UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


———————


FORM 10-Q


———————




þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the quarterly period ended September 30, 2010




or




oTRANSITION 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

65-1078768(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
oNon-accelerated filer
o
Smaller reporting company
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 November 9, 2010: 5,692,564,026exclusive of treasury shares.












CORD BLOOD AMERICA, INC. AND SUBSIDIARIES




INDEX TO FORM 10-Q




PagePART I FINANCIAL INFORMATIONItem 1.
Condensed Consolidated Financial Statements

1Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2010 and December 31, 2009Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2010 and 2009


2Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2010 and 2009


3Notes to Condensed Consolidated Financial Statements (unaudited)


5Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


18Item 3.
Quantitative and Qualitative Information About Market Risk


23Item 4T.
Controls and Procedures


23PART II OTHER INFORMATIONItem 1.
Legal Proceedings


24Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds


24Item 3.
Defaults upon Senior Securities


24Item 4.
RESERVED


24Item 5.
Other Information


24Item 6.
Exhibits


24SIGNATURES


25





PART I. FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009





ASSETSCurrent assets:

September 30,

2010


December 31,

2009Cash

$
236,486


$
716,576Accounts receivable, net of allowance for doubtful accounts of $40,000 and $70,000


562,385



174,103Prepaid expenses


81,523



––Total current assets


880,394



890,679Property and equipment, net of accumulated depreciation and amortization of $208,601 and $146,888


561,833



383,597Other current assets


5,000



––Customer contracts and relationships, net of accumulated amortization of $1,833,395 and $1,477,399


5,154,565



3,848,319Other assets


66,187



––Investments and related party receivables


200,000Goodwill


126,761Total assets

$
6,994,740


$
5,122,595LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable

$
642,515


$
709,519Accrued expenses


1,592,105



380,543Deferred rent


138,161



––Deferred revenue


1,707,816



1,475,261Advances from shareholders


––



29,229Derivative liability


480,640



2,405,553Promissory notes payable, net of unamortized discount of $451,958 and $83,784


2,252,797



161,886Total current liabilities


6,814,034



5,161,991Stockholders’ equity (deficit):Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding


––



––Common stock, $.0001 par value, 6,950,000,000 shares authorized, 5,692,564,026 and 4,947,735,145 shares issued and outstanding, inclusive of treasury shares


569,256



494,774Additional paid-in capital


40,231,262



34,763,094Common stock held in treasury stock, 2,000,000 shares


(599,833
)


(599,833
)Comprehensive income (loss)


(41,457
)


––Accumulated deficit


(40,734,841
)


(34,697,431
)Total cord blood stockholders’ equity (deficit)


(575,613
)


(39,396
)Non-controlling interest


753,319



––Total stockholders’ equity (deficit)


177,706



(39,396)Total liabilities and stockholders’ equity (deficit)

$
6,994,740


$
5,122,595





See the accompanying notes to condensed consolidated financial statements.
  1


CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





NINE-MONTH

PERIOD


NINE-MONTH

PERIODENDED


ENDEDSEPTEMBER 30,


SEPTEMBER 30,2010


2009Revenue

$
2,749,353


$
2,594,126Cost of services


(1,171,856
)


(967,235
)Gross profit


1,577,497



1,626,891Administrative and selling expenses


(6,147,565
)


(3,386,260
)Start-up Costs


(820,471
)


––Loss from operations


(5,390,539
)


(1,759,369
)Interest expense and change in derivative liability


(865,326
)


(4,163,643
)Net loss before income taxes


(6,255,865
)


(5,923,012
)Income taxes


––



––Non-controlling interest in income


221,680



––Net loss

$
(6,034,185
)

$
(5,923,012
)Basic and diluted loss per share

$
(0.00
)

$
(0.00
)Weighted average common shares outstanding


5,230,520,018



1,755,784,836




CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





THREE-MONTH

PERIOD


THREE-MONTH

PERIODENDED


ENDEDSEPTEMBER 30,


SEPTEMBER 30,2010


2009Revenue

$
958,449


$
838,238Cost of services


(355,790
)


(203,507
)Gross profit


602,659



634,731Administrative and selling expenses


(2,361,878
)


(1,579,450
)Start-up Costs


––



––Loss from operations


(1,759,219
)


(944,719
)Interest expense and change in derivative liability


(213,002
)


(1,353,924
)Net loss before income taxes


(1,972,221
)


(2,298,943
)Income taxes


––



––Non-controlling interest in income


95,464



––Net loss

$
(1,876,757
)

$
(2,298,943
)Basic and diluted loss per share

$
(0.00
)

$
(0.00
)Weighted average common shares outstanding


5,502,553,285



2,775,994,889




See the accompanying notes to condensed consolidated financial statements.




2





CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009




NINE-MONTH


NINE-MONTHPERIOD ENDED


PERIOD ENDEDSEPTEMBER 30,


SEPTEMBER 30,2010


2009Cash flows from operating activities:Net loss

$
(6,034,185
)

$
(5,923,012
)Adjustments to reconcile net loss to net cash used in operating activities:Issuance of stock for services


601,464



403,986Issuance of stock for position in vivicells international


46,665



––Stock based compensation


1,707,114



633,007Amortization of loan discount


373,915



1,607,143Amortization of deferred financing costs


––



648,767Depreciation and amortization


435,235



444,560Change in value of derivative liability


(25,974
)


1,003,978Start-up costs for stellacure


820,471



––Payment for acquisition of biocordcell


(315,000
)


––Foreign currency translation


(41,457
)


––Non-controlling interest


(221,678
)


––Shares and warrants issued for financing


––



204,419Net change in operating assets and liabilities


(599,585
)


(277,583)Net cash used in operating activities


(3,253,018
)


(1,254,435
)Cash flows from investing activities:Payments for purchase of property and equipment


(137,538
)


(34,590
)Loan Receivable issued to vivicells international


(200,000
)


––Cash acquired during acquisition of biocells


134,695



––Net cash used in investing activities


(202,843
)


(34,590
)Cash flows from financing activities:Bank overdraft


––



(17,083
)Issuance of common shares for cash


200,000



1,220,462Payments on advances from officers


––



(56,124
)Proceeds from issuance of notes payable


2,805,000



500,000Payments on loans payable


––



(200,441
)Proceeds from advances from shareholders


––



2,964Payments on advances from shareholders


(29,229
)


––Payments on capital lease obligations


––



(2,589
)Net cash provided by financing activities


2,975,771



1,447,189Net increase (decrease) in cash


(480,090
)


158,164Cash and cash equivalents, at beginning of period


716,576



––Cash and cash equivalents, at end of period

$
236,486


$
158,164




See the accompanying notes to condensed consolidated financial statements.
  3
  CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


CONDENSED CONSOLDIATED STATEMENTS OF CASH FLOWS (UNAUDITED)


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





NINE-MONTH

PERIOD


NINE-MONTH

PERIODENDED


ENDEDSEPTEMBER 30,


SEPTEMBER 30,2010


2009Supplemental disclosures:Cash paid for interest

$
––


$
128,294Supplemental disclosures of non-cash investing and financing activities:Issuance of common stock for accrued financing costs

$
––


$
1,080,107Debt repaid through issuance of common stock

$
2,086,391


$
8,596,301




See the accompanying notes to condensed consolidated financial statements.


