payable of approximately $1.51 million as of September 30, 2013. The Company has no available common stock outstanding as of September 30, 2013, and as such, the Company may not be able to issue common stock to retire debt until such time as the shareholders approve an increase in the number of shares authorized.These factors, among others, raise substantial doubt about CBAI's ability to continue as a going concern.

Since inception, the Company has financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. However, over the past six quarters, the Company has reduced operating expenses, ended investment in its unconsolidated affiliates and Stellacure, and received no additional funding from outside sources for working capital. During the nine months ended September 30, 2013, the Company had positive cash flow from operations of $0.33 million. The Company plans to continue to operate on its cash flows from operations by aligning its expenses with its revenues. If cash flows from operations are significantly less than projected, then the Company would need to either cut back on its budgeted spending, look to outside sources for additional funding or a combination of the two. The Company currently does not have any financing agreements in place for additional funding. If the Company is unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, it could be forced to curtail or possibly cease operations.

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.
 
Basis of Consolidation
 
The consolidated financial statements include the accounts of CBAI and its wholly-owned and majority-owned subsidiaries, Cord and Biocordcell Argentina S.A. All significant inter-company balances and transactions have been eliminated upon consolidation.

Deferred Revenue
 
Deferred revenue consists of payments for enrollment in the program and processing of umbilical cord blood and cord tissue 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.
 
Valuation of Derivative Instruments
 
ASC 815-40 (formerly 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 ASC 815-40-15 (formerly 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 measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula. At September 30, 2013, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of comprehensive income (loss).
 
 
8

 
 
Revenue Recognition
 
CBAI recognizes revenue under the provisions of ASC 605-25 (previously Staff Accounting Bulletin 104 “Revenue Recognition”). CBAI provides a combination of products and services to customers. This combination arrangement is evaluated under ASC 605-25-25 (previously Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"). ASC 605-25-25 addresses certain aspects of accounting for arrangements under multiple revenue generating activities.
 
Cord and Bio recognize revenue from both enrollment fees and processing fees upon the completion of processing while revenue from storage fees are recognized ratably over the contractual storage period.

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

Cost of Services
 
Costs are incurred as umbilical cord blood and cord tissue are collected. For Cord and Bio these costs include the transportation of the umbilical cord blood and cord tissue from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses. The Company expenses costs in the period incurred.

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. The Company reviews goodwill for impairment at least annually or whenever events or circumstances are more likely than not to reduce the fair value of goodwill below its carrying amount.
 
Equity Investments
 
Cord has a minority equity investment in China Stem Cells, Ltd., a Cayman Islands Company, a privately held company organized to conduct a stem cell storage business in China. In 2011, Cord acquired a minority equity investment in VidaPlus, an umbilical cord processing and storage company headquartered in Madrid, Spain. The Company utilizes the cost method of accounting as it owns less than 20% of the outstanding common stock and only has the ability to exercise nominal, not significant, influence over these companies. The cost of this investment was $204,062 and represents 7% equity in VidaPlus. At September 30, 2013 the Company has an outstanding loan to VidaPlus in the amount of $246,525. During the year ended December 31, 2012, the Company recognized an impairment loss on the Vidaplus investments and wrote-down its equity interest to $0 and the value of its notes receivable as of September 30, 2013 to $123,262. At September 30, 2013, the Company believes the value of the note receivable is collectible.
 
 
9

 
 
Fair Value Measurements

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:
 
Level 1 – quoted prices in active markets for identical assets or liabilities.
 
Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
 
The following table summarizes fair value measurements by level at September 30, 2013 for assets and liabilities measured at fair value on a recurring basis:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Cash and cash equivalents
 
$
595,316
   
$
   
$
   
$
595,316
 
                                 
Derivative liability
 
$
   
$
   
$
(381,737
)
 
$
(381,737
)
 
Derivative liability was valued under the Black-Scholes model, consistent with last year, with the following assumptions:
 
Risk free interest rate
 
0.14% to 0.33%
 
Expected life
 
0 to 2 years
 
Dividend Yield
   
0 %
 
Volatility
 
0% to 165 %
 
 
The following is a reconciliation of the derivative liability:
 
Value at December 31, 2012
 
$
354,654
 
Change in value of derivative
 
$
418,321
 
Creation of Instrument
 
$
--
 
Reclassification to equity
 
$
(391,238
)
Value at September 30, 2013
 
$
381,737
 
 
 
10

 
 
For certain of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, and deferred revenues, the carrying amounts approximate fair value due to their short maturities. The carrying amounts of the Company’s notes receivable and notes payable approximates fair value based on the prevailing interest rates.
 
Recently Issued Accounting Pronouncements
 
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities and in January 2013, the FASB issued ASU No. 201 3-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in this update require enhanced disclosures around financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company adopted the disclosure requirements of ASU 2011-11 and the clarification in ASU 2013-01, which became effective for interim and annual periods beginning on January 1, 2013. The adoption of this ASU did not have a material effect on the Company's condensed consolidated financial statements or disclosures.
 
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, ("ASU 2013-02"). ASU 2013-02 amends Accounting Standards Codification ("ASC") 220, Comprehensive income ("ASC 220"), and requires entities to present the changes in the components of accumulated other comprehensive income for the current period. Entities are required to present separately the amount of the change that is due to reclassifications, and the amount that is due to current period other comprehensive income. These changes are permitted to be shown either before or net-of-tax and can be displayed either on the face of the financial statements or in the footnotes. ASU 2013-02 was effective for our interim and annual periods beginning January 1, 2013. The adoption of ASU 2013-02 did not have a material effect on the Company's consolidated financial position or results of operations.
 
In March 2013, the FASB issued new guidance related to the release of cumulative translation adjustment related to an entity's investment in a foreign entity. The guidance clarifies that the guidance in Subtopic 830-30, Foreign Currency Matters - Translation of Financial Statements, applies to the release of cumulative translation adjustment into net income when a reporting entity either sells a part or all of its investment in a foreign entity or ceases to have a controlling financial interest in a subsidiary or group of assets that constitute a business within a foreign entity. This guidance is effective for us prospectively for reporting periods beginning October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
 
In April 2013, the FASB issued ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. ASU 2013-07 clarifies when an entity should apply the liquidation basis of accounting. ASU 2013-07 also provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. ASU 2013-07 is effective for fiscal years and interim periods within those years beginning after December 15, 2013. The Company does not expect amendments in ASU 2013-07 to impact the Company's financial statements, results of operations or liquidity.
 
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which eliminates diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects only the presentation of such amounts in an entity’s balance sheet and is effective for fiscal years beginning after December 15, 2013 and interim periods within those years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 
 
11

 
 
Note 3. Notes and Loans Payable
 
At September 30, 2013 and December 31, 2012 notes and loans payable consist of:
 
   
September 30,
2013
   
December 31,
2012
 
                 
Convertible Promissory Note Payable to St. George Investment, secured by the Company’s assets, interest rate of 6.0% per annum, with payment due on or before March 10, 2015
   
259,530
     
808,220
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before December 14, 2012
   
--
     
25,000
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before December 27, 2012
   
--
     
25,000
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before January 6, 2013
   
--
     
25,000
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before January 20, 2013
   
--
     
50,000
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before January 27, 2013
   
--
     
20,000
 
Convertible Note to Tangiers Investors, 10% per annum; due on or before February 3, 2013
   
--
     
20,000
 
Secured Convertible Promissory Note to Tonaquint, Inc., 6% per annum; due on or before February 27, 2014
   
1,252,000
     
1,252,000
 
                 
     
1,511,530
     
2,225,220
 
Less: Unamortized Discount
   
(88,498
)
   
(476,031
)
   
$
1,423,032
   
$
1,749,189
 
 
 
12

 
 
Note 4.  Commitments and Contingencies

St. George Investments
 
On March 10, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "Purchase Agreement") with St. George Investments, LLC, (“St. George”) an Illinois limited liability company (the "Investor") whereby the Company issued and sold, and the Investor purchased: (i) Secured Convertible Promissory Notes of the Company in the principal amount of $1,105,500 (the "Company Note") and (ii) a Warrant to purchase common stock of the Company (the "Warrant"). The Investor paid $250,000 in cash as an initial payment to the Company and executed and delivered six separate “Secured Buyer Notes” (the “Buyer Notes”), as consideration in full for the issuance and sale of the Company Note and Warrants.

