Revenue
The Company’s revenue position has been improved by the doubling in sales for the year to 30th June 2006. Total revenue (including other income) increased from $222,000 to $633,000 for the year. Of the total revenue, product sales increased in the period under report from $140,000 to $280,000 with the majority of the improved sales coming from the Company’s Bird Flu diagnostics products. Other income of $353,000 comprised exchange gains of $318,000, and interest and other income of $35,000.
The Company’s strategy of rolling out its bird fl u diagnostics products in markets around the world has necessitated extra costs, which impacted on gross margins. This was ostensibly due to the high product cost associated with distributing the bird fl u diagnostics, as well as competitive pricing incurred to secure several governmental tenders and credit terms provided to distributors. However, following the purchase of the Avian Infl uenza and Human Infl uenza Virus product rights from Pacifi c Biotech in May 2006, an anticipated reduction in the cost of the kits will improve the long-term financial return to Rockeby. The cost reductions as a result of the purchase of the product rights came into effect as of 1st July 2006.
Operating Expense
Total operating expenditure for the period (before impairment losses in relation to non current assets and amortisation of intangibles) increased by 6% from $4,161,245 to $4,412,501. Major movements are discussed below
- Sales and marketing expense was reduced from $1,062,610 to $797,352 during the period. This was primarily due to savings in product support costs as the Company moved to full service distributors in Singapore and Australia/New Zealand.
- Regulatory expense increased from $458,620 to $670,842 during the period. These costs where mainly related to the FDA regulatory expense for the 510(k) application, the expense for the annual ISO certifi cation exercise, as well as the cost of applying for European approval to sell CanDia5 over-the-counter (CE OTC Approval).
- Research and development expense decreased from $913,650 to $897,842 and relates to a number of research and development activities focusing on development of diagnostics tests for female and maternal healthcare. The reduction in R&D expenditure is in line with the Company’s current focus on commericalising its existing products.
- Administrative expenses increased marginally from $1,150,791 to $1,253,578. This was primarily for the cost of general administration overheads in support of the Group. Included in the expense for the year, was $150,000 were for compliance costs in relation to our corporate offi ce in Australia. Payroll and related costs for the Group’s general administrative function accounted for $500,000; travel and related expenses $100,000; legal expenses for patent and trademark fi ling and audit fees of $140,000.
- Other operating expense increased from $555,570 to $780,645. This included $140,000 for company secretarial services and corporate advice, $134,000 for board fees and expenses, $196,000 for employee share option expense.
The directors have performed a valuation of the intangible asset and identified an impairment loss resulting in a charge for the year of $3,906,686. The valuation was performed in accordance with AASB 136 - Impairment and the resulting loss was mainly due to the directors decision to increase the applicable discount rate to 30% to refl ect the fact that the Company has experienced delays in reaching a formal agreement with a European distributor
Tax benefi t for the year comprises $248,668 in relation to tax rebates for research and development expenditure incurred by the Company in prior periods and a $1,515,586 reduction in the deferred tax liability resulting from the impairment and amortisation of the intangible asset. The tax rebate is a recurring annual item, and the Company is also seeking other government grants and incentives in both Australia and Singapore.
Financial Position
The company recognises that its current financial position shows a defi cit of current assets over current liabilities of $574,333. This was mainly due to the state of the fundraising environment for the market in general in May 2006 when the Company was seeking funds under a rights issue.
The directors have taken steps post year end to ensure that the Company maintains its status as a going concern. A bank facility of $500,000 (secured by a personal guarantee of Dr. Sze Wee Tan) and the directors agreement to defer outstanding fees of approximately $100,000 has ensured that the company has been able to meet all outstanding obligations. Subsequent to the year end, the Company has appointed Novus Capital Limited (“Novus”) to provide corporate advice and assist with investor relations. Subsequent to the year end the Company has completed the private placement of 32,000,000 shares at 1.5 cents per share to sophisticated investors in Singapore. This has raised $480,000 in additional working capital for the Company. The placement is being followed by an offer to existing shareholders to participate in a Share Purchase Plan to raise up to $1,710,000 which was announced to the market on 12th September 2006 The directors are currently in advanced negotiations with Novus to implement a fundraising strategy for the rest of the 2007 financial year.
