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Biotech / Medical : GUMM - Eliminate the Common Cold -- Ignore unavailable to you. Want to Upgrade?

To: Mad2 who wrote (807)	8/28/1999 1:00:00 PM
From: out_of_the_loop	Read Replies (2) \| Respond to of 5582

<<Unfortunatly the products GUMM plans on selling require inventory, stock and receivables and are a bit more capital intensive (not to mention seasonal with the associated risks>>> I asked how long it would take to produce a large initial international order of nic gum. The answer: Running 3 shifts day - 3 days to a week. Running one shift a day - 3 weeks. The big capital has been already laid out - the production and warehousing capacities, as previously mentioned, have been already doubled - and I saw them in person. Zicam inventories are not as much as a problem per se with GUMM/GelTech insofar as having the companies set up their warehouse-->store distribution. They will "get their sh*t together" when the publicity hits, IMO because it will be customer-driven. Your words of caution are always in order and well-taken. Perhaps a compromise between my "unbridled optimism" and your "this company has only a 5% chance" is about where the truth lies. Indeed, time will tell and most of the people who follow this company closely believe that "time" is between now and this coming Jan-Feb. Regards, Howard

To: Mad2 who wrote (807)	8/28/1999 2:54:00 PM
From: DanZ	Read Replies (1) \| Respond to of 5582

Mad2, There's no doubt that the price of GUMM discounts optimism about the future. Isn't this how the stock market works? It is a discounting mechanism. Sometimes a stock price declines to a valuation that looks cheap. Then bad earnings are reported and the price to sales, price to book, etc don't look so cheap anymore. Sometimes a stock price increases to a valuation that looks expensive. Then good earnings are reported and the price to sales, price to book, etc, don't look so expensive anymore. As I posted on Yahoo, GUMM is overvalued IF Zicam flops and nicotine gum flops. I think GUMM is undervalued if Zicam and nicotine gum do well. The extent to which the stock is undervalued depends on how well those products do. You noted that you think GUMM is overvalued based on past sales, but you didn't mention that their margins have improved considerably the last two quarters. This trend is much more important than the fact that they lost money last year. GumTech's gross margin in Q2 was 32.8%. Their margin was 31.5% on gum and 57.2% on Zicam. Their margin on gum has averaged only 18.5% since September 97, and the recent improvements indicate that they are making constructive changes in their manufacturing process. As the product mix shifts more towards Zicam, the company's overall gross margin will approach that of Zicam. For example, only 5.1% of GumTech's revenue in Q2 was attributable to Zicam. Sales of Zicam in Q3 could easily exceed 70% of the company's overall sales. If sales of Zicam had contributed 70% of sales in Q2, the company's overall gross margin would have been 49.5%. This is 16.7 points higher than the already improved 32.8%. While the company may still have shown a loss due to higher operating expenses (for advertising), this is a short term issue while they build the Zicam brand name. With GumTech's gross margin approaching 50%, they will become very profitable as sales increase. This is especially true for the increase in sales that come from nicotine gum because the distributor will be responsible for advertising it. GumTech is operating at only 10% capacity and is nearly breaking even. How much capacity utilization do you think they need to make a big profit? Keep in mind that the margin on nicotine gum must be much higher than that of their present product lines. If their capacity utilization increased to only 50% with higher margin products, I think the profits that would surely result would justify a stock price much higher than 11. Best regards, Dan