The principal amount of the Company Note is $1,105,500 ("Maturity Amount") and the Company Note is due 48 months from the issuance date of March 10, 2011. The Company Note has an interest rate of 6.0%, which would increase to a rate of 12.0% on the happening of certain Trigger Events, including but not limited to: a decline in the 10-day trailing average daily dollar volume of the common shares in the Company’s primary market to less than $30,000 of volume per day at any time; the failure by the Company or its transfer agent to deliver Conversion Shares (defined in the Company Note) within 5 days of Company’s receipt of a Conversion Notice (defined in the Company Note). Due to a triggering event occurring, the current interest rate is 12%. The total amount funded (in cash and notes) was $1,000,000, representing the Maturity Amount less an original issue discount of $100,500 and the payment of $5,000 to the Investor to cover its fees, with payment consisting of $250,000 advanced at closing and $750,000 in a series of six secured convertible Buyer Notes of $125,000 each, with interest rates of 5.0%. To date, St. George has paid the total amount due.

The Buyer Notes are secured by an Irrevocable Standby Letter of Credit (“Letter of Credit”). The warrant also contains a net exercise /cashless exercise provision. St. George may elect to convert all or part of the principal and any accrued unpaid interest on the Company Note on or before the aforementioned maturity date, subject to certain limitations. The conversion price under the Company Note is eighty percent (80%) of the average of the closing bid prices for the three (3) Trading Days (defined in the Purchase Agreement) with the lowest closing bids over the twenty (20) Trading Days immediately preceding the Conversion Date (defined in the Company Note), subject to adjustments as set forth in the Company Note. Due to adjustments, St. George’s current conversion ratio inserts fifty-five percent (55%) in the aforementioned formula, in place of eighty percent (80%).

The Investor has also received a five year warrant entitling it to purchase shares of common stock of the Company at an exercise price determined under the terms of the Warrant. The warrant also contains a net exercise /cashless exercise provision.

As of September 30, 2013 the balance due to St. George Investments was $259,530.

The Company Note, Warrant and related documentation, including any amounts owed by the Company to St. George based thereon, are in dispute and are the subject of litigation, as described more fully in Item 1. Legal Proceedings.
 
Tonaquint, Inc.

In a transaction that closed on June 29, 2012, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with Tonaquint, Inc. (“Tonaquint”) a Utah corporation whereby the Company issued and sold, and Tonaquint purchased a Secured Convertible Promissory Note of the Company in the principal amount of $1,252,000 (the "Company Note").

The Company Note was issued June 27, 2012 and is due 20 calendar months after the issuance date. The Company Note has an interest rate of 6.0%, which would increase to a rate of 18.0% on the happening of certain Events of Default (defined in the Company Note), including but not limited to: failure to pay and the failure by the Company or its transfer agent to deliver Conversion Shares (defined in the Company Note) within 3 Trading Days of the Company’s receipt of a Conversion Notice (defined in the Company Note). As of March 31, 2013, Tonaquint claimed an interest rate of 18%, which is being disputed by the Company. The total amount funded in cash at closing was $1,120,000, representing the principal amount less an original issue discount of $112,000 and the payment of $20,000 to Tonaquint to cover its fees.
 
 
13

 
 
Tonaquint has the right to convert, subject to restrictions described in the Company Note, all or a portion of the outstanding amount of the Company Note into shares of the Company’s common stock at a price of $0.03. So long as Tonaquint has not extinguished the Company Note in its entirety pursuant to such conversions, the Company shall make monthly payments to Tonaquint on the Company Note, through either the issuance of shares of the Company’s common stock or by payment in cash, at the election of the Company. Payments commence six months from the date of issuance of the Company Note and continue until the Company Note has been paid in full. The amount of the monthly payments is the greater of (i) $100,000, plus the sum of any accrued and unpaid interest as of the applicable Installment Date (defined in the Company Note) and accrued and unpaid Late Charges (defined in the Company Note), if any, under the Company Note as of the applicable Installment Date (defined in the Company Note), and any other amounts accruing or owing to Investor under the Company Note as of such Installment Date, or (ii) the then-outstanding balance of the Company Note divided by the number of Installment Dates remaining prior to the Maturity Date.

In the event the Company is unable to make payments in cash or otherwise elects not to make a payment or payments in cash, the number of common shares delivered to the Investor upon conversion will be calculated by dividing the amount of the Company Note that is being converted by the market price of the common stock, which is defined as 80% of the arithmetic average of the three (3) lowest volume weighted average prices of the shares of the Company’s common stock during the twenty three (23) consecutive trading day period immediately preceding the date as of which such price determination is required (such as the effective date of a conversion).

As of September 30, 2013, the amount owed to Tonaquint was $1,252,000 of principal and $252,610 in accrued interest in accordance with Tonaquint’s claim which is being disputed by the Company.

The Company Note, Purchase Agreement and other related documents, including any amounts owed by the Company to Tonaquint based thereon, are in dispute and are the subject of litigation, as described more fully in Item 1. Legal Proceedings.

VidaPlus

On January 24, 2011, the Company entered into a Stock Purchase Agreement to acquire up to 51% of the capital stock in VidaPlus, an umbilical cord processing and storage company headquartered in Madrid, Spain. The Agreement is organized into three tranches; the first executed at closing with an initial investment of approximately $204,000 (150,000 Euro) for an amount equivalent to 7% as follows; 1% of share capital in initial equity or approximately $30,000 and 6% or an estimated $174,000 as a loan convertible into equity within 12 months of closing. The initial investment was secured by a Pledge Agreement on 270 VidaPlus samples that are incurring annual storage fees. The second tranche provides the opportunity for an additional 28% in share capital through monthly investments based on the number of samples processed in that month (up to a maximum of 550,000 EUR). In connection with Tranche 2, the Company has loaned VidaPlus $246,525 to date. Converting the investment from a loan into equity will take place within 24 months of the date the amount of shares due to the Company pursuant to the second tranche is calculated. The third tranche follows a similar loan to equity agreement as tranche two but for an additional 16% equity at the option of the Company (up to a maximum of 550,000 EUR). VidaPlus contracts through Stellacure and their relationship with the German Red Cross for their processing and storage.

In connection with the VidaPlus Stock Purchase Agreement entered into on January 24, 2011, the Company is obligated to make monthly loans to VidaPlus based on the number of new samples processed and up to a maximum of 550,000 Euro for each of Tranche 2 and 3 of the Agreement. Tranche 2 did contain provisions that provided the Company an option to discontinue funding if certain performance targets were not met.

