Ann: Dr Robert Brookins Named Alexium Interim CEO, page-271

I think you correctly point out Jake that much can be attributed to management ‘hype’, and that this is not restricted to AJX alone but is common to most early-stage small caps to varying degrees. There are a few currently under trading suspension as a result of their managements’ efforts. The rather lengthy general analysis below and the current situation for AJX as I see it might provide some food for thought on a slow day.

Two dominant characteristics of an early growth listed company are that the majority of its shareholders are retail, and its finances are red. This combination creates an element of risk. The latter means that, until earnings become positive, the company theoretically has no current fundamental value.

In order to overcome this fundamental fact, and to establish and maintain a market value, communications from management will emphasise the company’s potential to become profitable at some time in the future. Aided by broker analysts, estimates of a fundamental net present value then need to be based on forward conjecture.

This usually means that communications throughout this early period will be abnormally biased towards the positive side of the truth (i.e. ‘hyped’). The easiest and most common form of this bias is to suggest that the future is much closer than what eventuates in practice. Upper management skilled in obfuscation fits well into this phase of development.

Retail shareholders usually will unconsciously support this approach of propping up the share price, and often are critical if they believe management is not making sufficient effort to do so. Their eventual recognition of the existence of this bias however can have adverse effects.

Once revenue streams are well established and the company approaches profitability, promotional announcements then can become less necessary, less frequent and more pragmatic. Positive financial results are able to speak for themselves, and this generally is the only form of information that experienced professional and institutional investors require. The skill set appropriate for management changes accordingly to become more orthodox and less ‘entrepreneurial’.

It could be argued that many of the problems arising over the last few years with AJX have been the result of management’s overcompensating for its perceived need to provide inexperienced retail holders with encouraging information in order to support the share price. Frequent newsletters with some dubious figures, podcasts and an attempt at Q&A webcasts were undertaken for this purpose, with the latter stated to be aimed specifically at retail holders.

Not only has this had the reverse effect of creating investor distrust and loss of confidence due to outcomes not fitting expectations or timelines, but commercially sensitive information on margins more appropriate to non-disclosure due diligence has emerged as part of an attempt to boost that confidence.

The current AJX Board it would seem has recognised the source of the Company’s historical share price problems to be not technical or commercial but communications related, and is now adopting an approach directed at avoiding their reoccurrence. This comes at an appropriate time in the Company’s evolution.

So if this interpretation is correct then going forward we AJX retail investors may need to become used to being treated in the same manner as professional investors, with information released being limited only to material of relevance to estimating the Company’s fundamental value.