4





CORD BLOOD AMERICA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER 30, 2010




Note 1. Organization and Description of Business




Cord Blood America, Inc. ("CBAI"), formerly D&A Lending, Inc., was incorporated in the State of Florida on October 12, 1999. In October, 2009, CBAI re-located its headquarters from Los Angeles, California to Las Vegas, Nevada. CBAI is primarily a holding company whose wholly-owned subsidiaries include Cord Partners, Inc., CorCell Co. Inc., CorCell Ltd., (“Cord”), CBA Professional Services, Inc. D/B/A BodyCells, Inc. ("BodyCells"), CBA Properties, Inc. ("Properties"), and Career Channel Inc, D/B/A Rainmakers International ("Rain"). In March 2010, CBAI purchased a majority interest in Stellacure GmbH (“Stellacure”). In September 2010, CBAI purchased a majority interest in Biocordcell Argentina S.A. (“Bio”). CBAI and its subsidiaries engage in the following business activities:




·
Cord specializes in providing private cord blood stem cell preservation services to families.




·
Stellacure GmbH specializes in providing cord blood stem cell preservation services to families in Germany and Spain.




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




·
BodyCells is a developmental stage company and intends to be in the business of collecting, processing and preserving peripheral blood and adipose tissue stem cells allowing individuals to privately preserve their stem cells for potential future use in stem cell therapy.




·
Properties were formed to hold the corporate trademarks and other intellectual property of CBAI.




·
Rain specializes in creating direct response television and radio advertising campaigns, including media placement and commercial production.




The accompanying condensed 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 condensed 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.




Note 2. Summary of Significant Accounting Policies




Basis of Presentation and Liquidity




The accompanying unaudited condensed consolidated financial statements of Cord Blood America, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis and Plan of Operations contained in this report and the audited condensed consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.




5




Since inception, we have financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. As we expand our operational activities, we may continue to experience net negative cash flows from operations and we will be required to obtain additional financing to fund operations through equity offerings and borrowings to the extent necessary to provide working capital. Financing may not be available, and, if available, it may not be available on acceptable terms. Should we secure such financing, it could have a negative impact on our financial condition and our shareholders. The sale of debt would, among other things, adversely impact our balance sheet, increase our expenses and increase our cash flow requirements. The sale of equity could, among other things, result in dilution to our shareholders. If our cash flows from operations are significantly less than projected, then we would either need to cut back on our budgeted spending, look to outside sources for additional funding or a combination of the two. If we are unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, we could be forced to curtail or possibly cease operations. The accompanying consolidated financial statements do not include any adjustments that might result from such uncertainty.




Basis of Consolidation




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




Deferred Revenue




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




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, 2010, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its statement of operations.




Revenue Recognition




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




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




Rain generates revenue from packaged advertising services, including media buying, on-hold and motor sports advertising campaigns, marketing and advertising production services. Rain's advertising service revenue is recognized when the media ad space is sold and the advertising occurs. Rain's advertising production service revenue is derived through the production of an advertising campaign including, but not limited to, audio and video production, establishment of a target market and the development of an advertising campaign. Rain recognizes revenue generated from packaged advertising services provided to our clients using the "Gross" basis of ASC 605-45 (formerly Emerging Issues Task Force No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent)".




Rain's revenue recognition policy involves significant judgments and estimates about the ability to collect. We assess the probability of collection based on a number of factors, including past transaction history and/or the creditworthiness of our clients' customers, which is based on current published credit ratings, current events and circumstances regarding the business of our client's customer and other factors that we believe are relevant. If we determine that collection is not reasonably assured, we defer revenue recognition until such time as collection becomes reasonably assured, which is generally upon receipt of cash payment. Rain recognizes revenue generated through per inquiry advertising as the per inquiry leads are delivered to the customer.




6




Cost of Services




Costs for Cord, Stellacure and Bio are incurred as umbilical cord blood is collected. These costs include the transportation of the umbilical cord blood from the hospital to the lab, and the labs’ processing fees. The Company expenses costs in the period incurred. Costs for Rain include commercial production costs, lead generation costs and media buys.




Fair Value Measurements




CBAI measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. exit price), in an orderly transaction between market participants at the measurement date. The Company categorizes its assets and liabilities measured at fair value 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, 2010 for assets and liabilities measured at fair value on a recurring basis:




Level 1


Level 2


Level 3


TotalCash and cash equivalents

$
236,486


$
—


$
—


$
236,486Derivative liability

$
—


$
—


$
(480,640)


$
(480,640)





Derivative liability was valued under the Black-Scholes model, consistent with last year, with the following assumptions:




Risk free interest rate
0.24% to 1.64%Expected life
0 to 3 yearsDividend Yield
0%Volatility
0% to 165%




The following is a reconciliation of the derivative liability:




Value at December 31, 2009

$
2,405,553Issuance of instruments


592,014Increase in Value


(25,974
)Reclassification to notes payable


(2,490,953
)Value at September 30, 2010

$
480,640




Comprehensive Income (Loss)




The following is a schedule of comprehensive income (loss) for the nine months ended September 30, 2010 and 2009:




2010


2009Net income (loss)

$
(6,034,185
)

$
(5,923,012
)Foreign currency translation gain (loss)


(41,457
)


––Comprehensive income (loss)

$
(6,075,642
)

$
(5,923,012
)




7




Net Loss per Share




Net loss per common share is calculated in accordance with ASC 260. Basic net loss per share is computed by dividing the net loss by the weighted average common shares outstanding. Outstanding options to acquire common stock and warrants are not included in the computation of diluted net loss per share because the effects of inclusion are anti-dilutive.




Recent Accounting Pronouncements




In September 2009, the FASB amended ASC 860, (formerly SFAS No. 166, Accounting for Transfers of Financial Assets, and an amendment to SFAS No. 140). ASC 860 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. ASC 860 is effective for fiscal years beginning after November 15, 2009. The adoption of ASC 860 did not have a material impact on our condensed consolidated financial statements.





In September 2009, the FASB amended ASC 810 (formerly Statement of Financial Accounting Standards No.167, Amendments to FASB Interpretation No. 46(R)). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. ASC 810 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The adoption of ASC 810 did not have a material impact on our financial statements.





In August 2009, the FASB issued ASU 2009-15, which changes the fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 input fair value measurements. This ASU became effective for us on January 1, 2010. Adoption of this ASU did not have a material impact on our condensed consolidated financial statements.





In January, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. The standard amends ASC Topic 820, Fair Value Measurements and Disclosures to require additional disclosures related to transfers between levels in the hierarchy of fair value measurement. The standard does not change how fair values are measured. The standard is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on our condensed consolidated financial statements.




