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Cord Blood America Logo

Cord Blood America, Inc. (OTCPK:CBAI)

ValueRich Conference

March 27, 2007 3:15 pm ET

Executives

Matt Schissler - CEO

Presentation

Matt Schissler

Good afternoon everyone. My name is Matt Schissler. I am the CEO of Cord Blood America. Thanks for all three of you for showing up today. That's great, thank you. Thank you very much. I will make this is a very simple and easy presentation. I will talk to you a little bit more about our company, Cord Blood America. Before I get into with our SEC lawyers, I would like to say hello to everybody real quick.

Cord Blood America is publicly traded on the OTCBB under the symbol CBAI, and we have one specific goal and that's to become a globally dominant stem cell storage facility. Now, you hear a lot about stem cells in the news and I am likening it to the oil and gas industry. There are literally thousands of companies drilling holes in the earth trying to find the next great oil strike, but only a few control the inventory. And those few are the ones that make the most money in the oil and gas industry.

Same is in the stem cell industry. There are thousands of companies around the globe right now doing stem cell research and development, but only a few control the inventory. And whereas CBAI has positioned itself as to be one of the few globally dominant storage facilities that control the inventory of stem cells, we started with private banking of umbilical cord blood and we continue to expand from there.

We started this company, Cord Blood America, four years ago. In fact, we launched in January 2003 with the finest money in America -- Visa, MasterCard and American Express along with my house and the IRS back team. But nonetheless, that's how we got the company going. And in the last four years we've had a very nice run of significant events.

TRANSCRIPT SPONSOR

Cord Blood America Logo

Cord Blood America, Inc. ("CBAI or The Company"), is primarily a holding company with six operating subsidiaries. Cord Blood America, Inc.’s primary operating subsidiaries, Cord Partners, Inc. and CorCell, cryogenically preserves umbilical cord blood stem cells privately for families. CBAI sells its service to expectant parents. Families elect to store stem cells from umbilical cord blood because such stem cells may be used to treat future illnesses in the donor child or other family members. The Company has achieved rapid growth in its first 4 years of operation, and expects to grow over 70% in each of 2007 and 2008, with revenues exceeding $7.0 million in 2007, and $11 million in 2008.

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First and foremost, we did a reserve merger in April of '04 and started trading in January of '05. Since that trading in January of '05 we've raised over $10 million as an organization, some equity, some debt. And in addition to that we've made two accretive acquisitions to the company making us the fourth largest umbilical cord blood storage facility in the country right now. As you can see the sales growth chart from '03 to '06, the slide will become pertinent as we go through the presentation.

Again, the customer base is growing through '03 to '06. Understand this and I will get into this a little bit more, but we are in the business of customer acquisition, whether it be through organic growth or merging and acquiring other companies. The customer pays us to privately bank their stem cells right now an annual fee until its annuity, and the annual fee has very little bad debt. And so, that's our business, is managing those contracts and that's why the growth is continual and it's very important to our organization.

Cord Blood America, actually has two different business lines. There is the Cord Blood business, which is the core business and it consists of four separate wholly owned subsidiaries, all of which revolve around collecting, processing and storing umbilical cord blood stem cells.

And then when we started back in '03 Cord Blood America spawned from an ad agency that I had started two years prior. We call that the cash cow division, because in the stem cell industry, it's a highly competitive and costly industry to be in. So, our ad agency has actually diverted a lot of the costs of being within the industry. It is our intention to spin off the ad agency sometime this year or early next year.

Cord blood stem cells, just to talk a little bit about stem cells, are very, very basic stem cells. They are stem cells that have no identity, they are in umbilical cord and they are a perfect match for the baby. The baby can use those stem cells in the future, god forbid if they would ever need to deal with the diseases such as cancer, leukemia, anemia and other blood and immune disorders.

Similar to a bone marrow transplant, cord blood stem cells repopulate one's immune system while someone is undergoing radiation or chemotherapy. And by repopulating their immune system with their own stem cells their body can remain strong. They can battle these life threatening diseases. That's why parents choose to store umbilical cord blood stem cells.

There are few different sources of stem cells. The controversial source is embryonic, and that's the business we do not play in. And there is the other source called adult stem cells. And adult stem cells consist of cord blood, bone marrow, peripheral blood stem cells, as well as neural cells and adipose tissue cells.

Cord blood happens to be the best stem cell source when it comes down to purity, availability, rapid collection, and used in transplant. But we believe that, as an organization, we intend to store all of the stem cells that I just spoke off, as being inventory control around the world of storing stem cells.

