Ok, I'm confused.
May 17, 1999
DERMA SCIENCES INC (DSCI)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
Net Sales and Gross Profit
Net sales for the first quarter, 1999 increased $380,108, or 17%, to $2,583,818 from $2,203,710 in the first quarter, 1998. The increase in net sales is the result of the addition of Sunshine Products net sales of $693,000 offset by decreases in Derma Sciences and Genetic Labs net sales of $294,892 and $18,000, respectively.
Medicaid rebates incurred by the Company are reflected as a reduction to sales. The quarter ended March 31, 1999 included Medicaid rebates of $64,042 while the quarter ended March 31, 1998 had net Medicaid rebate adjustments which resulted in an increase to sales of $150,000.
Cost of sales, expressed as a percentage of net sales, increased from 21% in the first quarter, 1998 to 35% in the first quarter, 1999. Aggregate cost of sales increased $365,744, or 69%, to $898,962 in the first quarter, 1999 from $533,218 in the first quarter, 1998. This increase is attributable to the sales mix, primarily the addition of the Sunshine Products skin care line, which has a higher cost of sales.
Gross profit, expressed as a percentage of net sales, decreased from 76% in the first quarter, 1998 to 65% in the first quarter, 1999. This decrease is attributable to the sales mix, primarily the addition of the Sunshine Products skin care line, which has a higher cost of sales. Aggregate gross profit increased $14,364, or less than 1%, to $1,684,856 in the first quarter, 1999 from $1,670,492 in the first quarter, 1998. The increase in the aggregate gross profit is the net result of the previously mentioned increase in net sales offset by the higher cost of sales of the Sunshine Product skin care line.
Operating Expenses
Operating expenses increased $571,796, or 36%, from $1,582,001 in the first quarter, 1998 to $2,153,797 in the first quarter, 1999. This increase is primarily attributable to the addition of Sunshine Products and its manufacturing operations, plus the addition of twenty direct sales representatives, which increased wages and travel costs.
Net (Loss) Income
The Company generated a loss of $468,941, or $0.08 per share, for the first quarter, 1999 compared to income of $71,611, or $0.01 per share, for the first quarter, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments at March 31, 1999 increased $119,614, or 6%, to $2,039,975 from $1,920,361 at March 31, 1998. The Company's working capital at March 31, 1999 increased $194,966, or 7%, to $2,876,862 from $2,681,896 at March 31, 1998.
On November 19, 1997, the Company successfully closed on its $1,800,000 securities offering (exclusive of commissions and related expenses). On November 24, 1997, $400,000 of such securities were converted directly into common stock and warrants. The remaining $1,400,000 of the securities were converted to preferred stock and warrants, effective as of December 31, 1997. The proceeds of the convertible securities were invested in short term, investment grade commercial paper having an aggregate market value of $1,808,000 on December 31, 1997.
Further, on July 14, 1998, the Company successfully closed a private placement of convertible securities ("Class B Securities") in which an aggregate of $4.0 million was raised (net proceeds were $3,955,000 after related costs). Terms of the Class B Securities required that upon approval by the Company's shareholders of at least 3,333,400 additional shares of preferred stock, the Class B securities automatically convert into Class B Units at the rate of $1.20 per Unit. Each Class B Unit consists of one share of preferred stock convertible into one share of common stock ("Class B Preferred") and one warrant to purchase one share of common stock exercisable at $1.35 per share ("Class B Warrants"). The Class B Securities at year-end have been classified as preferred stock. Class B Warrants issued in connection with this offering totaled 3,333,400.
The Company has a short-term line of credit facility for $1,000,000, which $1,000,000 was outstanding at March 31, 1999, at a fluctuating rate per annum equal to the prime rate minus 1%, (6.75% at March 31, 1999). This line of credit is secured by cash on deposit with the bank.
The Company is presently investigating several sources of investment capital relative to the financing of its growth strategies. Although there can be no assurance that these efforts will be successful, the Company believes that it will be able to secure financing in the amounts, and upon terms, acceptable to it.
Statements that are not historical facts, including statements about the Company's confidence and strategies, and expectations about new or existing products, technologies and opportunities, market demand or acceptance of new or existing products are forward-looking statements that involve risks and uncertainties. These uncertainties include, but are not limited to, product demand and market acceptance risks, impact of competitive products and prices,
product development, commercialization or technological delays or difficulties, and trade, legal, social, financial and economic risks.
|