Note 3. Summary of Acquisition




Stellacure GmbH





In March 2010, the Company acquired 138,712 Series B Shares of Stellacure, GmbH, which represents an ownership percentage of 51%, a German Limited Liability Company that is in the business of collecting, processing, and storing cord blood samples. The purchase price paid by the Company was EUR 501,000. Stellacure operates primarily in Germany, however, it established sales channels in Spain and Italy in 2009. The Company intends to utilize these markets for immediate market penetration and an opportunity for growth throughout Europe.




8





In connection with the acquisition, the Company acquired the following assets and liabilities at fair value:





Cash

$
466,735Accounts receivable


183,274Investments and other receivables


208,474Prepaid expenses


7,424Property and equipment


52,302Other assets


149,036Total Assets

$
1,067,245Accounts payable

$
406,115Accrued expenses


334,994Deferred revenue


206,862Total Liabilities

$
947,971





Given that Stellacure has operated at a loss for the past several years, has negative working capital as of the acquisition date, and has a limited operating history, the Company determined that the fair value of any intangible assets identified as well as the non-controlling interest was $0.  As such, the Company recorded a charge of $820,471 to its condensed consolidated statement of operations relating to the acquisition because the costs incurred in the acquisition were akin to a startup cost for the Company’s expansion into Europe.





In connection with the purchase of the shares of Stellacure, the Company entered into a commitment to purchase the shares of Stellacure from the remaining holders, at the option of the holders, in either cash, shares of the Company, or a combination of both.  The commitment price is defined in the shareholder agreement and is based on a formula that considers a multiple of revenue and earnings of Stellacure. Should the Company pay the commitment price in shares of its common stock, it is required under the agreement that the holders be given stock equal to 110% of the commitment price. The commitment commences in 2012 and expires in 2014.  The Company valued this commitment as of September 30, 2010, based on the recent earnings activity of Stellacure, and determined that the value of the commitment was $0.





Biocordcell Argentina S.A.





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 $315,000 in cash at the closing, and paid an additional $410,000 on October 25, 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.





The Agreement provides that the Shareholders are to be paid contingent “earn-out” compensation in 2011 based on achieving certain levels of net income in 2010; and additional contingent “earn-out” compensation in 2012 based on achieving certain levels of net income in 2011.




9




The earn-out provisions are as follows for Bio’s 2010 fiscal year, which ends December 31, 2010:




·
If Bio net profits exceed $186,000 in 2010, the Company has agreed to pay an additional earn-out of $700,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced  on October 20, 2010 toward the 2010 earn-out, and the Shareholders will be entitled to be paid 20% of the amount by which 2010 Bio net income exceeds $186,000.




·
If Bio net profits exceed $139,500 in 2010 but do not reach $186,000, the Company has agreed to pay an additional earn-out of $700,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced on October 20, 2010 toward the 2010 earn-out, but will not be entitled to be paid a percentage of Bio net income.




·
If Bio net profits exceed $93,000 in 2010 but do not reach $139,500, the Company has agreed to pay an additional earn-out of $500,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced on October 20, 2010 toward the 2010 earn-out, but will not be entitled to be paid a percentage of Bio net income.




·
If Bio net profits do not equal $93,000 in 2010, no additional earn-out will be paid to the shareholders in 2011 for 2010, and the Shareholders are obligated to return to the Company, a sum equalto the $100,000 payment advanced on October 20, 2010, toward the  Shareholders’ 2010 earn-out, along with interest, but less actual  net profits  earned by Bio in 2010.




The earn-out provisions are as follows for Bio’s 2011 fiscal year, which ends on December 31, 2011:





·
If Bio net profits exceed $577,000 in 2011, the Company has agreed to pay an additional earn-out of $705,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced  on October 20, 2010 toward the 2011 earn-out, and the Shareholders will be entitled to be paid 20% of the amount by which 2011 Bio net income exceeds $577,000.





·
If Bio net profits exceed $432,750 in 2011 but do not reach $577,000, the Company has agreed to pay an additional earn-out of $705,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced on October 20, 2010 toward the 2011 earn-out, but will not be entitled to be paid a percentage of Bio net income.





·
If Bio net profits exceed $288,500 in 2011 but do not reach $432,750, the Company has agreed to pay an additional earn-out of $350,000 to the Shareholders, plus the Shareholders will retain the $100,000 payment advanced on October 20, 2010 toward the 2011 earn-out, but will not be entitled to be paid a percentage of Bio net income.





·
If Bio net profits do not equal  $288,500 in 2011, no additional earn-out will be paid to the shareholders in 2012 for 2011, and the Shareholders are obligated to return to the Company,  the $100,000 payment advanced on October 20, 2010, toward the  Shareholders’ 2011 earn-out, along with interest, but less actual net profits earned by Bio in 2010.





The company recognized an additional $250,000 for the contingent “earn-out” compensation as of the acquisition date.





The Agreement provides that the Shares purchased will be converted into Class Preferred A shares which in event of liquidation will have a right to a priority return of capital  equal to the purchase price paid for the Shares after the payment of all Bio creditors, and then will share pro rata in any remaining capital of Bio. The Shares are pledged by the Company to secure its performance under the Agreement, and the Company is given a first right of refusal in the even the Shareholders proposed to sell their remaining shares.





In connection with the acquisition, the Company acquired the following assets and liabilities at fair value:





Cash

$
134,695Accounts receivable


109,120Prepaid expenses


16,037Property and equipment


60,204Customer contracts and relationships


1,662,242Goodwill


126,761Total Assets

$
2,109,058Accounts payable

$
92,589Accrued expenses


66,470Total Liabilities

$
159,059





In connection with the acquisition of Bio, the Company recognized non-controlling interest in the amount of $974,999, representing its acquisition date fair value, based on management’s estimate.




10




Note 4. Notes and Loans Payable




At September 30, 2010 and December 31, 2009, notes and loans payable consist of:




September 30,

2010


December 31,

20090% Convertible Debenture payable to Enable Capital, effective interest rate of 72% per annum (considering the loan discount), due July 31, 2010

$
––


$
38,189Convertible Promissory Note Payable to JMJ Financial, secured by $1.3 million of the Company’s assets, one-time interest charge of 10.38%, due May 5, 2012


––



57,482Convertible Promissory Note Payable to JMJ Financial, secured by $1.05 million of the Company's assets, one-time interest charge of 10.50%, due October 26, 2012


––



150,000Convertible Promissory Note Payable to JMJ Financial, secured by $1.5 million of the Company's assets, one time interest charge of 10.33%, due January 19, 2013


250,050



––Convertible Promissory Note Payable to JMJ Financial, secured by $1.5 million of the Company's assets, one time interest charge of 10.33%, due January 14, 2013


764,330



––Convertible Promissory Note Payable to JMJ Financial, secured by $.750 million of the Company's assets, one time interest charge of 10.67%, due April 7, 2013


99,975



––Senior Secured Note Payable to Shelter Island Opportunity Fund, LLP, effective interest rate of 16% per annum, payable in six monthly installments of $256,067 January 2011 through June 2011


1,590,400



––2,704,755



245,671Less: Unamortized Discount


( 451,958
)


(83,785
)$
2,252,797


$
161,886




Note 5. Commitments and Contingencies




On July 2, 2009, the Company executed a Preferred Stock Purchase Agreement and Warrant Agreement with Optimus Capital Partners, LLC, which contemplates a $7.5 million capital commitment which may be drawn down in increments in the future by the Company under certain conditions, including the filing and effectiveness of a current registration statement registering common shares issuable upon Warrant exercise and certain   common shares issued as a fee at the outset.  On November 2, 2009, the Company filed its registration statement for these common shares as required by these agreements.  However, the Company is reassessing whether to follow through with the implementation of this capital commitment.  In the mean time, on January 27, 2010, the Company elected to withdraw for the time being its registration statement filed with the SEC for these shares.




