Gillingham Football Club has reported a pre-tax loss of £1.6million in the past year.

But there were also positives for the club in what chairman Paul Scally describes as "very challenging times".

Sales were boosted by more than £800,000 to £4.9million (2007 - £4.1million) and the club posted an operating profit of £8,652 (2007 - £305,363 loss) in the 12 months to May 31.

The pre-tax loss was mainly caused by a one-off restructuring charge relating to the transfer of KRBS Priestfield Stadium to an associated company Priestfield Developments for £10million earlier this year.

The deal, negotiated with troubled bank HBOS, helped slash the Gills' overdraft from £12.5million to £3.5million.

Removing that massive debt has allowed the club - relegated to League 2 at the end of last season - to concentrate on operational issues and the results so far are encouraging.

By exploiting commercial opportunities and cutting costs, the club has managed to increase sales and achieve an operational profit.

However, the latest set of accounts pre-date the start of the 2008/2009 season and the club faces the challenge of maintaining and improving revenue in a lower division, with a potential drop in attendances and television revenue.

However, the club’s better performance on the field and a higher position in the league may help to avert too steep a drop and could even increase revenue.

Wage and salary costs accounted for £2.37m as the payroll rose by 20 to 96. Much of that increase was due to the recruitment of nine more commercial staff.

But the club still has bank overdrafts of just over £3.5m, secured by a debenture (loan agreement) over the whole of the company’s assets.

Mr Scally, who was paid a total of £143,838, said: "I am delighted all the efforts made by the staff over the past financial year have shown to be fruitful and, whilst relegation to League 2 was disappointing and unexpected, we continue to make every effort to trade successfully in what are proving to be very challenging times."

He thanked manager Mark Stimson and his assistant Scott Barrett for changing the club's fortunes on the field of play. "This has resulted in a noticeable improvement in results so far this season and will thus assist the continuing progress we are making as a company."