<font color=teal> Research from a long, Part 3
Re: Reply to proveittome Part 3
by: makemilns (38/M) 11/26/00 2:39 pm
Msg: 41118 of 41131
R&D expenses have varied between $100k to $200k quarterly, and I don’t see a big change coming here either. In fact, the joint venture with Swedish Match will reimburse Gum Tech for the R&D that went into creating nicotine gum.
Net interest is favorable to Gum Tech since they paid off their debt earlier this year. They will save about $500k quarterly or about 6 cents per share.
The deduction for Biodelivery Technologies only comes into play if Gel Tech has an accumulated profit, so they would only have a deduction for this if Gel Tech contributes positive cash flow to Gum Tech.
Net profit: Based on $5 million in quarterly gum sales and my other assumptions, the gum business would generate a net profit of about $1 million, or about 12 cents per share quarterly. Sales of existing gum products will be accretive to earnings once they get over the break-even point, which I estimate to be about $2 million quarterly. I believe that sales of existing gum products will add about 3 cents per share to earnings, for total earnings from the gum business of about 15 cents quarterly. This analysis doesn’t even include the value of the joint venture with Swedish Match. While sales to the joint venture won’t immediately generate profits to Gum Tech, the value of the asset that they own with Swedish Match will increase as the joint venture’s sales increase and profits accrue. This will add value to Gum Tech even if a profit doesn’t show up on the income statement. The value of the joint venture will show up on the balance sheet instead. Depending on how much the joint venture pays for nicotine gum, Gum Tech’s profit could be higher than I have estimated here. For example, if the joint venture pays a portion of Gum Tech’s operating expenses and fixed cost of sales, more profit will make it to the bottom line. I believe that some of these costs will be included in the price of nicotine gum to the joint venture because they are part of the costs of making nicotine gum and fall into the category of “full cost”. To err on the side of conservatism, I have not included this in my estimate. |