Applications for the cord blood stem cells are many: From leukemias, anemias, cancers, blood and immune disorders. And there are some potential applications as well, such as Alzheimer's, diabetes, heart disease, liver disease. And this is why stem cells constantly make the news everyday. There are so many applications.

Our body has 208 different types of cells, everyone of which type of cells has been formed from stem cells at some point in time. So doctors believe that by basically reverse engineering how those cells are formed back into stem cell, they can then treat afflictions with almost any disease or injury into the body comes down with.

The cord blood storage industry has been a rapidly growing industry. First sample was actually frozen in 1988. In the last four years, since 2003, the market has grown over 80%. In 2003, there were about 75,000 parents who privately banked umbilical cord blood stem cells. And in 2006, we are looking over 130,000 parents to privately bank umbilical cord blood stem cells. And it continues to grow at a fairly rapid pace.

And it's our job is that, what we are looking at within the industry is to consolidate the industry, control the stem cell inventory, as I mentioned. It is estimated to be $1 billion market.

And just to give you an idea of where the industry is at today, a lot of new companies have entered into the industry since 2000 and started to consolidate. In fact, in the last couple of years, we've seen more companies go out of business or be acquired by someone like Cord Blood America that has come into the industry.

Here is how we make money. This is very, very important for investors. Parents pay us $1,925 at the time of birth to store their umbilical cord blood stem cells. They continue to pay us $100 a year, actually it is $125 a year now. We currently have 16,000 customers that pay us $100 a year on average, and all the processing and storage is outsourced. So, it is a fairly, fairly lucrative business in the fact that they have a minimal overhead, minimal cost, and we collect an annual annuity, if you will, that has a very little bad debt rate.

As you can see more projected, it's because of one of our acquisitions to virtually double revenue in '07 over '06. We did a recent acquisition, which was CorCell, and these were the terms of the acquisition. This simple model shows the cash flow from the acquisition. Cord Blood America make this point very clear. It has a healthy appetite right now for acquisitions in the industry. The industry is consolidating rapidly and we have come find that acquiring big customers of other companies in the industry, managing those contracts and those samples is much more lucrative to the business than organic growth at this point. We haven't stopped organic growth. We have just trimmed it back, so that it makes a lot more sense to the business.

This shows you our organic growth that we believe that we're going to achieve and we have achieved since 2002. This includes CorCell, one of our acquisitions, and where we believe, we are going to grow organically with customers through 2008. And so far in 2007, we are well on track to beat the numbers.

But in addition to that, the company plans on growing via organic growth. But as I mentioned to roll-up competitors, we believe that if we could acquire 10,000 domestic customers per year and 10,000 international customers per year, we will become a very, very strong force globally storing stem cells within just a couple of years. By acquiring those contracts and while reducing overhead because those contracts are pretty liquid as far as cash flow with little cost, will improve our profitability greatly as an organization. And that's our focus this year is to actually get to a cash flow positive basis.

As I mentioned in the beginning, we raised $10 million over the last two years, some debt, some equity, and we are looking to potentially take that to the point where we are running of our own cash in just a few months.

Here is where we believe the total customer numbers will go within the next few years if we execute both on our organic growth and on our domestic and international acquisitions.

Little bit about Rainmakers real quick which is the cash cow business. It is a media buying agency for family based products. We were buying family based products advertising five years ago and that's how we ended up getting into cord blood business. And as I mentioned, we do intend to spin this off some time in the next 12 months or so. It is producing nice cash to offset the cost of being in the stem cell industry at this point.

This shows you our financial summary from last year and the year before. And in '05, you can see our revenues were $2.27 million. As projected our numbers would come out in '06, as projected in '06, will do slightly over $4 million in revenue and in '07 well over $7 million in revenue. This shows a quarter-by-quarter analysis of where we intend to go. These numbers do not include any potential acquisitions that we intend to make this year. This is just pure growth through our current sample base. And this is how we intend to get to the profit. As you can see, in the third quarter of '07, we believe we will start running cash flow positive as a company.

This illustrates where we finally hit that tipping point as an organization since 2003. As you can see, we lost money through 2004, 2005 and '06 we took in a lot of debt. And going into '07, we are starting to payback some of that debt, and looks like we will start turning profitable some time late in '07, may be in the early '08.

This is where we believe the revenue growth will come from. This is strictly from acquiring the contracts of the cord blood business, mostly domestic and international sample acquisition coupled with organic growth. And we project that by 2011 we should be running in upwards of $30 million as an organization. And with these projections, I just want to make the note that historically, and I have been doing these speeches for three years now, we hit our projections we set, so we better make these projections well.

