CBA Florida - The Curious Case of the Inefficient Market

In February of 2018, a little company named Cord Blood America, Inc. ("CBAI" or the “Company”, later renamed CBA Florida) decided it was time to sell its assets but no one seemed to care.. for a long while..

The Company issued a press release:

“On February 7, 2018, the Company announced that it entered into an Asset Purchase Agreement, dated as of February 6, 2018 (the “Purchase Agreement”), with California Cryobank Stem Cell Services LLC. Pursuant to the terms of the Purchase Agreement, FamilyCord agreed to acquire from CBAI substantially all of the assets of CBAI and its wholly-owned subsidiaries and to assume certain liabilities of CBAI and its wholly-owned subsidiaries. The sale does not include CBAI’s cash and certain other excluded assets and liabilities. FamilyCord agreed to pay a purchase price of$15,500,000 in cash at closing with $3,000,000 of the purchase price deposited into escrow to secure CBAI’s indemnification obligations under the Purchase Agreement.”

Fast forward to May 17 - the Company announced the transaction closed:

Cord Blood America Inc. closed the deal to sell its assets to privately held California Cryobank Stem Cell Services LLC, also known as FamilyCord.     

FamilyCord now owns substantially all assets of Cord Blood America and its wholly owned subsidiaries, and assumed certain liabilities.     

The deal was worth $15.5 million — FamilyCord paid $12.5 million at closing, and the remaining $3.0 million was deposited into escrow. Las Vegas-based Cord Blood said it plans to distribute a portion of the sale proceeds to its shareholders.    

As part of the deal, upon closing, the company changed its name to CBA Inc.     

Separately, CBA's board appointed Anthony Snow president and corporate secretary. Snow was appointed interim president in July 2017, following the resignation of Stephen Morgan as interim president, general counsel and corporate secretary.    

California Cryobank Stem Cell Services is a unit of California Cryobank Inc., a sperm bank in Los Angeles.    

 Here we have a pretty clean company, pretty clean transaction, an aligned “management team” – in fact there isn’t really a management team, where the annual report lists the address of Red Oak Partners LLC, a value oriented firm that is running the wind up (and 30%  shareholder listed in the filings).

Q1 2018 Balance Sheet:

Company Balance Sheet.JPG

Yet after the announcement, they traded at a market cap of about $7M.. or less than 50% of the transaction price for two months. (For the math - They had an eye boggling 1.3 billion shares outstanding – or 1,272,066,146 shares exactly. Trading at $0.0055 = ~$7M market cap)

Maybe we don’t understand the math? Maybe we made a mistake..

And CBA continues to trade around there until exactly August 14th when they file their Q2 quarterly release. Over the next few days the stock jumps to a market cap of ~$10M, a gain of 30-40% depending on your in and out price and now a much more reasonable discount. If you read through the quarterly, they disclose that they closed the transaction to sell their assets, just as they did in May. But the difference between the quarterly report and the press release is that now the proceeds from the sale are reflected on their balance sheet – which then gets picked up by the folks running models/screens/and other such things.

Having two months to digest a press release is not so bad. Efficient markets indeed.

CBAI Stock Chart.JPG