Hi MoneytaxI have just read the 4COff Particular interest was...

Hi Moneytax

I have just read the 4C

Off Particular interest was the following:
- Staff Costs $890k - reading this figure I was initially alarmed, however when I read the notes to 1.2, this shows $385,000 with the following comments:
* $189,000 Directors Fees that had been accrued (which is in the account) over many years.
* $100,000 accrued incentive payments which I assume refers to Bonuses, Sales Commission
* $96,000 is the balance which I assume is a related party transaction. This is generally for either legal or accounting fees as with most companies one the directors normally has a background/practice in the fields mentioned.

From memory I think that the notes only have to detail what has been paid to the directors and/or related parties of the directors.

Clearly staff members would have been entitled to also receive bonuses and/or Sales Commission; I would assume that this would explain the difference of $72,000 ($890k-$385k - $433k prior quarters staff costs).

The appointment of the Sales Person in the states would have naturally increased staff costs, though I would hazard a guess to say he would have been incetivised by a base plus commision (standard sales rep packages) which is great as it means increased sales, increased profit.

- Loan Facilities - In the current tight credit markets it is good to see that the overdraft is now NIL, this means they have paid back $385,000 in the last quarter.

Yes, the company received $150,000 during the quarter related to the disposal of NS along with $350,000 for convertible notes. This totaled $500,000 which is an abnormal item. However when you pay off $385,000 in debt plus increase cash at for the quarter by $142,000 (was $282,000) to $424,000. This equates to an increase in cash through out the quarter of $527,000
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One other thought from the 4C, if one was to back out the $385,000 from staff costs, this would show that the business was cash flow positive by $27,000.

Yes, it is not that simple as directors fees and bonuses/commissions are part of running the business, though 3 directors each receiving $25,000 is only $18,750 per quarter. $196,000 equates to $49,000 per quarter which would be cash flow negative of ($40,750). Though if we also add back the deposit received of $648,000 which I assume was related to a large order which was probably telstra the company would have been cash flow positive by $607,250. As the companies position improve we may find that they are less likely to request an initial payment, this in turn would give the company stronger negotating power when it comes to negotiating the sales contract.

The increase is staff costs from $433,000 to $890,000 which is $460,000 would have all been accounted for in the accounts (annual report) that was released last month.

To me it is quite clear that the quarter was profitable. Though as we all know, cash is king ... especially in the current environment.

It would be great to know how the company is going with the expense reduction program which they are tageting reducing costs by $1m p.a.

I look forward to other peoples comments.

Cheers

Troy