CBAI to profitability, this is the goal. This is the goal for this year, expected to reach operating profitability by Q3 of '07 by doing two things: Dramatically reducing the overhead, which we've done, especially with our accretive acquisitions and layering in more accretive acquisitions in the pipeline later this year. Again, we expect to reach cash flow positive without layering in these acquisitions, but we believe we can be much stronger as an organization if we do layer them in.

This is our Management and Board. And there is not a lot of recognizable except for our Medical Advisory Board, Dr Jack Goldberg from Penn, the University of Pennsylvania, just on Good Morning America on Thursday morning talking about private banking of umbilical cord blood stem cells on behalf of our company. And the rest of the doctors, Dr. Ted Eastlund, Dr. Eric Senaldi and Gayl Rogers Chrysler all have extensive histories in cord blood stem cell, research, development, banking, processing and storage.

Key facts about our company and is quite simple. We feel we are undervalued. We have a stock price of $0.12. We have 22.6 million shares in the float and 54 million shares outstanding, right now fully diluted it's 108 million shares, including warrants and options that are sitting out on the table at this point.

This is a quick capitalization table of our company. It shows you where we are sitting with all the shares and where they are sitting outside of the organization. And why we are here today is, in CBAI, we believe that we seek potential equity investment. We are looking for potential equity partners. They can help us with some more of our acquisitions. We have done great so far and we haven't raised the money but we are always looking to have additional investors. And in addition to that we seek additional market support.

Now the question I get is why should I invest in your company, whether it's direct or indirect? And there are two answers to that. One, I believe CBAI is a great fundamental investment. In that, we have all the fundamentals of a growing company, rapid growth, aggressive roll-up strategy, which was executed well on so far.

We have got a history of beating our projections. We are in the annuity business. We make no bones about it. We are in the business of contracts. And we are in the stem cells industry, which is the highly publicized industry that gets a lot of news. And so, we are in a fairly sexy industry, which most companies in the industry don't make a lot of money, but we do. And so, that's why we believe that we are a great fundamental investment for investors.

So if you happen to not like fundamentals and like the technicals of the company, we do believe we are a great technical investment as well. Now, I have to state off on the fact that all the data that I am about to show you came from Yahoo! or similar financial websites. So, don't hold me accountable for the accuracy of these numbers.

So, if you take a look at CBAI versus competitors in the industry, these are direct competitors. Essentially, I compared the only two other direct competitors that trade publicly, ViaCell, which trades under the symbol VIAC, it's the second largest in the industry and Cryo-Cell, which trades under the symbol CCEL is the third largest in the industry. And as you can see the ViaCell trades at 3.9 times revenues, Cryo-Cell trades at 1.7 and we trade at 1.0.

If you average out that number, you should be able to see that 3.2 times revenues or maybe three times revenues is pretty accurate for a company of our size which would equate to a market cap of $12.92 million. Our current market cap is $5 million and that's why we feel that we are undervalued. And where we believe that with our revenues by January 1st of '08, by the end of this year if you do the 3.2 times revenues with our revenue projections, we should have a market cap of just under $24 million. Again, we are at $5 million right now. And it's my job to go and tell the story of Cord Blood America, so that investors understand why we are a "Great Technical Investment".

Secondly, why we believe we are a "Great Technical Investment" is if you want to compare the customer basis and the customer size, these numbers do the same thing. And this presentation is available on the web, if you want to dig into the numbers a little bit more, but essentially the same concept comes about. With the number of customers we have versus the two larger competitors, our market cap is still undervalued compared to the rest of the competitors. As you can see, we believe the $16.56 today should be our market cap, and by the end of this year it should be $25.88 million.

The other key points summary to this as a "Great Technical Investment" is that we analyze 18 different companies that are stem cell-based companies, that are micro caps, that trade on either OTC Bulletin Board or on the NASDAQ or AMEX.

And we looked at 14 different key financial and statistic categories. And in 11 of the 14 categories Cord Blood America ended up being in the top 50 percentile of all of those companies. The only that we were low on were gross profit, market cap and share price.

We had some of the fastest year-over-year growth, revenues per share. We lost less money than most stem cell companies do because we have revenue streams. So, if you do due diligence, one will understand why Cord Blood America is a great technical investment.

Look at the rest of the stem cell companies, look how much revenue that they have, profits or micro profits they have, and compare them with Cord Blood America. And I think the story starts to tell itself as to why we are a "Great Technical Investment".

So, in summary, Cord Blood America trades under symbol CBAI and we are on OTCBB. We've been fully reporting for two years.

Now, I will take any questions at this point.