The Company had previously entered into a series of Securities Purchase Agreements with Shelter Island Opportunity Fund, LLP (“Shelter Island”) which provided the Company various lines of credit which were drawn down and subsequently paid off in full. As part of these transactions, the Company issued to Shelter Island a Common Stock Purchase Warrant to purchase, as adjusted, 36,000,000 shares of Common Stock (the “Shelter Island Warrants”) along with a Put Option Agreement. After extensive negotiations with Shelter Island, the parties entered into a transaction on July 21, 2010, whereby the 36 million shares Warrant Agreement was canceled, and the obligation represented by the Put Option Agreement was satisfied by the Company's delivery  to Shelter Island of a new Senior Secured Note in the principal amount of $1,590,400  (the "Replacement Note"). With this agreement, the derivative liability of $1,608,658, was reclassified on the balance sheet as a note payable of $1,590,400. The Replacement Note matures on September 30, 2011, bears interest at 16% per annum for the period July 31, 2010 through January 31, 2011, and is payable in six equal monthly installments of $265,067 each, commencing January 30, 2011. The Company, at its option, may pay the principal amount due on the Replacement Note by the issuance of the holder of unregistered Company Common Stock, to be valued at an agreed conversion rate that is fixed for this purpose, subject to certain adjustments, at 85% of the market value of the Company's common stock, calculated based on the five lowest daily closing prices for the stock over certain specified 20 day periods.




11




Agreements




Pharmastem -In March 2004, Cord entered into a Patent License Agreement with the holder of patents utilized in the collection, processing, and storage of umbilical cord blood to settle litigation against Cord for alleged patent infringements. The Patent License Agreement calls for royalties of 15% of processing and storage revenue, with a minimum royalty of $225 per specimen collected, on all specimens collected after January 1, 2004 until the patents expire in 2010.




Employment Agreements




On July 16, 2008, CBAI entered into a three-year agreement with Mr. Schissler, which is renewable annually thereafter, which provides for a base salary of $165,000 the first year, with five percent base salary increases for each successive year, subject to approval by the Board of Directors. It also provides for an annual bonus, payable at the discretion of the Board of Directors, equal to thirty percent of the Employee’s prior year base salary. It also provided him with the immediate issuance of 7,500,000, five-year options to acquire restricted shares of the Company’s common shares at an exercise price of $0.01 per share, These options vest twenty-five percent immediately, and twenty-five percent annually thereafter. It also provided Mr. Schissler with the payment of an inducement bonus of 1,000,000 restricted shares of the Company’s common shares. In July, 2009, as a bonus for current and past services rendered, the Company awarded 241,096,000 options to purchase common stock, 50% of which vested immediately and the other 120,548,000 to be vested over the next four years. Mr. Schissler is subject to non-competition and confidentiality requirements. CBAI may terminate Mr. Schissler's Executive Agreement at any time without cause. In such event, no later than the Termination Date specified in the Termination Notice (both as defined in the Executive Agreement), CBAI shall pay to Mr. Schissler an amount in cash equal to the sum of his Compensation determined as of the date of such Termination Notice through the remaining term of the Executive Agreement.In December, 2009, Mr. Schissler was awarded an additional 242,929,000 options to purchase common stock, 50% of which vested immediately and the other 121,464,500 to vest at December 31, 2010. On July 1, 2010, the Company awarded a total of 30,937,178 options to purchase common shares to Matthew Schissler, to compensate him for both past services and future services, 50% of which vested immediately.




On July 16, 2008, CBAI entered into a three-year agreement with Mr. Joe Vicente, who serves as the Company’s Chief Operating Officer, which is renewable annually thereafter, which provides for a base salary of $115,000 the first year, with five percent base salary increases for each successive year, subject to approval by the Board of Directors. It also provides for an annual bonus, payable at the discretion of the Board of Directors, equal to twenty-five percent of the Employee’s prior year base salary. It also provided him with the immediate issuance of 7,500,000, five-year options to acquire restricted shares of the Company’s common shares at an exercise price of $0.01 per share, These options vest twenty-five percent immediately, and twenty-five percent annually thereafter. It also provided Mr. Vicente with the payment of an inducement bonus of 1,000,000 restricted shares of the Company’s common shares. In July, 2009, as a bonus for current and past services rendered, the Company awarded 120,548,000 options to purchase common stock, 50% of which vested immediately and the other 60,274,000 to be vested over the next four years.In December, 2009, Mr. Vicente was awarded an additional 121,464,500 options to purchase common stock, 50% of which vested immediately and the other 60,732,250 to vest at December 31, 2010. On July 1, 2010, the Company awarded a total of 15,468,690 options to purchase common shares to Joseph Vicente, to compensate him for both past services and future services, 50% of which vested immediately.




Operating Lease




CBAI leases office space which expires at various times through 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. Commitments for minimum future rental payments, by year and in the aggregate, to be paid under the operating leases as of September 30, 2010, are as follows:




2010

$
40,4412011


275,5692012


251,1392013


154,0822014


118,142$
839,373





12




Note 6. Related Party Transactions and Commitments




Consulting Agreement




On July 1, 2008, CBAI entered into a one-year consulting agreement with Pyrenees Consulting, LLC., a business owned by Stephanie Schissler, CBAI's former President and Chief Operating Officer. Ms. Schissler is the spouse of the Company's Chief Executive Officer. The agreement entitles Ms. Schissler to a monthly retainer and stock option incentives for her services in relation to strategic corporate planning and other business related matters. On January 1, 2010 the agreement was renewed for another 12 months with a retainer of $12,500 per month. The agreement automatically renews for a further term of six months, unless a 60-day written notice of cancellation is provided by Pyrenees Consulting, or a 180-day written notice is provided by CBAI.




Note 7. 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 400 million common shares. The agreement allows the Company to issue either stock options or common shares from this Plan.




On March 2, 2010, the Company awarded a total of 20,000,000 options to purchase common shares to Stephanie Schissler, to compensate her for both past services and future services.




On June 1, 2010 and June 25, 2010, Matthew Schissler exercised 50,782,350 and 29,984,810 options respectively.