In January 2012, the Company exercised its right to convert its Tranche 1 loan into 6% of the outstanding shares of VidaPlus, and as a result, the Company owns a total of 7% of the outstanding shares. At the time of the equity conversion, the Company no longer maintained its Pledge on the 270 VidaPlus samples associated with Tranche 1; however, the Company maintained a liquidation preference in VidaPlus over the money invested by the Company in VidaPlus. Additionally, the Company declined to make any further investment (loan or otherwise) to VidaPlus under whether Tranche 2, Tranche 3 or otherwise. CBAI holds a pledge over the umbilical cord blood maintenance and storage contracts between VidaPlus and certain of its customers, and all rights contained therein, including but not limited to the rights to administer those contracts and the rights to collect the revenues derived from those contracts, for 328 samples. CBAI holds that pledge until such time as it converts the monies paid to VidaPlus under Tranche 2 of the Stock Purchase Agreement into equity into Vidaplus, in accordance with the formulas set forth in the Stock Purchase Agreement. CBAI must make that conversion within two years of when the calculation was made as to the amount of shares to which CBAI is entitled pursuant to Tranche 2, which means that such conversion shall take place around or before February 2014. CBAI also holds a liquidation preference in VidaPlus for the money the Company invested in VidaPlus.
 
 
14

 

Patent License Agreement

PharmaStem Therapeutics claims to hold certain patents relating to the storage, expansion and use of hematopoietic stem cells. In the past several years, PharmaStem has commenced suit against numerous companies involved in cord blood collection and preservation alleging infringement of its patents. In October 2003, after a jury trial, judgment was entered against certain of our competitors and in favor of PharmaStem in one of those suits. In February 2004, PharmaStem commenced suit against Cord Partners and certain of its competitors alleging infringement of its patents. Management of Cord Partners determined to settle, rather than to litigate, this matter. As a result, PharmaStem and Cord Partners entered into a Patent License Agreement in March 2004. Pursuant to the Patent License Agreement, Cord Partners could, on a non-exclusive basis, collect, process and store cord blood utilizing PharmaStem’s claimed technology and processes allegedly covered by its patents for so long as the patents may remain in effect. Most of the patents at issue expired in 2010. PharmaStem could claim, arguendo, Cord Partners is obligated under the Patent License Agreement to pay royalties to PharmaStem of 15% of all revenues generated by Cord Partners from the collection and storage of cord blood on and after January 1, 2004. Other than, potentially royalties, which would be disputed by Cord, no amount is payable by Cord Partners to PharmaStem. All litigation between the parties was dismissed and all prior claims were released. As of 2008, Cord ceased paying all royalties to PharmaStem. The patents have been declared void under a final decision on appeal, and as such, there is no pending litigation in this matter. As of September 30, 2013, the Company included approximately $226,000 in accounts payable and $120,000 included in accrued expenses to account for this liability since 2008, though the Company disputes that it owes any royalties to Pharmastem.

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

On or around May 8, 2012, the Court denied the Company’s Motion to Dismiss, without prejudice, and further ordered that the Plaintiffs be given leave until July 16, 2012 to conduct jurisdictional discovery regarding the Company’s and CorCell’s contacts with the state of West Virginia and granting the Company leave to, by motion, renew its challenge to personal jurisdiction no later than July 23, 2012. The Court granted motions to dismiss for lack of personal jurisdiction filed by defendants Progenitor Cell Therapy, LLC and Bergen Community Blood Center. On July 18, 2012, Plaintiff and the Company filed a Stipulation of Dismissal Pursuant to Rule 41(A), dismissing the case against Cord Blood America, Inc., without prejudice. In the event Plaintiff files another case involving these circumstances, the Company will continue to vigorously defend against the claims.
 
 
15

 
 
BioCells

In September 2010, the Company entered into a Stock Purchase Agreement (the “Agreement”), with the Shareholders of Biocordcell Argentina S.A., a corporation organized under the laws of Argentina (“Bio”), providing for the Company’s acquisition of 50.1% of the outstanding shares of Bio (the “Shares).

Under the Agreement, the Company paid $375,000 in cash at the closing, and was obligated to pay an additional $350,000 in October, 2010, $150,000 of which is part of the fixed portion of the purchase price for the shares, for a total minimum purchase price of $525,000. The remaining $200,000 of this payment represents advances against the contingent payments due based on Bio’s 2010 and 2011 net income performances. In 2011, the Company negotiated and paid out the amount of $500,000 in connection with the 2010 earn out.
 
As of June 22, 2012, the Company entered into an Agreement with the shareholders of Bio from whom the Company purchased its majority ownership interest in Bio in 2010 (the "Sellers") relating to the 2011 earn out. Under the Agreement, the Company was to pay the Sellers the following: $25,000 on or before June 30, 2012; $10,000 on or before July 31, 2012; and $25,000 on or before September 30, 2012, for a total cash payment of $60,000. In addition, the Sellers will collect the Company’s portion of BioCells shareholders’ dividends for fiscal years 2012 and 2013, up to a maximum amount of $440,000, if any. There were no shareholder dividends earned or paid for the 2012 fiscal year. Also, if BioCells is sold before April 2014 and certain thresholds for purchase price and payment are met or exceeded, then the Sellers could receive additional compensation, specifically an amount which equals $705,000 minus any amounts paid pursuant to the cash payments and payments from the Company’s shareholder dividends, which are detailed above. That sum would be paid to the Sellers out of the proceeds of such a sale. As a result of this Agreement with the Sellers of Bio; the Company has paid the total cash amount due of $60,000.
 
Employment Agreements

On September 12, 2011 (the “Company”), entered into an Executive Employment Agreement with Joseph R. Vicente, then the Company’s Chief Operating Officer and Vice President and appointed Chairman and President on May 15, 2012 by the Board of Directors, which was effective as of August 1, 2011 and shall terminate as of December 31, 2014, unless earlier terminated by the Company or Mr. Vicente. Mr. Vicente’s Executive Employment Contract had an initial term from August 1, 2011 through December 31, 2011, and is renewable annually thereafter for up to three additional, successive years, and provides for a base salary equal to his previous year’s annual salary, which said salary was set under the provisions of the previous employment agreement entered between Mr. Vicente and the Company in July of 2008. Mr. Vicente voluntarily reduced his annual salary by 12.5% until otherwise determined by Mr. Vicente, along with the advice and consent of the Company’s Board of Directors. It also provides for an annual bonus, payable at the discretion of the Board of Directors, equal to 25% of Mr. Vicente’s prior year base salary. The Agreement provides for a change of control termination bonus, which provide that if Mr. Vicente is terminated, his compensation reduced, or Mr. Vicente terminates his employment within one year after a change of control, then Mr. Vicente is entitled to a termination benefit in an amount equal to the average annual cash compensation over the three (3) year period preceding the Triggering Event (defined in the agreements) multiplied (2.00). The Agreement also provides for termination payments in the absence of a change of control in the event the Company terminates Mr. Vicente without cause in an amount equal to all compensation paid by the Company to Mr. Vicente for the 24 months preceding the termination, along with health plan and 401k incentives (if any were to be offered – the Company terminated its 401k earlier in 2012), as stated in the agreement.

The Company entered into an Executive Employment Agreement with Stephen Morgan (the “Employee”) on August 10, 2012, with July 1, 2012 as the effective date of the Agreement. The Agreement provides for a change of control termination bonus, whereby if the Employee is terminated, his compensation reduced, or the Company terminates the Employee’s employment within one year after a change in control, then the Employee is entitled to a termination benefit in an amount equal to the employee’s cash compensation over the one (1) year preceding the Triggering Event (defined in the Agreement). The Agreement also provides for termination payments in the absence of a change of control in the event the Company terminates the Employee without cause in an amount equal to all compensation paid by the Company to the Employee for the 12 months preceding the termination, along with health plan and 401k incentives (if any were to be offered – the Company terminated its 401k earlier in 2012), as stated in the Agreement. The Agreement provides for an annual salary of $125,000, along with a bonus, payable at the discretion of the Board of Directors of up to an annual amount of 20% of the Employee’s salary. Mr. Morgan’s compensation, as set forth in the Agreement has not increased as a result of his election to the officer positions of Vice President and Secretary on May 15, 2012 in addition to his retention of his previous position, General Counsel. The Company believes the assumption of additional roles by existing management and other individuals in leadership positions, including filling recently vacated roles, will reduce overall management costs while also leading to greater efficiency within the organization.
 
