FY 00 Estimate.
This estimate is purposely conservative because I would
rather if the company beats my estimate than fails to meet
it. As with my previous estimates, I welcome sincere
comments and will revise the proforma if appropriate.
Gum Zicam Total
Revenue 8,800 75,000 83,800
Cost of sales 6,160 36,000 42,160
Operating expenses 800 13,600 14,400
R&D 175 1,000 1,175
Total expenses 7,135 50,600 57,735
EBIT 1,665 24,400 26,065
Interest/Other income 200 0 200
Interest expense -400 0 -400
Preferred stock dividends -280 0 -280
Deduct 40% to Gel Tech -9760
Profit from Nicotine Gum
Joint Venture 1,875
EBT 17,700
Income tax 1,278
Net income 16,422
Diluted avg shares 8,000
Earnings per share $2.05
Notes:
1. Revenue
a. Gum: Based on 10% increase from FY 99
b. Zicam: Based on estimate of $75 mil. As a point of
reference, the table below lists the top 10 cough & cold
products in the U.S. These are retail sales from 1998. The
unit cost of Zicam is higher than most other cough & cold
products, so it needs less volume than the other products
to exceed them in sales. For example, the retail price of
Tylenol Cold is approximately $6.00, so sales of $257.3 mil
equates to 42.8 million units. The retail price for Formula
44 is approximately $5, so sales of $57.2 mil equate to 11.4
million units. Given that Zicam is the most effective cold
remedy on the market, I believe it is conservative to
estimate that they will sell at least 11 million units. My
estimate of $75 million equates to an avg wholesale price
of $6.82, which seems reasonable to account for discounts,
slot fees, rebates, etc. At a retail price of about $10,
only about 7 million units of Zicam have to be sold for it
to move into the number 9 spot on the list. It is easy to
calculate what Gel Tech's sales would be if they sell the
same number of units of Benadyrl. While I think this is
possible, in the interest of conservatism, I haven't done
this at the current time. I will revise my estimate either
up or down next year as more data comes in.
1. Private Label: $730.7 million
2. Tylenol: $257.3 million
3. Robitussen: $165.2 million
4. Benadryl: $165.2 million
5. Sudafed: $161.6 million
6. NyQuil: $136.5 million
7. Alka Seltzer: $119.6 million
8. Dimetapp: $92.4 million
9. Theraflu: $57.4 million
10. Formula 44: $57.2 million
Total Cough and Cold category: $2.391 billion
2. Cost of Sales
a. Gum: 70% of sales
b. Zicam: 48% of sales
3. Operating expenses
a. Gum: Based on historic average
b. Zicam: Based on 10 mil in advertising and 3.6 mil other
4. R&D
a. Gum: Based on historic average
b. Zicam: Increased for development of new gel products
5. Interest Income
a. Gum: Based on historic average
b. Zicam: None projected for conservatism
6. Interest Expense
a. Gum: Based on 8% of $4.8 mil outstanding debt
b. Zicam: None projected
7. Preferred Stock Dividends
a. Gum: Based on 14% of $2 million Citadel financing
b. Zicam: None projected
8. Payment to Gel Tech LLC is 40% of the profit from Zicam
9. Profit from nicotine gum joint venture assumes signing
by end of FY 99 and production beginning in Q3 00. The
nicotine gum cessation market is estimated at $250 million.
I estimate that the GumTech/? joint venture will capture 20%
of the market for sales of $50 million. I assumed that the
net profit will be 15%, for net income of 7.5 million and I
project that GumTech will share in 50% of the joint venture
profits, for a profit of $3.5 million per year, or $1.8 mil
for two quarters. This is a very conservative estimate
because I fully believe that the joint venture will capture
more than 20% of the market, and I think that they will also
market nicotine gum as a tobacco substitute. The tobacco
market was valued at $46 BILLION in 1998, and it isn't hard
to see that the joint venture could be a huge success if
they capture even only 1% of that market ($460 million in
sales). I'll leave this estimate for FY 01.
10. Income tax: As of June 30, 1999, GumTech had a retained
loss of $15,852,472. Adding in my projected estimates for
Q3 & Q4 99, the retained loss at the end of 1999 would be
$14,048. My estimated profit would negate the carry over
loss and leave a taxable balance of $3,651. At a tax rate
of 35%, the income tax burden would be $1,278.
11. Increased the number of shares outstanding to account
for possible exercise of warrants. |