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’s stock option activity was as follows:




Stock Options


Weighted Average Exercise Price


Weighted Avg. Contractual

Remaining LifeOutstanding, January 1, 2009


23,308,140



0.07



5.5Granted


725,965,000



0.01Exercised


-Forfeited/Expired


-Outstanding, December 31, 2009


749,273,140



0.01



7.3Granted


20,000,000



0.01Exercised


-Forfeited/Expired


-Outstanding, March 31, 2010


769,273,140



0.01



7.39Granted


-Exercised


120,548,000Forfeited/Expired


-Outstanding, June 30, 2010


648,725,140



0.01



7.64Granted


46,405,868Exercised


-Forfeited/Expired


-Outstanding, September 30, 2010


695,131,008



0.01



7.08Exercisable at September 30, 2010


432,100,032



0.01



7.08





13




The following table summarizes significant ranges of outstanding stock options under the stock option plan at September 30, 2010:




Range of

Exercise Prices

Number of Options

Weighted AverageRemaining

Contractual Life

(years)


Weighted Average

Exercise

Price

Number ofOptions

Exercisable

Weighted Average

Exercise

Price$
0.0033 — 0.20

690,328,560


7.10


$
0.008

427,297,584

$
0.007$
0.21 — 0.30

3,012,600


4.12



0.250

3,012,600


0.250$
0.31 — 0.51

1,789,848


4.94



0.312

1,789,848


0.312695,131,008


7.08


$
0.010

432,100,032

$
0.010





Note 8. Warrant Agreements




A summary of warrant activity since January 1, 2009 is as follows:




On July 2, 2009, the Company executed a Preferred Stock Purchase Agreement with Optimus Capital Partners, LLC, which also entitled them to a five-year conditional warrant to purchase 1,446,428,571 of the Company’s Common Stock at $0.007 per share.




On September 23, 2009, the Company issued a Promissory Note for $200,000 to Joseph Schottland along with 54,200,542 three-year warrants at $0.0037 per share.




On January 30, 2009, Enable Capital, a warrant holder, exercised their right to purchase 31,449,102 shares of the Company’s Common Stock at $0.0086 per share.




On October 10, 2009, Cornell, a warrant holder, exercised their right to purchase 1,263,920 shares of the Company's Common Stock at $0.35 per share, on a cashless basis.




On January 14, 2010, Schottland, a warrant holder, exercised their right to purchase 42,771,971 shares of the company's Common Stock at $0.0037 per share, on a cashless basis.




The following table summarizes the warrants outstanding and exercisable at September 30, 2010:




WARRANTS OUTSTANDING


EXERCISE PRICE

MATURITY DATE15,729,730



$  0.101

02/14/20124,000,000



$  0.101

02/14/20122,916,667



$  0.037

11/26/20123,796,950



$  0.037

05/15/20139,655,531



$0.0086

05/30/201311,428,571



$  0.037

06/23/2012Total 47,527,449





14
 Note 9. Stockholder’s Equity
  Preferred Stock
  CBAI has 5,000,000 shares of $.0001 par value preferred stock authorized. On July 2, 2009, the Company executed a Preferred Stock Purchase Agreement with Optimus Capital Partners, LLC, which contemplates a secured $7.5 million capital commitment which may be drawn down in increments through the “put” to the Fund of newly issued Series A Preferred Stock, subject to meeting certain conditions.  At the same time, a Warrant Agreement was executed, granting Optimus CGII, Ltd. the right to acquire 1,446,428,571 Common shares at an exercise price of $0.008 per share, subject to certain adjustments. See note 5.
  The Stock Purchase Agreement provides that up to 750 shares of Series A Preferred stock, par value $0.0001, may be “put” to the Fund at a purchase price of $10,000 per share over a period of time, provided its conditions are met. The Series A Preferred stock would accrue dividends at the rate of 10% per annum, preclude other dividends until it is paid, and have a liquidation preference equal to $10,000 plus all accrued but unpaid dividends. The Series A Preferred would be redeemable after four years at a redemption price of equal to $10,000 plus all accrued but unpaid dividends (or earlier if certain additional premiums are paid). The Series A Preferred Stock would not be publicly traded.
 
 Conditions precedent to utilizing this line of credit include the filing and effectiveness of a current registration statement registering  common shares issuable upon Warrant exercise and certain  common shares issued as a fee at the outset.  On November 2, 2009, the Company filed its registration statement for these common shares as required by these agreements.  However, the Company is re assessing whether to follow through with the implementation of this capital commitment.  In the mean time, on January 27, 2010, the Company elected to withdraw for the time being its registration statement filed with the SEC for these shares.
  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 January 14, 2010, a warrant holder exercised a portion of their warrants, or 42,771,971 shares at an exercise price of $0.0037, exercised on a cashless basis.
  On June 1, 2010, the CEO exercised a portion of his options, or 50,782,350 shares at an exercise price of $0.0033, exercised on a cashless basis.
  On June 25, 2010, the CEO exercised a portion of his options, or 29,984,810 shares at an exercise price of $0.0033, exercised on a cashless basis.
  As of September 30, 2010 CBAI had 5,692,564,026 shares of Common Stock outstanding. 1,257,435,974 shares remain in the Company's treasury.
  Note 10. Segment Reporting
  Guidance issued by the FASB requires that public business enterprises report financial and descriptive information about its reportable operating segments. CBAI has two operating segments. Cord generates revenues related to the processing and preservation of umbilical cord blood. Rain generates revenues related to television and radio advertising. All of its long-lived assets are located in, and substantially all of its revenues are generated from within, the United States of America.
  The table below presents certain financial information by business segment for the nine months ended September 30, 2010:
  Umbilical








Radio/ TV


Segment





Condensed

ConsolidatedCord Blood


Stellacure


Biocordcell


Advertising


Total


Eliminations


TotalRevenue from External Customers

$
2,481,367


$
267,986


$
-


$
-


$
2,749,353


$
-


$
2,749,353Interest Expense


850,922



14,404



-



-



865,326



-



865,326Depreciation and Amortization


423,240



10,906



-



-



434,146



-



434,146Segment Income (Loss)


(4,982,980
)


(452,414
)


-



-



(5,435,393
)


(598,791
)


(6,034,185
)Segment Assets

$
6,490,420


$
447,437


$
2,109,058


$
-


$
9,046,915


$
(2,052,175
)

$
6,994,740
  15
  The table below presents certain financial information by business segment for the nine months ended September 30, 2009:
  Radio/Umbilical

Television

Segments

CondensedCord Blood

Advertising

Total

TotalRevenue from External Customers

$
2,393,270


$
200,856


$
2,594,126


$
2,594,126Interest Expense


4,160,456



3,187



4,163,643



4,163,643Depreciation and Amortization


444,560



-



444,560



444,560Segment Income (Loss)


(5,902,6645
)


(20,348
)


(5,923,0124
)


(5,923,0124
)Segment Assets

$
4,005,201


$
291,812


$
4,297,013


$
4,297,013
  The table below presents certain financial information by business segment for the three months ended September 30, 2010:
  Umbilical








Radio/ TV


Segment





Condensed

ConsolidatedCord Blood


Stellacure


Biocordcell


Advertising


Total


Eliminations


TotalRevenue from External Customers

$
848,875


$
109,574


$
-


$
-


$
958,449


$
-


$
958,449Interest Expense


204,970



8,032



-



-



213,002



-



213,002Depreciation and Amortization


139,085



-



-



-



139,085



-



139,085Segment Income (Loss)