Operating Leases

CBAI and its subsidiary leases office space in Las Vegas, NV under non-cancelable operating leases expiring in 2014. The lease for the facility in Las Vegas has two options to renew for an additional five years each, extending the term to 2024. CBAI's subsidiary leases office and warehouse space in Argentina (Bio). The lease for Bio is for three years ending in 2014. Commitments for future minimum rental payments, to be paid under such operating leases are $203,577 during the next 12 months ended September 30, 2014.
 
 
16

 
 
Note 5.  Related Party Transactions and Commitments
 
China Stem Cells, Ltd.
 
In March of 2010 the Company acquired pursuant to a License Agreement, a 10% non dilutable interest in what became, in December 2010, China Stem Cells, Ltd., a Cayman Islands Company (hereinafter "Cayman"), which indirectly holds a 100% capital interest in AXM Shenyang, a company organized to conduct a Stem Cell Storage Business in China. In exchange for issuance of anequity interest in Cayman, under the terms of the Transfer of Technology Agreement the Company agreed to provide technology transfer, knowhow and training in the setup, marketing and operation of the China Stem Cell Storage business. In connection with the License Agreement, the Company is to receive royalties equal to 8.5% of "Net Revenues" realized from the China Stem Cell Storage business, over the 15 year term of the agreement, with certain minimum annual royalties’ payable beginning in 2011. The Company has not been paid any royalty balance due to date, and it remains doubtful that any such royalties will be collected.
 
In December of 2010 the Company also acquired the option to provide up to $750,000 of additional capital funding to Cayman through the purchase of Cayman Secured Convertible Promissory Notes and attached Cayman Warrants to acquire its Common Stock. Other Cayman shareholders were granted similar options, with the intent of raising the aggregate up to $1.5 million in additional capital for Cayman and its subsidiaries. CBAI has exercised this option in part, provided a total of $400,000 in additional capital to Cayman, and is to receive Cayman Secured Convertible Promissory Notes for this sum along with 80 Cayman (TBD) Warrants. The Secured Convertible Promissory Notes are convertible into Cayman stock at a conversion price of $1,500 per share, subject to certain adjustments. The Warrants have a five year term and are exercisable at an option exercise price of $0.05 per share per share, subject to certain adjustments. The Company has recorded a reserve for the entire carrying amount of the receivable, including interest. The Company’s current President, Joseph Vicente was appointed as a Director of China Stem Cells Ltd. in July 2012
 
VidaPlus
 
The Company holds 7% of the outstanding shares of VidaPlus, and has a balance of convertible loans receivable amounting to $246,525. During the year ended December 31, 2012, the Company reviewed the recoverability of the equity investment and loans receivable and the carrying amount exceeds the fair value of the investment as a result of recurring and continued operating losses at VidaPlus. Fair value of the loans receivable is determined based on the discounted future net cash flows expected to be generated by assets pledged against the loans. The Company recorded an impairment of 100% of the book value of the equity investment and wrote-down $123,263 of the net convertible loan receivable, leaving a loan balance, net book value of $123,262.
 
Consulting Agreement with Pyrenees Consulting, LLC
 
On January 1, 2010, the Company entered into a consulting agreement with Pyrenees Consulting, LLC (“Pyrenees Consulting”), mislabeled in the agreement as Pyrenees Capital, LLC. To the best of the Company’s knowledge, at all relevant times herein, Pyrenees Consulting was owned 50% by Stephanie Schissler, who is the spouse of the Company’s former Officer and Director Matthew Schissler, and 50% by Mathew Schissler. The consulting agreement was entered for consulting services provided by Pyrenees Consulting, to be performed by Stephanie Schissler. The agreement expired two years after the date of the agreement, but Pyrenees continued providing services for the Company at a monthly rate of $13,125. Effective May 14, 2012, the Company and Pyrenees Consulting, LLC terminated their arrangement, and Pyrenees no longer provides services for the Company, nor is owed any additional monies or other obligations.
 
 
17

 
 
Frozen Food Gift Group, Inc.
 
CBAI engaged Frozen Food Gift Group, Inc. (“FFGG”) as a vendor, prepaying for $45,000 in products during the year ended December 31, 2011. The remaining balance on that account is $30,655 as of September 30, 2013, not including additional interest and fees to which the Company may be entitled. The Company’s former CEO and Chairman of the Board, Mathew Schissler who resigned effective May 14, 2012, owned 36.2% of the outstanding shares of FFGG based on an S-1 filing made by that company with the SEC on July 31, 2012, and on information and belief is FFGG’s Chairman of the Board. CBAI’s former COO, and now President Joseph Vicente served on the Board of Directors of FFGG, but resigned effective as of January 26, 2012.
 
The Company ceased doing business with FFGG in 2012, and has made demands for the return of its monies.
 
HaVi Enterprises, LLC
 
On January 12, 2012, HaVi Enterprises, LLC, in which the Company’s President, Joseph Vicente owns a 50% interest, loaned $50,000 to the Company through a Secured Promissory Note with an interest rate of 12% per annum and a 6-month repayment schedule. The balance of this note was paid in full at December 31, 2012.
 
Note 6.  Share Based Compensation
 
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. On July 13, 2009, the Company registered its 2009 Flexible Stock Plan, which increases the total shares available to 4 million common shares. The agreement allows the Company to issue either stock options or common shares from this Plan.
 
On June 3, 2011, the Company registered its 2011 Flexible Stock Option plan, and reserved 1,000,000 shares of the Company's common stock for future issuance under the Plan. The Company canceled the Company's 2010 Flexible Stock Plan, and returned 501,991 reserved but unused common shares back to its treasury.
 
Stock options that vest at the end of a one-year period are amortized over the vesting period using the straight-line method. For stock options awarded using graded vesting, the expense is recorded at the beginning of each year in which a percentage of the options vests. The Company did not issue any stock options for the period ended September 30, 2013.
 
 
18

 
 
The Company’s stock option activity was as follows:
 
   
Stock
Options
   
Weighted Average Exercise Price
   
Weighted Avg. Contractual
Remaining Life
 
                         
Outstanding, January 1, 2012
   
6,951,310
     
1.01
     
6.44
 
Exercised
   
-
     
-
     
-
 
Forfeited/Expired
   
(627,740)
     
-
     
-
 
Outstanding, December 31, 2012
   
6,323,570
     
1.01
     
5.76
 
Exercisable at December 31, 2012
   
6,172,885
     
0.96
     
5.40
 
Forfeited/Expired
   
-
     
-
     
-
 
Outstanding, September 30, 2013
   
6,323,570
     
1.01
     
4.51
 
Exercisable at September 30, 2013
   
6,323,570
     
1.01
     
4.51
 
 
The following table summarizes significant ranges of outstanding stock options under the stock option plan at September 30, 2013:
 
 
Range of
Exercise Prices
   
Number of
Options
   
Weighted Average
Remaining
Contractual Life
(years)
   
