Pegasus, page-127

YStrategy, Your comment appears validly made, and I'm not accusing you of trying to downbeat, because the Moelis report does explicitly mention the pillow manufacturer as an achievement in Q1 2017 as being in exclusivity negotiations. However, it is very confusing drafting, and I doubt the A$9.2m FY 2017 bedding revenue includes this order because the revenue estimates for 2017 onwards have the following caveat below:

"Based on the current revenue run-rate, assuming no licencing deals and that AJX only converts one trial customer to a meaningful revenue customer per year, we now estimate that AJX will be profitable in FY18 rather than FY17. We acknowledge that there is upside risk to our estimates, especially in FY18 and beyond. We note that our estimates do not factor in explicit estimates for the carpets division and Alexicool Phase Change Solutions."

From the revenue table it is appararent they mean one customer conversion per market segment, but even that seems very modest. We know that they have a couple of mattress manufacturers as customers, and it's not obvious if this Pegasus contract fits into bedding or is part of the excluded Alexicool Solutions.

The fact that no licensing deals are included, no Alexicool is included, suggests the report was based solely on Alexiflam potential customers, as Alexicool was still in its infancy even late last year. What's apparent to me is that Alexicool is getting through trials to market much quicker than Alexiflam and the Alexicool applications are expanding quickly into sports apparel as we read in the AJX latest newsletter.

It's hard to imagine only 1 new customer per segment in Alexiflam over F/Y 2017 and no licensing deal. Plus to assume the same sales run rate as 2015 is incompatible with the idea of extensive trials, initial orders; once customer sales are proven the purchase orders invariably expand greatly.

So the idea of a $6m loss for 2017 is absolute base case, and probably this latest order was enough in itself to create a breakeven. We definitely need an updated report, and I suspect we will get one as soon as we get the first licensing deal, probably this month or next. I suspect Moelis may have to issue several updates this year.

The fact they reduced their price target to $1 a share reflects the slippage in 2015, but Alexicool is riding to the rescue IMO. Even manufacturers have FOMO, so momentum should see a faster rate of conversion over time as the marketing departments seek a quicker customer solution.