Ann: Appendix 4C - quarterly, page-83

Thanks for taking time to share your thoughts, any genuine comment or analysis are welcome here. Although my background is not involved in accounting, I will try my best to address your concerns.

# Gross profit margin declined to 35% in FY19vs 45% in FY18....Revenues went up but COGS went higher with squeezed margins.

You are comparing a pre-acquisition company annual report (FY18) with a post-acquisition company annual report(FY19), COGS went higher because the FTE numbers has grown from circa 26 to sub 100. The margins has reduced because the company is now selling different type of software products as well as providing data analytic, integration services and etc. where the old Alcidion was mainly selling software products. I believe it is more appropriate to compare the figures between FY19 and FY20. I don't believe there are many companies in ASX has delivered EBITDA from $2 millions lost to almost breakeven in the first year after acquiring a new company.

# Vulnerable working capital.....WC deficiencycirca $5m....This could be forgiven in businesses with elite GPM well over 50%& good "real" cash flow

If you look back when Alcidion was first listed in the early 2016, the company has NOT had a single capital rising for the working capital besides the one for the acquisition of MKM Health and Patientrack, it tells me the board/management are well managing their cash position, again the share price has risen over 600% in the last 7 months, the board/management has every opportunity to do a capital rising, but they have not done one yet(don't want to jinx it by saying this), it is very likely that the board/management believe they have sufficient work capital to deliver the future growth.

# negative tangible asset backing

Due to the nature of this SaaS company, it is very common and not usually much of a problem to see company that rely purely on trading the knowledge and skills of their people to have negative tangible backing, companies like accounting firms, consultants, brokers etc. I would be only worried for companies trading in things rather than skills, like supermarket or banks.

# Cash flow +ve circa $2m looks great on thesurface but it is not "real"....This has been shifted into advanceincome liability....Think of it as if customers are lending money to ALC forservices that will come at a cost to business with no future cash for theseparticular services.

Due to the nature of funding in the public healthcare sector, some of payments are always made upfront before the end of financial year, I will explain a bit more in the comments below. Again I don't see this is a problem as it is how SaaS company operates as long as the company can keep winning contracts at the same time they have enough skilled people to deliver the services.

# Cash receipts dropped 6% from Q1'19 (noticethey didn't say it was 22% down from Q4'19.....this would look bad)

As I said above some of payments are always made upfront by public sector customers before the end of financial year, because if they don't use the residue funds they will lose them. NZ & UK financial year starts from 1st of April and Australia financial year starts from 1st of July, that was why we have seen higher cash receipts for Q3 and Q4. The management has always been transparent and consistent about this lumpy cash receipts, hence I believe it is more appropriate to compare between PCP rather than QoQ.

# large cash outflow expected in Q2.
Again the management has been transparent about the cash outflow in Q2, if they need more work capital they would have done the CR by now.

# Will likely have an overall -ve cash flowthis FY which will put huge pressure on its already weak working capital.

I agree with you here, the Q2 will likely have -ve cashflow however if the company keep winning contracts like in the past 12 months, I would say the pressure would be minimal on its working capital. It always comes down whether the management can deliver the growth, as I said before I believe they can do it.