Hi timmthanks for the response, always good to get the ideas...

Hi timm
thanks for the response, always good to get the ideas flowing.

The change in inventory does not indicate the cost of goods sold for the period, so I think whilst discussing margins and what effect additional revenues might have on the cash balance of the company, we should look solely at the profit and loss. Considering inventory alone, in order to bring in $18mill worth of revenue, the company spent $14.765mill on 'inventories, and raw material and consumables used'. That's a huge % of revenue without taking into account all the other expenses and it presents a significant obstacle in getting the company cash flow positive with these sorts of margins. The only reason I can see (that I mentioned in my original query) is that we are running trials at close to cost to be able to get clients to agree to the trial in the first place.

In addition to my margin concerns, I'll address the inventory increase you mentioned. Whilst inventory on the balance sheet has gone up by $4.6mill, 'trade and other payables' is up by $8.5mill. Working capital is not as healthy as what a single look at inventory might indicate. We are stocking more inventory so it does appear that we're getting better prepared to accommodate additional business, we just have to hope that the additional scale will bring economies of scale to the company and with it better margins.

Investment cash flows in the statement of cash flows summate to ~$1.8mill, with $750k attributable to 'property, plant and equipment'. Maybe that amount can be considered as used for the increase in capacity works in Melbourne.

Overall, it appears to me that the company will need a significant boost from economies of scale as the trials prove successful in order to achieve a sustainable model. The other reason why our margins are soo average may be because we're splitting the profits on the water soluble polymers with Nuoer Group. If we're offering the products with low margins in order to compete with the bigger players but we're splitting the profits with Nuoer, maybe we'll need much bigger revenue numbers to be able to consistently break even or better.

Again, any insight is appreciated