Advaxis releases 8K June 14, 2012 -
http://www.faqs.org/sec-filings/120614/Advaxis-Inc_8-K/.
There is an informative writeup ,of the possible near future implications to ADXS from the events of this 8K, written in detail under the "nom de plume" of 'mcaeroinv'. I have taken the liberty of putting the separate writings together to make it more cohesive and reader friendly.
ADXS now appears to have:
1) Enough operating capital to pay for normal business operations through September 2012.
2) ADXS has put a plan in place as to how they will cover the rest of their trial costs for India and CIN.
3) ADXS has a minimum of 10.5M common shares left to sell by mid September, which would provide enough cash to finish 2012 covering operating costs.
4) ADXS has went away from using the rest of the Optimus funding.
5) ADXS has covered all their debt obligations through Q1 2013.
6) ADXS still has warrant conversions, tax selling and grants as options beyond selling more common shares to raise operating capital for Q1 2013.
The summary of this is that ADXS has cleared the path to get ADXS through Q1 2013. They have managed to figure out the way to do this without needing to increase common share totals beyond 500M.
Item 1.01. Entry Into
a Material Definitive Agreement.
On June 13, 2012, Advaxis, Inc. (the “
Company
”)
entered into a stock purchase agreement (the “
Stock Purchase Agreement
) with Numoda Corporation (“
Numoda
”),
pursuant to which the Company issued to Numoda 15 million shares (collectively, the “
AR Cancellation Shares
”)
at a purchase price per share of $0.15, in exchange for the immediate
cancellation
of $2,250,000 of accounts receivables owed by the Company to Numoda
pursuant to the Master Agreement, dated June 19, 2009, between
Numoda and the Company. Numoda has agreed not to sell the AR
Cancellation Shares until July 3, 2012, twenty calendar days from
the closing of the transaction on June 13, 2012 (such period, the “
Lock-Up Period
”). During the Lock-Up Period
the Company has the option, in its sole discretion, to redeem up to
100% of the AR Cancellation Shares at a purchase price per
share of $0.15. In connection with such issuance, the Company has also
agreed to register the resale by Numoda of the AR Cancellation
Shares with the Securities and Exchange Commission by July 26, 2012,
thirty business days from the closing of the transaction on
June 13, 2012.
The AR Cancellation Shares were offered
and sold to an “accredited investor” (as defined in section 501(a) of
Regulation D) pursuant to an exemption from the
registration requirements under Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder. The AR
Cancellation Shares have not been registered under the Securities Act
and may not be offered or sold in the United States in the
absence of an effective registration statement or exemption from the
registration requirements.
The foregoing description of the Stock Purchase
Agreement does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, which
is attached hereto as Exhibit 10.1, and incorporated herein by this reference.
This is very interesting news on several fronts.
Part 1:
Let's break this down further starting with where this leaves us financially;
ADXS has run up a bill with Numoda for $3,632,127. This transaction reduces this bill to $1,382,127 thereby, freeing up an additional $2,250,000 for continued on-going trial expenses. Now, in a statement issued by ADXS on Feb 23, 2012, ADXS had already paid a total of $7.2M to Numoda of the contractual $12.2M. This means that as of June 13, 2012, ADXS has already used $10,832,127 of the originally contracted $12.2M of Numoda services that began in the 3 year contract signed on June 19, 2009. The 3 year contract would have been up on June 20, 2012. This means, ADXS is essentially $1.4M behind in the planned expenditures (or in other words not as far along in the running of the trials probably due to the slowing of patient enrollment in the India trials).
Based on this, lets assume that the contract with Numoda has a natural and sensible clause in it that takes care of trials being drawn out longer than originally intended. This is sensible and would suggest that ADXS most likely has another $1.4M plus an additional additive cost (due to trial time being extended wich is probably around $800k). Therefore, based upon the $2.25M agreement reached yesterday, this means ADXS has just ensured that they have covered the rest of their trial costs for the India test. In other words, at the end of the India trial ADXS may owe Numoda approximately $3.6M, but will have finished the India trial without additional "cash out" by this time. This is based upon ADXS' already proven ability to carry a $3.6M credit with Numoda once already.
This is means, trial expenses should now be off the table as far as a concern for finishing India and the CIN trials. This is big! The next financial concern is daily operating cash, which we know ADXS should have enough to get through September of this year.
For opreating capital, ADXS has a few tricks up their sleeves yet:
1) Further warrant conversions;
2) Tax loss selling;
3) Grants;
4) Common Share Selling (which I will get to in a moment)
The bottom line is ADXS just did another fantastic financial manuever to get them time to complete their trials. The management is doing their jobs in the BEST INTEREST OF THE SHAREHOLDERS.....
Part 2:
How does ADXS have the common shares left to sell?
The simple answer is that they are recycling shares. In an earlier SEC filing, ADXS mentioned (in small print) that ADXS had "unreserved common shares on Dec 2011 that related to the 25,560,000 warrants in the Optimus deal. This would mean that if ADXS does not have these shares in their control, they will not be able to force Optimus to purchase the rest of the 284 preferred shares for $2.84M because the warrants go with them.
