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Biotech / Medical : ACMI - Accumed Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Sigmund who wrote (877)	1/3/1998 11:38:00 PM
From: Cisco	Read Replies (3) \| Respond to of 1894

Sigmund: In response to your earlier question, I have been thinking about what would be the best single indicator for monitoring the performance of this company during 1998. It seems to me that it would be the gross margins. I have reached this conclusion for the following reasons: 1. The only way that we will see an increase in gross margins will be from increases in sales revenues and/or manufacturing efficiency. 2. The gross margins on the products that AccuMed International sells are largely volume sensitive. 3. This number is readily verifiable from SEC filings. 4. The company has made public its intent to significantly reduce total operating expenses during 1998. Discussion: On December 4, 1997 AccuMed announced the completion of the consolidation of the sales and support organization for its microbiology and cytopathology product lines which is reported to be a $2 million cost savings program. During the conference call on December 5, 1997, Len Prange,CFO and COO, stated: You will see a little bit of an impact this year but not much. Most of the changes that will be coming to equate to the $2 million number really relate or kick in full in 1998. In a clarification, it was made clear we should expect the cost savings to be fully realized in 1998! Total Operating expenses for the nine months ended September 30, 1997 less goodwill write off was $13.1 million which projects to an annual expense of $17.5 million. Therefore we should expect next year to be around $15.5 million or certainly less than $4.0 million per quarter. Since we shouldn't see any tax expenses next year, the only other significant expenses should be the interest expense which may be off set in part by other income. Let's be conservative and assume an expense of $400,000 per quarter or $1.2 million for the year. To break even during any one quarter we would need an operating income of about $4.4 million. I have been told the company could be close to break even with sales revenues of just above $9 million per quarter. This would require a gross margin of 48% or further reduction in expenses. Commonwealth Associates have projected that AccuMed could have gross margins as high as 68% with high enough volumes, especially once TracCell is in wide use. Commonwealth Associates suggested in July that the test slide usage fees with the TracCell 2000 could generate gross margins of nearly 100%. Also many of the disposable supplies for the various microbiology systems should be able to generate gross margins of 50%. Summary: Provided that operating expenses are truly under control, then the success of the company this year seems to be directly related to sales revenues and efficiency of manufacturing. The gross margins should be a good barometer of both. In particular if the AcCell/TracCell systems are selling well, I would expect the gross margins to start climbing. Just the thoughts of a bluegrass hillbilly, other opinions or corrections welcome!! Cisco