Weighted Average
Exercise
Price
   
Number of
Options
Exercisable
   
Weighted Average
Exercise
Price
 
                                             
$
0.33 — 20.00
     
6,275,546
     
4.53
   
$
0.83
     
6,275,546
   
$
0.80
 
$
21.00 — 30.00
     
30,126
     
1.12
     
25.00
     
30,126
     
25.00
 
$
31.00 — 51.00
     
17,898
     
4.51
     
31.21
     
17,898
     
31.21
 
         
6,323,570
     
4.51
   
$
1.01
     
6,323,570
   
$
1.01
 
 
 
19

 
 
A summary of the activity for unvested employee stock options as of September 30, 2013 and changes during the year is presented below:
 
Weighted Average Grant Date Fair Value per Share
 
   
Stock
Options
   
Weighted Avg. Grant Date Fair Value per Share
 
Nonvested at January 1, 2013
   
150,685
     
0.39
 
Granted
   
--
     
--
 
Vested
   
150,685
     
--
 
Exercised
   
--
     
--
 
Cancelled
   
--
     
--
 
Pre-vested forfeitures
   
--
     
--
 
Nonvested at September 30, 2013
   
--
     
0.00
 
 
All outstanding unexercised options provide for adjustment upon stock split, as well as under certain other circumstances.
 
Note 7. Warrant Agreements

On March 10, 2011 the company issued a Promissory Note for $1,105,000 to St. George Investments along with 1,399,253 five year warrants at $0.179 per share.

The Company has not issued any warrants since January 1, 2012

The following table summarizes the warrants outstanding and exercisable at September 30, 2013 (post split):

WARRANTS OUTSTANDING
 
EXERCISE PRICE
 
MATURITY DATE
         
1,392,354
 
$0.179
 
3/10/2016
         
Total 1,392,354
       

All outstanding unexercised warrants provide for adjustment upon stock split, as well as under certain other circumstances
 
 
20

 
 
Note 8.  Stockholder’s Equity
 
Preferred Stock
 
CBAI has 5,000,000 shares of $.0001 par value preferred stock authorized.
 
Common Stock
 
On March 25, 2009, the Company’s Articles of Incorporation were amended to increase the authorized common stock to 6,945,000,000 shares, par value $0.0001, up from 950,000,000. This amendment was adopted by the Company’s Board of Directors on February 12, 2009, and its Shareholders at a Special Meeting of Shareholders called for this purpose on March 23, 2009.

On May, 9, 2011, the Company consummated a one (1) for one hundred (100) reverse split of its outstanding common stock, with the result that the outstanding shares of common stock of the Company were reversed from 6,812,886,600 shares pre-split, to 68,128,866 outstanding common shares post split. At the same time, the Company’s Articles of Incorporation were amended to fix authorized capital stock at 255,000,000 shares, par value $0.0001 of which 5,000,000 shares are preferred shares and 250,000,000 shares are common shares. These actions were adopted by its Shareholders at a Special Meeting of Shareholders called for this purpose on April 21, 2011.

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

As of September 30, 2013 CBAI had 890,000,000 shares of Common Stock outstanding. 20,000 shares remain in the Company's treasury.
 
Note 9.  Segment Reporting
 
Guidance issued by the FASB requires that public business enterprises report financial and descriptive information about its reportable operating segments. Cord primarily generates revenues related to the processing and storage of umbilical cord blood and cord tissue. Cord’s long-lived assets are located in, and substantially all of its revenues are generated from, the United States of America and Argentina.
 
 
21

 
 
The table below presents certain financial information by business segment for the nine months ended September 30, 2013:
 
   
Cord
   
Biocordcell
   
Segment
Total
   
Consolidation
Eliminations
   
Condensed
Consolidated
Total
 
                               
Revenue fromExternal Customers
 
$
2,842,703
   
$
1,584,520
   
$
4,427,223
   
$
-
   
$
4,427,223
 
Interest & DerivativeExpense
   
1,045,512
     
91,565
     
1,137,077
      -  
 
 
1,137,077
 
Depreciation and Amortization
   
540,630
     
37,174
     
577,804
             
577,804
 
Segment Income (Loss)
   
(1,128,761)
     
(558,208)
     
(1,686,969
)
   
         -
     
(1,686,969
)
Segment Assets
 
$
4,655,965
   
$
1,892,027
   
$
6,547,992
   
$
(138,383)
   
$
6,409,609
 
 
The table below presents certain financial information by business segment for the three months ended September 30, 2013:
 
   
Cord
   
Biocordcell
   
Segment
Total
   
Consolidation
Eliminations
   
Condensed
Consolidated
Total
 
                               
Revenue from External Customers
 
$
959,239
   
$
527,763
   
$
1,487,002
   
$
-
   
$
1,487,002
 
Interest & Derivative Expense
   
289,824
     
47,901
     
337,725
             
337,725
 
Depreciation and Amortization
   
180,024
     
11,976
     
192,000
             
192,000
 
Segment Income (Loss)
   
(315,932)
     
(275,802)
     
(591,734
)
   
              -
     
(591,734
)
Segment Assets
 
$
4,655,965
   
$
1,892,027
   
$
6,547,992
   
$
(138,383)
   
$
6,409,609
 
 
The table below presents certain financial information by business segment for the nine months ended September 30, 2012:
 
   
Cord
   
Biocordcell
   
Segment
Total
   
Consolidation
Eliminations
   
Condensed
Consolidated
Total
 
                               
Revenue from External Customers
 
$
2,847,038
   
$
1,792,093
   
$
4,639,131
   
$
-
   
$
4,639,131
 
Interest & Derivative Expense
   
1,066,520
     
22,034
     
1,088,554
             
1,088,554
 
Depreciation and Amortization
   
430,682
     
164,502
     
595,184
             
595,886
 
Segment Income (Loss)
   
(1,209,115
)
   
159,963
     
(1,049,152
)
           
(1,049,152
)
Segment Assets
 
$
5,637,767
   
$
1,038,711
   
$
6,676,478
   
$
639,461
   
$
7,315,939
 
 
 
22

 
 
The table below presents certain financial information by business segment for the three months ended September 30, 2012:
 
   
Cord
   
Biocordcell
   
Segment
Total
   
Consolidation
Eliminations
   
Condensed
Consolidated
Total
 
                               
Revenue from External Customers
 
$
955,248
   
$
558,803
   
$
1,514,051
   
$
-
   
$
1,514,051
 
Interest & Derivative Expense
   
20,884
     
7,063
     
27,947
             
27,947
 
Depreciation and Amortization
   
144,816
     
55,072
     
199,888
     
                    -- 
     
199,888
 
Segment Income (Loss)
   
(125,126)
     
21,282
     
(103,844)
     
                    --
     
(103,844)
 
Segment Assets
 
$
5,637,767
   
$
1,038,711
   
$
6,676,478
   
$
639,461
   
$
7,315,939
 
 
Note 10. Subsequent Events 
 
NA 
 
 
23

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
 
Forward Looking Statements
 
In addition to the historical information contained herein, the Company makes statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about the Company's future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in the Company's periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

The following information should be read in conjunction with the Company’s September 30, 2013 condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with its condensed consolidated financial statements and notes thereto for the year ended December 31, 2012 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as well as its quarterly reports and reports filed on Form 8-K for the relevant periods. The Company also urges you to review and consider itsdisclosures describing various risks that may affect its business, which are set forth under the heading "Risk Factors Related to the Company Business" in its Annual Report on Form 10-K for the year ended December 31, 2012.
 
Recent Developments During the Quarter
 
Tonaquint and St. George
 
Previously, the Company entered transactions with St. George Investments, LLC and with Tonaquint, Inc.  On August 30, 2013, the Company filed a Complaint against these entities as described in greater detail in Item 1. Legal Proceedings.