Also recall, all these shares were set for $0.15 for the common shares used for converting the preferreds and for the warrants. They also had an anti-dillutive clause attached meaning that ADXS did not really want to invoke forcing Optimus to buy the preferreds with the share price being under $0.15.
This means that since the financial transactions made by ADXS to date, would not have required breaking into these 25,560,000 shares, this is the first time ADXS has used any of them. It also means that ADXS now has 10,560,000 shares still available to get operating capital. At $0.15 per share this could mean $1,584,000. This amount could be enough to get ADXS through the rest of 2012 now that their trial costs are sorted out!
Obviously, since ADXS currently has enough money to get through September, it would not make sense for ADXS to rush into a deal on these shares in the hopes they could do it for a higher share price.
Part 3:
Why would Numoda accept $0.15 per share taking an initial hair cut on the monies owed to them by ADXS?
This is more of a business and risk assessment question and will not make sense from a common shareholder viewpoint.
In other words: If you think like a business, at least a sucessful one, you should be making a profit on ANYTHING you do when you are a service provider, or you will not stay in buisness too long.
This means that Numoda most likely is making a profit mark up of 25% - 35% on their trial management. This would be a typical markup for a service based industry similar to what Numoda is providing. This means that out of the $12.2M original three year contract (using 30% mark up as an average), Numoda would stand to make $3,660,000 in profit. Another way to look at this is that Numoda's cost to manage the trials is $12.2M - $3.66M = $8,540,000.
Given this and the Feb 23 ADXS statement that ADXS had already paid Numoda $7.2M, we can figure this out:
By Feb 23, 2012 - ADXS had paid Numoda $7.2M
On Jun 13, 2012 - ADXS owed Numoda $3,632,127
On Jun 13, 2012 - ADXS agreed a share trade for $2,250,000
This means that ADXS would have paid $7.2M already and will pay $1.38M still after the June 13 agreement for a total cash payment of $8.58M.
This means that Numoda's business decision was ro invest their PROFITS on ADXS after they were ensured that their operating costs were covered. This also means that given the current economy and the fact that having money in a bank earning 1.1% is not really your best option, it makes sense to find suitable investment opportunities for your capital. What better opportunities than the ones you have some control in, such as ones that involve your maaging the trials.
Above and beyond this, the fact that the trials are going to take longer than originally planned (for whatever reason) means, Numoda will make even more money from ADXS (recall the additional $800k I was estimating which includes an additional 30% markup in this!).
The argument between $0.15 versus a lower price is actually not that relevant from the perspective described above. In fact, I would argue it was more important to ADXS to achieve the $0.15 price target because these shares were historically tied to the $0.15 value and on the books as such. This would save a year end adjustment on their value.
The 20 day "no-sell" and "repurchase" period is actually not a big deal. It most likely is to eliminate any immediate sale. Maybe it is because there are high hopes from the June 20 presentation. Maybe it was because the ADXS shares were having a 5M trading volume day while this deal was being put together.
Summary:
ADXS now appears to have:
1) Enough operating capital to pay for normal business operations through September 2012.
2) ADXS has put a plan in place as to how they will cover the rest of their trial costs for India and CIN.
3) ADXS has a minimum of 10.5M common shares left to sell by mid September, which would provide enough cash to finish 2012 covering operating costs.
4) ADXS has went away from using the rest of the Optimus funding.
5) ADXS has covered all their debt obligations through Q1 2013.
6) ADXS still has warrant conversions, tax selling and grants as options beyond selling more common shares to raise operating capital for Q1 2013.
The summary of this is that ADXS has cleared the path to get ADXS through Q1 2013. They have managed to figure out the way to do this without needing to increase common share totals beyond 500M.
The unanswered question is what happens at the end of Q1 2013?
1) Is it the selling of a construct?
2) Is it the selling of all of ADXS?
3) Is it going for FDA approval on their own for a construct?
Part 1:
Let's break this down further starting with where this leaves us financially;
ADXS has run up a bill with Numoda for $3,632,127. This transaction reduces this bill to $1,382,127 thereby, freeing up an additional $2,250,000 for continued on-going trial expenses. Now, in a statement issued by ADXS on Feb 23, 2012, ADXS had already paid a total of $7.2M to Numoda of the contractual $12.2M. This means that as of June 13, 2012, ADXS has already used $10,832,127 of the originally contracted $12.2M of Numoda services that began in the 3 year contract signed on June 19, 2009. The 3 year contract would have been up on June 20, 2012. This means, ADXS is essentially $1.4M behind in the planned expenditures (or in other words not as far along in the running of the trials probably due to the slowing of patient enrollment in the India trials).
Based on this, lets assume that the contract with Numoda has a natural and sensible clause in it that takes care of trials being drawn out longer than originally intended. This is sensible and would suggest that ADXS most likely has another $1.4M plus an additional additive cost (due to trial time being extended wich is probably around $800k). Therefore, based upon the $2.25M agreement reached yesterday, this means ADXS has just ensured that they have covered the rest of their trial costs for the India test. In other words, at the end of the India trial ADXS may owe Numoda approximately $3.6M, but will have finished the India trial without additional "cash out" by this time. This is based upon ADXS' already proven ability to carry a $3.6M credit with Numoda once already.
