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Why the Alexium share price is up 25% this week

The Alexium International Group Ltd (ASX: AJX) share price has risen 25% this week to 15 cents after the chemical development company announced on Tuesday that it has signed a development agreement for flame retardant nylon/cotton fabrics.

Development agreement

Alexium has signed a mutually exclusive development agreement that covers “the provision of Alexium’s flame retardant chemistry to Pine Belt Processing for the treatment and supply of nylon/cotton fabrics for military applications”.

The terms of the agreement stipulate the provision of samples, pricing, testing and the timetable for delivery of Alexium treated uniforms by Pine Belt to the United States military for a “wear trial”. Alexium is working with Pine Belt to satisfy their production requirements in order to prepare uniforms for evaluation by the military.

Alexium has granted Pine Belt exclusivity regarding its proprietary flame retardant treatment of nylon/cotton garments for military use. Furthermore, after completing the development agreement both parties have agreed to enter into a supply agreement for the final commercialized process and treatment.

Foolish takeaway

Alexium is a specialty chemicals innovator that focuses on high-performance, environmentally friendly, nonhazardous flame retardants and phase change materials. The company’s patented products are suitable for both textile and non-textile markets.

For the half-year ended 31 December 2018, Alexium reported a 77% decline in revenue from ordinary activities to US$1.5 million. The decrease was attributed to the elimination of low margin and unprofitable product lines in order to concentrate on core growth in the phase change material and flame retardant markets which the company believes its product differentiation has been established.

The total addressable market for flame retardants and phase change materials is $US9.0 billion and US$1.0 billion respectively.

The sharp decline in revenue resulted in Alexium’s net loss blowing out 102% to $US3.2 million for the period. The company has around US$6 million in cash at the end of December and currently has a market capitalization of $52 million. Whilst Alexium certainly does hold a lot of promise, it is a stock that is only suitable for high-risk investors at this stage.

Other stocks in the small-cap space worth monitoring include Bigtincan Holdings Ltd (ASX: BTH) and LiveTiles Ltd (ASX: LVT).

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia has recommended BIGTINCAN FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.