Moreover, on September 25, 2013, the Company received from Tonaquint a Notice of Disposition of Collateral advising of Tonaquint’s intent to sell all assets of the Company at a public auction on November 4, 2013 at 11:00 a.m. PST at 1857 Helm Drive, Las Vegas, Nevada, 89119.  On October 18, 2013, the Company received from Tonaquint a Notification of Cancellation, which provided notice that the aforementioned auction to sell the Company’s assets was cancelled.
 
Oustanding Shares
 
During the period ending September 30, 2013, the Company issued an additional 100,526,957 shares of common stock, and as of the date of this filing has an outstanding share amount of 890,000,000 with 890,000,000 common shares authorized.
 
Summary and Outlook of the Business
 
CBAI is primarily an umbilical cord blood and cord tissue stem cell processing and storage company with a particular focus on the acquisition of customers in need of family based products and services.
 
 
24

 

Cord
 
Cord’s operations provide umbilical cord blood banking and cord tissue services to expectant parents throughout all 50 United States and Puerto Rico. The Company’s corporate headquarters re-located to Las Vegas, NV from Los Angeles, CA in October 2009. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord processes and stores cord blood and cord tissue in its own facility. Cord provides the following services to each customer.

Collection Materials. A medical kit that contains all of the materials and instructions necessary for collecting the newborn’s umbilical cord blood and cord tissue at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for infectious disease testing.

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

Transportation. Manage all logistics for transporting the cord blood and cord tissue unit to the Company’s centralized facility immediately following birth. This procedure ensures chain-of-custody control during transportation for maximum security.
 
Comprehensive Testing. The cord blood sample is tested for stem cell concentration levels and blood type. The maternal samples are tested for infectious diseases. Cord reports these results to the newborn’s mother.

Cord Blood Storage. After processing and testing, the cord blood and cord tissue unit is cryogenically frozen in a controlled manner and stored in liquid nitrogen for potential future use. Data indicates that cord blood retains viability and function for at least twenty five years when stored in this manner and theoretically could be maintained at least as long as the normal life span of an individual.

Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, primarily through organic growth.
 
Results of Operations for the Three-Months Ended September 30, 2013
 
For the three months ended September 30, 2013, total revenue decreased to approximately $1.49 million from $1.51 million, a decrease of 2% over the same period of 2012. Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. Other revenue consisted of primarily tissue related products which remained relatively consistent for the three month year over year period. Per segment, Cord had an increase of its total revenues of less than 1%, and Bio had a decrease in its revenues of 6% over the same period ending September 30, 2013. Bio’s decrease in revenues were largely impacted by a year over year adjustment to the currency exchange rate of approximately 15%, an increase in the discounts  provided for  enrollment/processing fees even though the total number of units processed for the period was less than a 2% decrease from the prior period. The Company remains focused on strategic organic growth which management hopes will provide sustainable operating cash flows, and, positive operating and net income.

Cost of services as a percentage of revenue increased to 32% for the period ended September 30, 2013 compared to 28% the same prior period of 2012. The cost of services include transportation of the umbilical cord blood and cord tissue from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses. Gross profit decreased by approximately $0.08 million or 7% to $1.01 million for the period ending September 30, 2013 from the prior three month period of 2012. Increases in Bio's expenses and currency adjustments were primary contributors to the reported decrease.  The Company anticipates that through the growth and expansion of its Cord business, tighter cost controls and continuing efficiencies in its own facilities, direct costs should decrease and gross profits should improve.
 
 
25

 
 
Administrative and selling expenses for the three months ended September 30, 2013 were $1.27 million as compared to $1.12 million for the comparative period of 2012 representing a 13% increase. These expenses are primarily related to marketing/advertising, professional services, allocated facility related expenses and wages for personnel.  The Company continues to evaluate its expenses and their relationship to revenues for alignment. Depreciation and amortization are included as an administrative expense. For the three month period ending September 30, 2013 depreciation and amortization was $0.19 million and in September 30, 2012, depreciation and amortization was approximately $0.20 million.

The Company's loss from operations was $0.25 million versus an operating loss of $0.03 million for the comparative period. The Company's net loss was $0.59 million for the period ended September 30, 2013, a decrease of $0.43 million compared to the comparative period net loss of $1.02 million or a decrease of 42%.  

Results of Operations for the Nine-Months Ended September 30, 2013

For the nine months ended September 30, 2013, the Company's total revenue decreased to approximately $4.43 million from $4.64 million, for a 5.0% decrease over the same period of 2012.  Revenues are generated primarily from new enrollment/processing fees and recurring storage fees. The remaining revenue consisted primarily of tissue related products which increased by 17% in the year over year nine month period. Per segment, Cord's revenues decreased less than 1% and Bio’s revenues decreased by 12% over the prior comparative period.  Bio’s decrease in revenues were largely impacted by a year over year adjustment to the currency exchange rate of approximately 15%,  along with an increase in the discounts provided for enrollment/processing fees even though the total number of units processed for the period was consistent with the prior period. Cord remains focused on strategic organic growth which management hopes will provide sustainable operating cash flows and net income.

Cost of services as a percentage of revenue increased to 31% for the period ended September 30, 2013 compared to 27% the same prior period of 2012.  The cost of services includes transportation of the umbilical cord blood and cord tissue from the hospital to the lab, direct material plus labor costs for processing and cryogenic storage, and allocated rent, utility and general administrative expenses.  Gross profit decreased by approximately $0.33 million or 10 % to $3.04 million from the prior comparative nine month period. Increases in Bio's expenses and currency adjustments were primary contributors to the reported decrease.  The Company anticipates that through the growth and expansion of its Cord business, tighter cost controls and continuing efficiencies in its own facilities, direct costs should decrease and gross profits should improve.

Administrative and selling expenses for the nine months ended September 30, 2013 were $3.54 million as compared to $3.64 million for the comparative period of 2012 representing a 3% decrease.  These expenses are primarily related to marketing/advertising, professional services, allocated facility, including utilities, expenses, and wages for personnel. Generally, each functional unit within administrative and selling expenses has reduced expenses.  The Company continues to evaluate its expenses and their relationship to revenues for alignment.  Depreciation and amortization are included as an administrative expense.  For the nine month period, depreciation and amortization was $0.58 million versus $0.60 million for the prior comparative period of 2012.

The Company's loss from operations was $0.51 million versus an operating loss of $0.08 million for the comparative period.  Included in the income from operations total for 2012 was one-time $0.19 million reversal in the accrual for the Bio 2011 earn out. The Company's net loss was $1.69 million for the period ended September 30, 2013, a decrease of $0.46 million compared to the comparative period net loss of $2.15 million.  Contributing to the net loss in the nine month period ending September 30, 2013 was an increase in the interest expense and derivative liability associated with claims of default made by Tonaquint, and disputed by the Company.  Successful resolution of the dispute could result in a reduction to the accrued interest and derivative liability balances.  In the nine month period ending September 30, 2013, the Company expensed $44,227 relating to previously unpaid fees from October 2009 through December 2011 as discovered in the state of Nevada sales and abatement tax audit, which covered the period through March 2013.  The Company is current with its obligations to the state, and anticipates no further expenses for past due obligations.
 
 
26

 
 
Liquidity and Capital Resources
 
Total assets at September 30, 2013 were $6.41 million compared to $6.35 million at December 31, 2012.  Total liabilities at September 30, 2013 were $6.31 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $1.42 million,  $0.52 million and $2.67 million respectively.   At December 31, 2012, total liabilities were $5.84 million consisting primarily of Promissory Notes, Accounts Payable and Deferred Revenue of $1.75 million, $0.54 million and $2.37 million respectively.