This is means, trial expenses should now be off the table as far as a concern for finishing India and the CIN trials. This is big! The next financial concern is daily operating cash, which we know ADXS should have enough to get through September of this year.
For opreating capital, ADXS has a few tricks up their sleeves yet:
1) Further warrant conversions;
2) Tax loss selling;
3) Grants;
4) Common Share Selling (which I will get to in a moment)
The bottom line is ADXS just did another fantastic financial manuever to get them time to complete their trials. The management is doing their jobs in the BEST INTEREST OF THE SHAREHOLDERS.....
Part 2:
How does ADXS have the common shares left to sell?
The simple answer is that they are recycling shares. In an earlier SEC filing, ADXS mentioned (in small print) that ADXS had "unreserved common shares on Dec 2011 that related to the 25,560,000 warrants in the Optimus deal. This would mean that if ADXS does not have these shares in their control, they will not be able to force Optimus to purchase the rest of the 284 preferred shares for $2.84M because the warrants go with them.
Also recall, all these shares were set for $0.15 for the common shares used for converting the preferreds and for the warrants. They also had an anti-dillutive clause attached meaning that ADXS did not really want to invoke forcing Optimus to buy the preferreds with the share price being under $0.15.
This means that since the financial transactions made by ADXS to date, would not have required breaking into these 25,560,000 shares, this is the first time ADXS has used any of them. It also means that ADXS now has 10,560,000 shares still available to get operating capital. At $0.15 per share this could mean $1,584,000. This amount could be enough to get ADXS through the rest of 2012 now that their trial costs are sorted out!
Obviously, since ADXS currently has enough money to get through September, it would not make sense for ADXS to rush into a deal on these shares in the hopes they could do it for a higher share price.
Part 3:
Why would Numoda accept $0.15 per share taking an initial hair cut on the monies owed to them by ADXS?
This is more of a business and risk assessment question and will not make sense from a common shareholder viewpoint.
In other words: If you think like a business, at least a sucessful one, you should be making a profit on ANYTHING you do when you are a service provider, or you will not stay in buisness too long.
This means that Numoda most likely is making a profit mark up of 25% - 35% on their trial management. This would be a typical markup for a service based industry similar to what Numoda is providing. This means that out of the $12.2M original three year contract (using 30% mark up as an average), Numoda would stand to make $3,660,000 in profit. Another way to look at this is that Numoda's cost to manage the trials is $12.2M - $3.66M = $8,540,000.
Given this and the Feb 23 ADXS statement that ADXS had already paid Numoda $7.2M, we can figure this out:
By Feb 23, 2012 - ADXS had paid Numoda $7.2M
On Jun 13, 2012 - ADXS owed Numoda $3,632,127
On Jun 13, 2012 - ADXS agreed a share trade for $2,250,000
This means that ADXS would have paid $7.2M already and will pay $1.38M still after the June 13 agreement for a total cash payment of $8.58M.
This means that Numoda's business decision was ro invest their PROFITS on ADXS after they were ensured that their operating costs were covered. This also means that given the current economy and the fact that having money in a bank earning 1.1% is not really your best option, it makes sense to find suitable investment opportunities for your capital. What better opportunities than the ones you have some control in, such as ones that involve your maaging the trials.
Above and beyond this, the fact that the trials are going to take longer than originally planned (for whatever reason) means, Numoda will make even more money from ADXS (recall the additional $800k I was estimating which includes an additional 30% markup in this!).
The argument between $0.15 versus a lower price is actually not that relevant from the perspective described above. In fact, I would argue it was more important to ADXS to achieve the $0.15 price target because these shares were historically tied to the $0.15 value and on the books as such. This would save a year end adjustment on their value.
The 20 day "no-sell" and "repurchase" period is actually not a big deal. It most likely is to eliminate any immediate sale. Maybe it is because there are high hopes from the June 20 presentation. Maybe it was because the ADXS shares were having a 5M trading volume day while this deal was being put together.
Summary:
ADXS now appears to have:
1) Enough operating capital to pay for normal business operations through September 2012.
2) ADXS has put a plan in place as to how they will cover the rest of their trial costs for India and CIN.
3) ADXS has a minimum of 10.5M common shares left to sell by mid September, which would provide enough cash to finish 2012 covering operating costs.
4) ADXS has went away from using the rest of the Optimus funding.
5) ADXS has covered all their debt obligations through Q1 2013.
6) ADXS still has warrant conversions, tax selling and grants as options beyond selling more common shares to raise operating capital for Q1 2013.
The summary of this is that ADXS has cleared the path to get ADXS through Q1 2013. They have managed to figure out the way to do this without needing to increase common share totals beyond 500M.
The unanswered question is what happens at the end of Q1 2013?
1) Is it the selling of a construct?
2) Is it the selling of all of ADXS?
3) Is it going for FDA approval on their own for a construct?