(1,586,465
)


(194,829
)


-



-



(1,781,294
)


(95,463
)


(1,876,757
)Segment Assets

$
6,490,420


$
447,437


$
2,109,058


$
-


$
9,046,915


$
(2,052,175
)

$
6,994,740
  The table below presents certain financial information by business segment for the three months ended September 30, 2009:
  Radio/Umbilical

Television

Segments

CondensedCord Blood

Advertising

Total

TotalRevenue from External Customers

$
819,699


$
18,539


$
838,238


$
838,238Interest Expense


1,353,455



468



1,353,923



1,353,923Depreciation and Amortization


138,027



-



138,027



138,027Segment Income (Loss)


(2,315,1595
)


16,216



(2,298,9434
)


(2,298,9434
)Segment Assets

$
4,005,201


$
291,812


$
4,297,013


$
4,297,013
 
 16
 
 Note 11. Subsequent Events
  On October 7, 2010, the Company borrowed the sum of $750,000, in exchange for issuance of an $800,000 “Convertible Promissory Note” to a private investor (the “Company Note”). The Company Note bears interest in the amount of the fixed of sum of $50,000 represented by the difference between the Consideration for the Company Note ($750,000), and the face amount of the Company Note ($800,000); plus a onetime interest charge of 10%, payable with the Company Note’s principal amount on the maturity date, October 7, 2013.
 
 All or a portion of the Company Note principal and interest is convertible at the option of the investor/holder from time to time, into shares of the Company’s common stock, at a per share conversion price equal to 85% of the average of the 5 lowest traded prices for the Company’s common stock in the 20 trading days previous to the effective date of each such conversion.
 
 The sole consideration for the Company Note issued by the Company to the private investor, was non cash, and is in the form of a Secured & Collateralized Promissory Note in the principle amount of $750,000, issued by the private investor and delivered to the Company (the Investor Note).. This Investor Note is in the principal amount of $750,000, bears interest in the form of a onetime interest charge of 10.67%, and interest is payable with the Note’s principal on its maturity date, October 7, 2013. The Investor Note is to be secured by $750,000 worth of money market funds (or similar equivalent), or $750,000 worth of any other assets, as memorialized and evidenced pursuant to the terms of a separate Collateral and Security Agreement, but at this date the Company has not taken possession of or perfected any security interest in assets pledged to secure payment of this note.
 
 While no mandatory principal or interest payments are due on the Investor Note until its maturity date, the Investor Note contemplates further voluntary pre payments by the investor on the Investor Note to the Company at the approximate rate of $100,000 per month, beginning 7 months after Investor Note issuance, or about the beginning of May, 2011, but only provided: all requests by the investor for conversion of principal and interest on the Company Note are honored; and the Company’s common stock issued upon such conversions of portions of the principal and interest on the Company Note is freely tradable in the hands of the investor under Federal Securities laws and regulations.
  17
 ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS
  Forward Looking Statements
  In addition to the historical information contained herein, we make statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, our ability to increase income streams, to grow revenue and earnings, and to obtain additional cord blood banking revenue streams. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties.
  The following information should be read in conjunction with our September 30, 2010 condensed consolidated financial statements and related notes thereto included elsewhere in the quarterly report and with our condensed consolidated financial statements and notes thereto for the year ended December 31, 2009 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our annual Report on Form 10-K for the year ended December 31, 2009, as well as our quarterly reports and reports filed on Form 8-K for the relevant periods. We also urge you to review and consider our disclosures describing various risks that may affect our business, which are set forth under the heading "Risk Factors Related to our Business" in our annual Report on Form 10-K for the year ended December 31, 2009.
  Recent Developments
  On January 22, 2010, we officially opened our new facility. On March 1, 2010, we commenced processing cord blood at this new facility and on March 8, 2010, our cryogenic freezers arrived at our facility, which allows us to store cord blood specimens in our own facility. On February 8, 2010, we announced the finalization of an agreement to process and store cord blood specimens for BioCells, Inc., headquartered in Argentina, and while it was expected to commence activity in the third quarter of 2010, the subsequent acquisition of controlling interest in Biocells has changed the strategic intent of the agreement. We intend to continue our organic growth through continued improvement of internal processes, continued improvement and expansion of our relationships with health insurance providers, and leveraging those relationships in the pregnancy programs with those providers. We will experience limited activity with expanded print, direct response and internet marketing efforts to facilitate increased prospective customer contact. Additionally, we will be concentrating our efforts on building additional sales channels through obstetrics and gynecological practices and other healthcare professionals, hospitals and other health care influencers. We also hope to leverage our growth through mergers and/or acquisitions of other stem cell preservation companies. We are currently exploring various acquisition opportunities and will continue to do so. We intend to continue to fund mergers and acquisitions to the extent that we identify opportunities and are able to obtain capital on reasonable terms for this purpose from placements of equity, debt or convertible debt.
  At the end of March 2010, the Company acquired 138,712 Series B Shares (the Shares) in Stellacure GmbH, a German Limited Liability Company which is in the business of collecting, processing and storing cord blood samples as a private bank for use in current or future medical therapies in Germany, Spain, and other European and Middle Eastern Countries. The shares represent 51% of the total outstanding shares of Stellacure.
 
 Cord believes this acquisition may serve as a strategic footprint into the growth of the stem cell business throughout Europe. In addition to Germany, where Stellacure started processing and storing in 2006, additional Stellacure sales channels established in 2009 in Spain and Italy provide immediate market penetration and an opportunity for growth. Cord Blood management intends to continue to pursue additional sales channels in other markets in 2010, to the extent capital is available for this purpose. Cord Blood views the established relationship Stellacure has with the German Red Cross as a potential catalyst for expansion of Cord Blood services throughout Europe.
 
 On July 2, 2009, the Company executed a Preferred Stock Purchase Agreement and Warrant Agreement with Optimus Capital Partners, LLC, which contemplates a $7.5 million capital commitment which may be drawn down in increments in the future by the Company under certain conditions, including the filing and effectiveness of a current registration statement registering common shares issuable upon Warrant exercise and certain   common shares issued as a fee at the outset.  On November 2, 2009, the Company filed its registration statement for these common shares as required by these agreements.  However, the Company is re assessing whether to follow through with the implementation of this capital commitment.  In the mean time, on January 27, 2010, the Company elected to withdraw for the time being its registration statement filed with the SEC.
 
 In March of 2010, the Company entered into a License Agreement with AXM Pharma, Inc., whose China subsidiary is establishing a Stem Cell collection and storage service in China. The initial term of the Agreement is five years, and provides for the sharing by the Company of its knowhow and expertise as well as support and training, in exchange for payment to the Company of a royalty equal to 8.5% of net revenues from the stem cell collection and storage business generated in China, and a 10% equity interest in AXM Pharma, Inc.’s operating China Subsidiary.
 