Question-and-Answer Session

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

ViaCell, it was 10% invested in by Amgen. It went public out on the NASDAQ, taken out by Credit Suisse First Boston. Their shares went out at $11 a share. They are trading about $5.50 a share right now. They have 80,000 customers compared to our 16,000 customers. But what I believe the key is, to what people are investing in, is their research and development arm that Amgen funded. Now their one research project just got shelved a week ago and their shares were traded down somewhat. But what you see in the stem cell industry, ViaCell is not an anomaly, it's actually the norm, is that Wall Street, I believe, this is my speculation, is investing in the future of stem cells and not investing in the present.

If you look at good fundamental companies as we continue to try to [build in], reduce the loss, keep growing our revenues, we are doing much better than most any other stem cell companies. But we don't have a research and development arm. We are strictly in the business of storage.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

Correct. Yeah, Cryo-Cell trades under the symbol CCEL. Actually they've lost money last year. You are correct. ViaCell lost, actually I forgot the numbers, it looked like $14 million in the forth quarter. Cryo-Cell lost like $1.5 million I believe. I just looked at it the other day. Cryo-Cell was in the black and then they started to spend more money on organic growth and then they went back into the red. We at Cord Blood America recognized about a year ago that organic growth is, we are spending far too much money to acquire these customers. It is much cheaper to do it through mergers and acquisitions.

Cryo-Cell, I mean again, they have a lot of customers, 130,000. In fact, they have the most customers in the industry. But they sold those customers. Most of their customers came when they were at very, very cheap price. And now they try to compete at the higher prices with most of the companies set for the industry, they are having a hard time doing so.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

There is a few actually. They weren't a few years ago, and that's why there is the mad rush into the stem cell industry. But now the FDA has regulations to get into the industry which comes at cost. American Association of Blood Bank has licensing with your owner-owned lab. The PharmaStem is a patent holder in the industry, which takes a large portion of revenues for licensing and the technology, so the lab costs themselves become tremendous.

Now if you are a firm like ours that outsource to lab, it was a lot easier to get into the industry few years ago. But today, the costs of acquiring customers are upside down. So, any new person that wants to enter into the industry is going to have become a [deep thought]. Yes ma'am.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

No.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

There are a number of different ways. The penetration rate is 3.5% of all pregnancies in the United States, storage of umbilical cord blood stem cells privately now. It's about education. But it really comes down to, there is number of factors that get involved. Cost, its $2000 at the time of birth. And then outside of that you got people trying to decide whether or not the therapies will be valuable. So, there are a few educational hurdles we have to get over as an organization. Yes sir?

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

It's not our core competency. We've debated as an organization whether or not we want to acquire a lab that's doing research. But honestly, our core competency, what we believe is, like the oil and gas industry, we want to control the inventory of stem cells because you can monetize that.

Research and development is similar to the pharmaceutical model where you are looking for the next great discovery, and that's a great model. But if you look at the oil and gas industry, the companies that control the inventory from oil and gas, control the industry. There are thousands of people drilling holes in the ground trying to find the next great oil strike, but a few companies control the inventory and they control the industry. We believe we are setting ourselves up the same way as the stem cell inventory control globally, as we want to be the dominant global player for doing so.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

Through accretive acquisitions, smart organic growth globally. There is 150 companies around the world that do private banking of cord blood stem cells, plus there is other form of stem cells, bone marrow, adult peripheral stem cells, adipose tissue. And we believe that through mergers and acquisitions in addition to intelligent organic growth, we will be able to do that. Not to mention that fact, most of the companies aren't focused on being storage. They want to be research and development.

Unidentified Audience Member

[Question Inaudible].

Matt Schissler

I am sorry?

Unidentified Audience Member

[Question Inaudible]

Matt Schissler

Actually, most of them have been half cash and half stock. The two acquisitions we've done have been half cash and half stock. We have another LOI just issued, that will be about half cash and half stock as well. And we believe that's going to continue that way. Because the samples cash flow, you can do a debt placement to make those acquisitions. Other questions?

Thank you very much. Thank you.

TRANSCRIPT SPONSOR

Cord Blood America Logo

Cord Blood America, Inc. ("CBAI or The Company"), is primarily a holding company with six operating subsidiaries. Cord Blood America, Inc.’s primary operating subsidiaries, Cord Partners, Inc. and CorCell, cryogenically preserves umbilical cord blood stem cells privately for families. CBAI sells its service to expectant parents. Families elect to store stem cells from umbilical cord blood because such stem cells may be used to treat future illnesses in the donor child or other family members. The Company has achieved rapid growth in its first 4 years of operation, and expects to grow over 70% in each of 2007 and 2008, with revenues exceeding $7.0 million in 2007, and $11 million in 2008.

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