Ok, I'm going to stick my neck out and post an estimate for
the September quarter. I provided rationale for my estimate
below and welcome comments. I don't think that the company
had any advertising expense in the third quarter and that
they might show a small profit on Zicam. Overall, I think
that they will post a small loss of 4 cents per share, an
improvement over the 10 cent loss in Q2 99. Perhaps more
importantly, I estimate that Gumtech's revenue doubled from
just Q2 99 and might exceed their total revenue in FY 97. I also
think that their overall gross margin will improve from 33%
in Q2 99 to 41% in Q3 99 due to a higher percentage of total
sales attributable to Zicam, which has a higher margin than
their current gum products. I expect this to continue in
Q4, and for their gross margin to approach 45%. I assumed
that only 25,000 stores bought Zicam in Q3 99. The number
of stores carrying Zicam is now probably closer to 40,000,
but those sales will be booked in Q4, as will any reorders.
I don't think that investors are focused on earnings right
now. The most important issues are revenue growth, margin
improvement, plant efficiency, and effective execution of
the company's two-phased business plan which is leading to
hyper-growth in revenues and profits in FY 2000 and 2001.
The company's management is very effectively executing
these issues, and that is why I think the stock is trending
higher, and why it will continue to trend higher. Of
course, a lot is riding on the results of the clinical
studies but I am confident that the first study will be
confirmed and that Zicam will show some preventative effects.
Q3 99E
Gum Operations Zicam Total
Net Sales $2,000,000 $1,787,500 $3,787,500
Cost of Sales 1,380,000 858,000 2,238,000
Gross Profit 620,000 929,500 1,549,500
Operating Expenses 720,000 357,500 1,077,500
R & D 120,000 357,500 477,500
Total Expenses 840,000 715,000 1,555,000
EBIT (220,000) 214,500 (5,500)
Int./Other income 60,000 0 60,000
Interest expense 275,000 0 275,000
Pref. dividends 70,000 0 70,000
EBT (505,000) 214,500 (290,500)
Income tax 0 0 0
Net income $(505,000) $214,500 $(290,500)
Diluted avg shares 7,500,000
Earnings per share $(0.04)
Assumptions:
1. Revenue
a. I assumed that sales of gum were up 10% from sales in
Q2 99 of $1.82 million.
b. I assumed that an average of 10 units of Zicam were
placed in 25,000 stores at an average wholesale price of $7.15.
2. Gross margins
a. Gum: Might improve a point or two, but I used the
margin from Q2 99 (31%) to be conservative.
b. Zicam: used the average of the last two months.
3. Operating expenses
a. Gum flat with Q2 99. I see no reason for a big
change up or down.
b. Zicam about 10% higher than Q2 to account for
probable higher marketing expenses.
4. Research & Development
a. Gum slightly higher to account for possible
increased R&D expenses for nicotine and dental gum.
b. Zicam increased by about $300,000 to account for
the estimated expense for the clinical studies.
5. Interest income higher due to higher cash balance. I
assumed that they invested approximately $5 million at
5% interest for three months. The six month and one
year T bill rates are about 5%. Interest income in Q2 99 was 10,000.
6. Interest expense probably increased because of the note
payment due to Citadel on September 30, 1999
($80,000). Interest expense was $219,000 in Q2 99.
7. Preferred stock dividend calculation:
$2,000,000 * 0.14 / 4 = $70,000 |