For the period ending September 30, 2013, the company had $0.60 million in cash, an increase of 61% from $0.39 million at December 31, 2012. The Company currently collects cash receipts from operations through Cord and its subsidiary, Bio-cells. During the nine month period ended September 30, 2013 there was no increase in notes payable for purposes of working capital or investment in affiliate companies. Net cash provided by operating activities for the nine month period ending September 30, 2013 was $0.33 million, versus a net use of cash of $0.23 million from the prior comparative period of 2012, an improvement of $0.60 million or 247%. Net cash used in investing activities decreased by $0.13 million. Net cash provided by financing activities decreased $0.43 million from the prior comparative period ending September 30, 2012. The Company did not have any financing activities during the nine month period ending September 30, 2013, and cash flow from operations continue to be sufficient to fund operations.
 
Since inception, the Company has financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans.  Over the past six consecutive quarters, the Company has reduced operating expenses, ended investment in its foreign affiliates and received no additional funding from outside sources for working capital.  The Company plans to continue to operate on its cash flows from operations by aligning its expenses with its revenues.  If cash flows from operations are significantly less than projected, then the company would need to either cut back on its budgeted spending, look to outside sources for additional funding or a combination of the two. The Company currently does not have any financing agreements in place for additional funding. If the Company is unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, we could be forced to curtail or possibly cease operations.
 
Inflation

In the opinion of management, inflation has not and will not have a material effect on the Company’s US operations in the immediate future. However, with its Bio subsidiary, the Company is seeing inflationary pressures on a year over year basis.  Management will continue to monitor inflation and evaluate the possible future effects of inflation on the Company's business and operations.
 
 
27

 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Disclosure not applicable to smaller reporting companies.
 
ITEM 4T. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). The Company’s management, including its president and chief financial officer, have reviewed and evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2013. Following this review and evaluation, management collectively determined that its disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in reports that it files 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 its president, vice president, and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

The deficiency in the Company’s disclosure controls and procedures is related to a lack of segregation of duties due to the size of the accounting department and the lack of experienced accountants due to the limited financial resources of the Company. The Company continues to actively develop the controls and resources necessary in order to be in position to remediate this lack of segregation of duties.
 
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.
 
 
28

 
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS

On August 30, 2013, Cord Blood America, Inc. (the “Company”) filed a Complaint (the “Complaint”) in the United States District Court for the District of Utah, Central Division against Tonaquint, Inc. (“Tonaquint”) and St. George Investments, LLC (“St. George”) (collectively ”Defendants”), along with summonses in connection therewith, case number 2:13-cv-00806-PMW (the “Action”). The Company brought the Action against the Defendants alleging Fraud in the Inducement, Breach of Agreement, Breach of Implied Covenant of Good Faith and Fair Dealing and Unjust Enrichment.  In particular, among other things, the Complaint alleges that Defendants have fraudulently induced the Company to enter into the June 27, 2012 Secured Convertible Promissory Note (“Tonaquint Note”), Securities Purchase Agreement (“Tonaquint Purchase Agreement”) and related documentation through misrepresentations including but by no means limited to: (i) representing that the Tonaquint Note would be consecutively amortized with the March 10, 2011 Secured Convertible Promossory Note issued to St. George by the Company (“St. George Note”), and that these would not become due and owing simultaneously, and (ii) that the St. George Note would be replaced by an amended note to be paid off according to a set amortization schedule.

The Company seeks relief in the form of rescission or reformation of the Tonaquint Note, St. George Note, the Warrant issued to St. George as part of the March 10, 2011 transaction, as well as related agreements and documents, an order enjoining Defendants from foreclosing on the Notes or selling the Company’s assets, punitive and other damages in an unspecified amount, costs, attorneys’ fees, interest and such other relief as the Court deems just and proper.

Subsequently, on September 25, 2013, Defendants each filed their Answer and Counterclaim in the Action.  In their Counterclaims, Defendants allege causes of action against the Company for Breach of the March 10, 2011 Note and Warrant Purchase Agreement between St. George and the Company (“SGI Purchase Agreement”), Breach of the Tonaquint Purchase Agreement and Tonaquint Note, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Unjust Enrichment. Defendants claim that the Company purportedly breached the SGI Purchase Agreement, Tonaquint Purchase Agreement, and Tonaquint Convertible Note, by, among other things, failing to maintain a share reserve, failing to increase the number of authorized shares, failing to call or hold a meeting to increase the authorized shares of Common Stock of the Company, and failing to make installment payments under the Tonaquint Convertible Note.Defendants seek relief in the form of damages in an unspecified amount and an order from the Court requiring the Company to establish and maintain a share reserve for the benefit of the Defendants, along with costs, attorneys’ fees and such other relief as the Court deems just and proper.On October 15, 2013, the Company filed its Reply to Counterclaim.

Also on September 25, 2013, the Company received from Tonaquint a Notice of Disposition of Collateral advising of Tonaquint’s intent to sell all assets of the Company at a public auction on November 4, 2013 at 11:00 a.m. PST at 1857 Helm Drive, Las Vegas, Nevada, 89119.  On October 18, 2013, the Company received from Tonaquint a Notification of Cancellation, which provided notice that the aforementioned auction to sell the Company’s assets was cancelled.

The Company intends to vigorously pursue its claims and defend itself against Defendants' counterclaims, as well as Tonaquint’s attempt to sell assets, and will continue to take legal action to protect the interests of the Company and its shareholders.

 
29

 
 
ITEM 1A.RISK FACTORS.
 
A description of the Company’s risk factors can be found in “ Risk Factors” of its Annual Report on Form 10-K for the year ended December 31, 2012. There were no material changes to those risk factors during the three months ended September 30, 2013.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
In the instances described under this sub-heading, the Company relied upon Section 4(2) of the Securities Act in issuing securities.
 
St. George Investments

On March 10, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "Purchase Agreement") with St. George Investments, LLC, (“St. George”) an Illinois limited liability company (the "Investor") whereby the Company issued and sold, and the Investor purchased: (i) Secured Convertible Promissory Note of the Company in the principal amount of $1,105,500 (the "Company Note") and (ii) a Warrant to purchase common stock of the Company (the "Warrant"). The Investor paid $250,000 in cash as an initial payment to the Company and executed and delivered six separate “Secured Buyer Notes” (the “Buyer Notes”), as consideration in full for the issuance and sale of the Company Note and Warrants.

The principal amount of the Company Note is $1,105,500 ("Maturity Amount") and the Company Note is due 48 months from the issuance date of March 10, 2011. The Company Note has an interest rate of 6.0%, which would increase to a rate of 12.0% on the happening of certain Trigger Events, including but not limited to: a decline in the 10-day trailing average daily dollar volume of the common shares in the Company’s primary market to less than $30,000 of volume per day at any time; the failure by the Company or its transfer agent to deliver Conversion Shares (defined in the Company Note) within 5 days of Company’s receipt of a Conversion Notice (defined in the Company Note). Due to a triggering event occurring, the current interest rate is 12%. The total amount funded (in cash and notes) was $1,000,000, representing the Maturity Amount less an original issue discount of $100,500 and the payment of $5,000 to the Investor to cover its fees, with payment consisting of $250,000 advanced at closing and $750,000 in a series of six secured convertible Buyer Notes of $125,000 each, with interest rates of 5.0%. To date, St. George has paid the total amount due.

