Ann: Appendix 4E - Preliminary Final Report, page-39

Like many, seeing the Gross Profit in the negative begs many questions. The Cost of Sales number should only account directly for the Cost of Goods and Services associated with the sales invoices making up the Revenue for the year. So making more than was Sold has no bearing on this number. Similarly, high marketing expenses have no bearing. Accounted as an expense item.

IMO what's possibly at play ?

1) The unit cost for manufacturing is higher than the selling price of the product. Whilst scale will have the likely impact of reducing the unit manufacturing cost, it his unlikely that Nuheara have positioed their selling prices below cost of manufacture.

2) The costs of services associated with the sale ( measured oer unit) are responsible for the GP loss. The cost of supplying the goods have been higher than planned. On reflection, this is the most likely cause of the GP loss. The 3 PL warehousing services sell space. Low throughput of units will attract a high cost burden per unit. In the case of transport, low scale activities are more expensive and therefore this could be a contributing factor.

3) What else could be sitting in the Cost of Sales number which has seriously undermined Gross Profit for unit sold ? The one cost which is probably material is the costs associated with the Compliance and Certification Testing. Would not surprise me if this has been accounted as a Cost of Sale.

4) And finally, the production yield impact would add to the Cost of Goods, but all reports have suggested achieving 95 % and therefore this would not be considered material.

Normally a loss on top line spells disaster, but in the case of Nuheara, I am confident that scale will address this.

I remain delighted over the conservative expense profile versus that achieved.

Love to hear other's thoughts on other possible contributing factors to a GP loss.

Rokewa