 On May 5, 2010, the Company executed and funded a Debtor-In-Possession loan agreement with ViviCells International, Inc. a Florida corporation (“Vivi” or the “Debtor”), NeoCells, Inc., an Illinois corporation, and AdultCells, Inc., an Illinois corporation, (jointly and severally referred to as the “Subsidiaries”), for $200,000 secured by  a super priority lien on the Debtor’s assets.  As part of the transaction, the Company acquired 21% of the Debtor’s outstanding Common Stock.  The $200,000 loan carries interest at 10% per annum, with principal and all accrued interest all due and payable on March 15, 2011.
 
 In September 2010, the Company acquired an approximately $800,000 secured obligation of the Debtor held by a junior lien holder in the bankruptcy proceeding, in exchange for the private issuance of 11,111,111 restricted shares of its Common stock  to the holder of this secured obligation.
  18
 
 On October 20, 2010, the Company filed  as a co-proponent a  proposed a Plan of Reorganization for Vivi under the United States Bankruptcy Code, pursuant to which the Company proposed to acquire an additional 74% of the outstanding shares of Vivi, which would give it in total a 95% ownership in ViVi, in exchange for the issuance of up to 64,488,889 shares of the Company’s common stock, and the Company’s agreement to make an additional senior secured loan in the amount of $300,000 to Vivi as working capital upon consummation of the Plan. A hearing on Confirmation of this proposed plan of reorganization is scheduled for the first quarter of 2011.
 
 At the end of 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), and concurrently closed the stock purchase transaction on the same date.
 
 Cord believes this acquisition will serve as an important piece to the continual growth of the Company. Bio is headquartered in Argentina, with affiliates under development in Peru, Colombia, Bolivia, Panama and Puerto Rico, and recent expansion into Uruguay and Paraguay. With this South American acquisition, we now own a state-of-the-art laboratory in Las Vegas, Nevada, a stem cell company in Germany with, and we are partners in what could be the world's largest stem cell storage facility in China.
 
 Summary and Outlook of the Business
  CBAI is primarily an umbilical cord blood stem cell preservation company with a particular focus on the acquisition of customers in need of family based products and services. We also have limited operations providing television and radio advertising services to businesses that sell family based products and services.
 
 Thus, we operate two core businesses:
 
 ·
Cord operates the umbilical cord blood stem cell preservation operations, and
 
 ·
Rain has limited operations providing television and radio advertising services.
 
 Cord
  The umbilical cord blood stem cell preservation operations provide umbilical cord blood banking services to expectant parents throughout all 50 United States. Our corporate headquarters recently re-located to Las Vegas, NV from Los Angeles, CA. Cord earns revenue through a one-time enrollment and processing fee, and through an annually recurring storage and maintenance fee. Cord blood testing, processing, and some storage were conducted by our outsourced laboratory partner, Progenitor Cell Therapy, LLC, (PCT) in New Jersey. In March 2010, we began to process and store cord blood in our own facility, terminating our contract with PCT on February 28, 2010. We provide the following services to each customer.
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Collection Materials. We provide a medical kit that contains all of the materials necessary for collecting the newborn’s umbilical cord blood at birth and packaging the unit for transportation. The kit also provides for collecting a maternal blood sample for later testing.
 
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Physician And Customer Support. We provide 24-hour consulting services to customers as well as to physicians and labor and delivery personnel, providing any instruction necessary for the successful collection, packaging, and transportation of the cord blood & maternal blood samples.
 
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Transportation. We coordinate the transportation of the cord blood unit to our laboratory partner, Progenitor Cell Therapies, immediately following birth. This process utilizes a private medical courier, AirNet, for maximum efficiency and security.
 
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Comprehensive Testing. At the laboratory, the cord blood sample is tested for stem cell concentration levels, bacteria and blood type. The maternal blood sample is tested for infectious diseases. We report these results to the newborn’s mother.
 
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Cord Blood Preservation. After processing and testing, the cord blood unit is cryogenically frozen in a controlled manner and stored in liquid nitrogen for potential future use. Data indicates that cord blood retains viability and function for at least fifteen years when stored in this manner and theoretically could be maintained at least as long as the normal life span of an individual.
 
 Going forward, management will continue to assess business opportunities, and plans to pursue customer acquisition, both through organic growth and acquisition.
  Stellacure GmbH
  Based in Hamburg Germany, Stellacure GmbH  collects, processes and stores cord blood samples as a private bank for use in current or future medical therapies in Germany, Spain, and other European and Middle Eastern Countries.
  Biocordcell Argentina S.A.
  Based in Buenos Aires, Biocordcell Argentina S.A., processes and stores cord blood samples as a private bank for use in current or future medical therapies in Argentina, Uruguay and Paraguay.
  Rain
  Rain has specialized in creating direct response television and radio advertising campaigns, including media placement and commercial production. Management has reduced the activities of Rain, terminated its former employees, and by the end of 2009, the subsidiary was maintaining only a modest presence on the internet, continuing to accept business which was proffered to it, but no longer aggressively seeking business. This is consistent with management’s decision to focus its attention on the stem cell storage business and related activities.
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  BodyCells
  We are continuing to pursue other growth opportunities by acquisition or internal growth. The development of BodyCells, which is anticipated to facilitate the collecting, processing and preserving of peripheral blood and adipose tissue stem cells allowing individuals to privately preserve their stem cells for potential future use in stem cell therapy, is currently suspended pending the identification of an alternative lab to partner.
  Results of Operations for the Nine-Months Ended September 30, 2010
  For the nine months ended September 30, 2010, our total revenue increased $0.15 million, or 6% to $2.75 million. Cord’s revenues were $2.5 million, while Stellacure’s revenues contributed $0.25 million. The increase in revenue overall is due to growth in our customer list, and revenue generation from the placenta project, which contributed $0.09 million. Our total annual storage fees increased approximately $0.04 million to approximately $1.5 million. Cord remains focused on strategic organic growth and accretive acquisition strategies, which management hopes will reduce or eliminate the losses and negative operating cash flow.
 
 Cost of services increased $0.2 million to $1.1 million, and gross profit, which is 57%, decreased $0.05 million to $1.6 million. Cord’s cost of services increased by $0.09 million. The increase can be attributed to the overlapping of bringing the lab process in house, while continuing to pay for outsourcing early on during the nine month period. Stellacure also impacted the costs of services by contributing $0.1 million. The company anticipates that through the growth and expansion of our Cord business, and the processing and storage of the cord blood in our own facilities, our direct costs should decrease and our gross margins increase.
  Administrative and selling expenses increased $2.8 million to a total of $6.2 million. Of the $2.8 million increase, $1.7 million was related to non-cash stock option expenses. The Company spent $0.3 million during the period as part of the purchase of Biocordcell, a company in Argentina, which allows Cord to expand into the South American market, including, Paraguay and Uruguay. During the nine month period, with the continued organic growth and acquisitions, our net loss of $6.0 million was a nominal increase from the $5.9 million net loss from the prior comparative period.
  Results of Operations for the Three-Months Ended September 30, 2010
  For the three months ended September 30, 2010, our total revenue increased approximately $0.12 million, or 14% to $0.96 million. Cord’s revenue increased $0.03 million over the prior comparative period to $0.8 million. Stellacure’s revenue contributed $0.1 million of the overall increase. Our total annual storage fees increased $0.05 million to approximately $0.044 million. Cord remains focused on strategic organic growth and accretive acquisition strategies, which management hopes will reduce or eliminate the losses and negative operating cash flow.
 