The Buyer Notes are secured by an Irrevocable Standby Letter of Credit (“Letter of Credit”). The Investor has also received a five year warrant entitling it to purchase shares of common stock of the Company at an exercise price as determined under the terms of the Warrant. The warrant also contains a net exercise /cashless exercise provision. St. George may elect to convert all or part of the principal and any accrued unpaid interest on the Company Note on or before the aforementioned maturity date, subject to certain limitations. The conversion price under the Company Note is eighty percent (80%) of the average of the closing bid prices for the three (3) Trading Days (defined in the Purchase Agreement) with the lowest closing bids over the twenty (20) Trading Days immediately preceding the Conversion Date (defined in the Company Note), subject to adjustments as set forth in the Company Note. Due to adjustments, St. George’s current conversion ratio inserts fifty-five percent (55%) in the aforementioned formula, in place of eighty percent (80%). For the three month period ending September 30, 2013, the Company issued 100,526,957 shares of common stock for a total value of $126,529. As of September 30, 2013 the balance due to St. George Investments was $259,530.
 
 
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Repurchase of Shares
 
The Company did not repurchase any of our shares during the Quarter ended September 30, 2013.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. RESERVED
 
ITEM 5. OTHER INFORMATION
 
NONE 
 
 
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ITEM 6. EXHIBITS
 
The following documents are included as exhibits to this Form 10Q:
 
EXHIBIT
 
DESCRIPTION
     
2.0
 
Form of Common Stock Share Certificate of Cord Blood America, Inc. (1)
     
3.1(i)
 
Amended and Restated Articles of Incorporation of Cord Blood American, Inc. (1)
     
3.1(ii)
 
Articles of Amendment to Articles of Incorporation (5)
     
3.1(iii)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc.(7)
     
3.1(iv)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (16)
     
3.1(v)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (16)
     
3.1(vi)
 
Articles of Amendment to the Articles of Incorporation of Cord Blood America, Inc. (23)
     
3.2(i)
 
Amended and Restated Bylaws of Cord Blood America, Inc. (1)
     
10.0
 
Patent License Agreement dated as of January 1, 2004 between PharmaStem Therapeutics, Inc. and Cord Partners, Inc. (2)
     
10.1
 
Board Compensation Plan (3)
     
10.2
 
Employment Agreement between the Company and Joseph Vicente (18)
     
10.3
 
Lease for Las Vegas Facility (11)
     
10.4
 
2011 Flexible Stock Option Plan (17)
     
10.5
 
Compensatory Arrangement for Certain Officers Effective July 13, 2009, Stock Options (8)
 
 
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10.6
 
Compensatory Arrangement for Certain Officers Effective December 31, 2009, Stock Options (9)
     
10.7
 
Entered on March 24, 2010 into Investment Agreement to Acquire Majority Interest in Stellacure (10)
     
10.8
 
License and Cooperation Agreement with AXM Pharma effective March 31, 2010 (12)
     
10.9
 
Compensatory Arrangement for Certain Officers Executed July 1, 2010. Stock Options (13)
     
10.10
 
Executed Stock Purchase Agreement on September 20, 2010 to Acquire Majority Interest in BioCordcell Argentina, SA. (14)
     
10.11
 
On March 20, 2011 Cord Blood America, Inc. Entered into a Note and Warrant Purchase Agreement with St. George Investments. (15)
     
10.12
 
On January 19, 2011, Cord Blood America, Inc. Entered into a Liquidated Damages Agreement with Tangiers Capital, LLC. (15)
     
10.13
 
Departure of Directors or Appointment Certain Officers; Election and of Directors, Appointment of Certain Officers on May 15, 2012 (19)
     
10.14
 
Entered into Agreement on June 22, 2012 with Shareholders of BioCells (20)
     
10.15
 
On June 29, 2012, Cord Blood America, Inc. closed a Securities Purchase Agreement with Tonaquint, Inc.(21)
     
10.16
 
On June 29, 2012, Cord Blood America, Inc. closed a Final and Full Payment Agreement with JMJ Financial, Inc. (21)
     
10.17
 
Employment Agreement between the Company and Stephen Morgan (22)
     
10.18
 
On September 28, 2012, Cord Blood America, Inc. sold interest in stellacure GmbH to MedivisionmbH.(24)
     
10.19
 
On May 20, 2013 Cord Blood America, Inc. announced a new service offering. (25)
     
10.20
 
On August 30, 2013 Cord Blood America, Inc. filed a complaint against St. George Investments, LLC and Tonaquint, Inc. (26)
     
10.21
 
On September 25, 2013, St. George Investments, LLC. and Tonaquint, Inc. filed an Answer and Counterclaim against Cord Blood America, Inc.  Additionally, Cord Blood America, Inc. received a Notice of Disposition of Collateral to sell its assets at a public auction.  (27)
     
10.22
 
On October 18, 2013, Cord Blood America, Inc. received from Tonaquint, Inc. a Notice of Cancellation to sell the Company assets. (28)
     
21
 
List of Subsidiaries (4)
     
31.1
 
Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed Herewith)
     
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
 
 
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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 Current Report on Form 8-K filed on February 8, 2006.
 
(4) Filed as an exhibit to Current Report on Form 8-K filed on June 13, 2008
 
(5) Filed as an exhibit to Current Report on Form 8-K filed on August 29, 2008
 
(6) Filed as an exhibit to the Current Report on Form 8-K filed on February 26, 2009
 
(7) Filed as an exhibit to the Current Report on Form 8-K filed on March 31, 2009
 
(8) Filed as an exhibit to the Current Report on Form 8-K filed on July 17, 2009
 
(9) Filed as an exhibit to Current Report on Form 8-K filed on January 7, 2010
 
(10) Filed as an exhibit to Current Report on Form 8-K filed on March 29, 2010
 
(11) Filed as an exhibit to Current Report on Form 10-K filed on March 31, 2010
 
(12) Filed as an exhibit to Current Report on Form 10Q filed on May 5, 2010
 
(13) Filed as an exhibit to Current Report on Form 8-K filed on July 7, 2010
 
(14) Filed as an exhibit to Current Report on Form 8-K filed on September 23, 2010
 
(15) Filed as an exhibit to Current Report on Form 8-K filed on March 21, 2011
 
(16) Filed as an exhibit to Current Report on Form 10Q filed on May 23, 2011
 
(17) Filed as an exhibit to Current Report on Form S-8 filed on June 3, 2011
 
(18) Filed as an exhibit to Current Report on Form 8K filed on September 12, 2011
 
(19) Filed as an exhibit to Current Report on Form 8-K filed on May 15, 2012
 
(20) Filed as an exhibit to Current Report on Form 8-K filed on June 25, 2012
 
(21) Filed as an exhibit to Current Report on Form 8-K filed on July 6, 2012.
 
(22) Filed as an exhibit to Current Report on Form 10Q filed on August 14, 2012
 
(23) Filed as an exhibit to Current Report on Form 8K filed on September 27, 2012
 
(24) Filed as an exhibit to Current Report on Form 8K filed on October 4, 2012.

(25) Filed as an exhibit to Current Report on Form 8K filed on May 20, 2013.

(26) Filed as an exhibit to Current Report on Form 8K filed on September 3, 2013

(27) Filed as an exhibit to Current Report on Form 8K filed on October 1, 2013

(28) Filed as an exhibit to Current Report on Form 8K filed on October 22, 2013
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
CORD BLOOD AMERICA, INC.
 
       
Date: November 14, 2013
By:
/s/ Joseph R. Vicente
 
   
Joseph R. Vicente
 
   
Chairman and President
 
   
(Principal Executive Officer and
 
    Principal Financial and Accounting Officer)  
 
 
 
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