Ann: AHF to produce Organic Infant Formula with Australian Milk, page-131

Just so that we can be clear in all this, there is a lot that needs to be done before the first ounce of IF is produced, let alone sold. This therefore is now talking about a 2020 or 2021 revenue generating proposition rather than as a 2018 certainty. Between now and then, the Company faces addressing the following, as a minimum:

1. Arresting the -ve operating cashflow position which was -ve $719K in the DecQ.
2. Getting the existing business son track so that it is producing +ve, not -ve, cashflow. This is easier said than done with a heavily under utilised CDC facility which is running more closely at or around the low 40s mark.
3. If the transition is to be to IF, what then for the apparent contracts that they have bene talking about but can’t otherwise announce or advise upon for “commercial in confidence” reasons. The indigenous milk supply will not stretch so far as to cover both working propositions, so sooner or later one of them will have to give.
4. On an operating cash basis, the Company is required to project one quarter ahead its likely cash outflows. For the DecQ, it did so by saying the following:

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7
0	Item	DecQ est	DecQ act	Var (A2E)	MarQ est	Est (MqE-2-DqA)	Est (MqE-2-DqE
1	Research and development	0	0	0	0	0	0
2	Product manufacturing and operating costs	4.710M	5.447M	+737K	5.258M	-189K	+548K
3	Advertising and marketing	10K	18K	+8K	15K	-3K	+5K
4	Leased assets	4K	4K	0	4K	0	0
5	Staff costs	905K	809K	-96K	803K	-6K	-102K
6	Administration and corporate costs	240K	686K	+446K	360K	-326K	+120K
7	Other	109K	110K (net)	+1K	109K	-1K	0
8	Total	5.978M	7.074M	1.096M	6.549M	-525K	+785K

With DecQ cash receipts of $6.355M, this is suggesting that the MarQ outcome will be down on the DecQ results pointing to another -ve operating CF quarter.

Cash on hand is now down to $5.038M (which includes the $5.0M placement from Sep17). With cash trending down and with the bank facilities fully maxed out, interest only, and due for repayment by 15Apr19, about the only way forward will be through doing a very significant, highly dilutive capital raising.

Going forward, the new facility will cost a minimum of $50M and quite likely, significantly more than this once all the other elements have been factored into the equation. But call it $50M. Any CR therefore will be reflective of the recent /medium term position of the SP which essentially has been rangebound between 10-13c for >6 months. Any CR therefore will be at a discount to whatever the prevailing SP is (anything from a 10% - 30 or 40%+ discount). As such, the SP would need to well and truly maintain itself in the high 20s range in order then for a CR to get off at around the 20c mark. Even here, this would result in the issue of at least 250M new shares. A $60M CR would result in at least 60M new shares @20c, whilst a 15c $50M CR would involve at least 333M new shares being issued. No matter then which way considered this will end up being highly dilutive to the existing SP /shares on issue.

An alternative to this is the continuing reference to joint ventures, in which case, if done, the effective future dilutive to shareholders will be less, but the future revenue /profitability dilution will be greater.

Regardless, much more than has presently been stated still needs to be advised. As such, the best way of viewing yesterday’s announcement is in much the same way as for that of a mining explorer with some interesting intersection results having been achieved through drilling. They make for a short term opportunity, but longer term, it remains some years off of fruition (that is production, profitability and returns being achieved).