 Cost of services increased by approximately $0.15 to $0.3 million. Gross Profit decreased by approximately $0.03 million to $0.6 million. The company anticipates that through the growth and expansion of our Cord business, and the processing and storage of the cord blood in our own facilities, our direct costs should decrease and our gross margins increase.
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  Administrative and selling expenses increased by approximately $0.8 million from the prior comparative period to $2.3 million. During the quarter, the Company had non-cash stock expense of $0.6 million, which is the main contributing factor to the overall increase. Our net loss decreased by $0.5 million, or approximately 23% to $1.8 million compared to the comparative period net loss of $2.3 million.
  Liquidity and Capital Resources
  We have experienced net losses of $6.0 million and $5.9 million for the nine months ended September 30, 2010 and 2009, respectively. At September 30, 2010, we had $0.24 million in cash. We currently collect cash receipts from operations through both of our subsidiaries, Cord and Stellacure. Cord's cash flows from operations are not currently sufficient to fund operations in combination with these corporate expenses. During the period we eliminated $2.1 million of notes payable, through conversions to equity.
 
 Net cash used in operating activities increased approximately $2.0 million from the prior comparative period to $3.2 million. The increase was a result of the $0.3 million towards the acquisition of Bio, $0.05 million in the foreign currency translation, $0.6 million in operating assets and liabilities, and $0.3 in non-controlling interest. Net cash provided by financing activities increased approximately $1.5 million from the prior comparative period to $3.0 million. This increase was due to the issuance of notes payable amounting to $2.8 million. The end of the period, cash and cash equivalents increased approximately $0.08 million from the prior comparative period to $0.24 million.
 
 Since inception, we have financed cash flow requirements through the issuance of common stock and warrants for cash, services and loans. As we expand our operational activities, we may continue to experience net negative cash flows from operations and we will be required to obtain additional financing to fund operations through equity offerings and borrowings to the extent necessary to provide working capital. Financing may not be available, and, if available, it may not be available on acceptable terms. Should we secure such financing, it could have a negative impact on our financial condition and our shareholders. The sale of debt would, among other things, adversely impact our balance sheet, increase our expenses and increase our cash flow requirements. The sale of equity could, among other things, result in dilution to our shareholders. If our cash flows from operations are significantly less than projected, then we would either need to cut back on our budgeted spending, look to outside sources for additional funding or a combination of the two. If we are unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products, we could be forced to curtail or possibly cease operations.
 
 We currently have financing through JMJ financial as follows:
 
 In January 2010, the Company signed two Promissory Notes for $1.5 million each, totaling $3.0 million, with JMJ Financial bearing one-time interest rates of 10%, and maturing in January, 2013. The Company has drawn down a total of $1.75 million on these notes, with $0.8 million being converted into common shares of the Company.
 
 In April 2010, the Company signed a Promissory Note for $0.75 million with JMJ Financial bearing a one-time interest rate of 10%, and maturing in April, 2013. The Company has drawn down a total of $0.05 million on this note, with no amount being converted into common shares of the Company.
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 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Disclosure not applicable to smaller reporting companies.
  ITEM 4T. CONTROLS AND PROCEDURES
  Evaluation of Disclosure Controls and Procedures
  It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). Our management, including our chief executive officer and our chief financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. Following this review and evaluation, management collectively determined that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our chief executive officer, our chief operations officer, and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
 The deficiency in our 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. We hired an accountant in September 2009, and we expect his familiarization with the Company will enhance our disclosure controls. We are actively seeking additional financing to be able to afford to hire more accounting staff in an effort 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.
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 PART II. - OTHER INFORMATION
  ITEM 1. LEGAL PROCEEDINGS
  NONE
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  NONE
  ITEM 4. RESERVED
  ITEM 5. OTHER INFORMATION
  NONE
  24
  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
 (a)  Exhibits
 
 The following exhibits are filed as part of this Form 10-Q.
 
 3.0
Amended and Restated Articles of Incorporation of Cord Blood American, Inc. (1)
  3.1
Amended and Restated Bylaws of Cord Blood America, Inc. (1)
  10.1
Waiver Letter, dated May 22, 2008, by and among the Company and Enable Growth Partners LP, Enable Opportunity Partners LP and Pierce Diversified Strategy Master Fund LLC, ena. (2)
  10.2
Fourth Amendment to Securities Purchase Agreement, dated September 3, 2008, by and among CorCell, Ltd., the Company, Career Channel, Inc., a Florida corporation d/b/a Rainmakers International, and Shelter Island Opportunity Fund, LLC. (2)
  10.3
Form of Common Stock Purchase Warrant to Purchase Shares of Common Stock of the Company. (2)
  10.4
Securities Purchase Agreement, dated as of September 27, 2008, by and between the Company and Tangiers Investors, LP (3)
  10.5
Registration Rights Agreement, dated as of September 27, 2008, by and between the Company and the Tangiers Investors, LP. (3)
  10.6
Form of Lock-Up Agreement. (3)
  10.7
Stock Purchase Agreement with Optimus Capital Partners, LLC, dated as of August 3, 2009. (4)
  10.8
1.3 Million Dollar Secured & Collateralized Convertible Promissory Note, dated May 18, 2009. (5)
  10.9
$800,000 Convertible Promissory Note dated November 7, 2010, issued by the Company to JMJ Financial in exchange for a $750,000 Secured And Collateralized Promissory Note issued by JMJ Financial to the Company.
  10.10
$750,000 Secured And Collateralized Promissory Note dated November 7, 2010, received from JMJ Financial and held as an asset of the Company.
  10.11
Investment Agreement between the shareholders of Stellacure GmbH and CBAI on March 24, 2010. (6)  10.12
Stock Purchase Agreement with the shareholders of Biocordcell Argentina S.A. and CBAI on September 20, 2010. (7)
  31.1
Certification of the registrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
  31.2
Certification of the registrant's 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 Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
  (1)           Filed as an exhibit to Registration Statement on Form 10-SB filed on May 6, 2004.
 (2)           Filed as an exhibit to Current Report on Form 8-K filed on September 3, 2008.
 (3)           Filed as an exhibit to Current Report on Form 8-K filed on July 3, 2008.
 (4)           Filed as an exhibit to Current Report on Form 8-K filed on August 3, 2009.
 (5)           Filed as an exhibit to Current Report on Form 8-K filed on May 18, 2009.
 (6)           Filed as an exhibit to Current Report on Form 8-K filed on March 29, 2010.
 (7)           Filed as an exhibit to Current Report on Form 8-K filed on September 24, 2010.
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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 22, 2010
By:
/s/ Matthew L. SchisslerName:
Matthew L. Schissler

Chairman and Chief Executive Officer

(Principal Executive Officer and

Principal Financial and Accounting Officer)Title: