Abaxx Technologies (ABXX) - Raising $7M
We were just talking about launch, now we're raising more money?
Disclaimer: Abaxx is a Canadian company that interchangeably uses CAD and USD figures. I converted all numbers to USD.
Abaxx Technologies is quickly approaching the “launch” of its commodity futures exchange. The word “launch” really just means the beginning of block trades executed with Abaxx’s futures contracts. There’s no set date for when Abaxx opens its systems, like the grand opening of a retail store.
In fact, Abaxx’s CEO, Josh Crumb, recently said that even their futures contracts won’t all necessarily start trading at the same time. We’ll get an announcement when each contract has its first trade.
The imminent nature of the exchange’s launch was cemented in a recent Bloomberg article. Crumb was quoted saying, “[Abaxx] expects to handle its first trades in the next few weeks.”
Abaxx recently put out a press release detailing how it was preparing its opening sequence and final notices.
The company is in the process of onboarding its third and final clearing member required for “launch.” From the sound of it, the completion of this step is imminent. At that point, the company would request approval from its Board of Directors to provide final readiness attestations.
This would spur a Board review process and submission of notices that would take approximately two weeks. So we’re quickly approaching the retirement of this meme:
That said, Crumb has been trying to tamp down investor expectations, as it can take time to build up volume on emerging financial instruments. This is especially true for entirely new products. Don’t expect much trading activity out of the gate. Abaxx will need at least 1-2 quarters to start building out its market ecosystem— if not longer.
Today’s Raise
Given how close we are to kicking things off, why is the company raising more capital? We’ll touch on that in just a second.
If you weren’t aware, Abaxx just announced a $7.4M bought deal financing. This includes an option for underwriters to purchase an additional ~$1.1M worth of shares.
So in total, the company could be raising a total of ~$8.5M.
This actually has to do with plans the company already put in place some time ago. Abaxx’s first attempt at financing its operations was in a two-tranche capital raise with strategic investors.
Combine those efforts with the previous raise of ~$22.7M from institutional investors and Abaxx would’ve had enough capital to fund their operations for some time.
The problem is— Abaxx only closed one tranche of that two-tranche financing.
We always knew there were going to be additional funding rounds. It was just surprising to see it occur from a bought deal financing, and not necessarily with strategic investors. Although this could still be with strategics, we’re just not sure yet.
As disclosed in a recently filed short-form prospectus, Abaxx has approximately $18.6M on its balance sheet.
In previous investor calls, it was noted that the company needed $8M for RMO requirements and $10-11M for ACH requirements. This means that if the exchange were to launch today, all of the company’s capital would be locked in for regulatory requirements.
Clearly, that’s not acceptable. Abaxx is currently burning $4M per quarter. So approximately $1.3M per month. Today’s raise gives the company nearly two quarters of working capital.
Will this be enough to see the company reach breakeven? Unless things take off quickly somehow— probably not. Chances are, they’ll raise more money with strategic investors later on. Again, this was to be expected.
At this point, the share price is significantly higher than it was just six months ago, with clear catalysts on the horizon. This helps to limit potential dilution.
Regardless, shareholders will be glad to put the grueling development process of this exchange behind us, to focus on establishing benchmark futures contracts, and more :)
Edit (3/19/24): Abaxx already announced they’re upsizing the financing to approximately $12M. This gives the company an extra quarter of breathing room on cash burn.
Will this be the end of dilution? It's hard to tell, but the company clearly wants to get it out of the way.
Disclaimer: I’m long Abaxx Technologies. I hold an equity position that was acquired at an average share price of $5.51. I was not compensated by the company to create this post.
The owner of Green Investing is not a licensed investment professional. Nothing produced under the Green Investing brand should be construed as investment advice. My content is made for entertainment and educational purposes. Do your own research.