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

To: out_of_the_loop who wrote (457)	3/30/1999 11:33:00 PM
From: DanZ	Read Replies (2) \| Respond to of 5582

To all: Here's my take on the fourth quarter earnings and press release. I grouped the statements in the press release into three categories. The first category contains statements that most people would probably perceive as positive, the second category contains statements that most people would probably perceive as negative, and the third category contains statements that should have no effect. Overall, I think that the press release is VERY positive and the only negative is that they lost 7 cents or 10 cents on an operating basis (depending on how you calculate it), versus GunnAllen's estimate of a 4 cent loss. The forward looking statements are SO HUGELY positive, that it makes no sense whatsoever to sell one's stock based on what happened in the fourth quarter. Mr. Kehoe's comments are particularly notable given his usual conservative nature. Of particular significance are his hints that GumTech may soon announce new business in the dental and nicotine gum areas. Through their forward looking statements, I think management is trying to send a signal to the market that it's best to ignore the fourth quarter results because the first quarter and foreseeable future will probably show large increases in sales and earnings. I think that GumTech is on target to earn between 80 cents and $1.00 this year and I think the stock will begin a rally tomorrow. The 9's will be history for this stock very soon, IMO. Positive statements << Mr. Hemelt's comments >> Sequential sales growth from the third quarter to the fourth quarter up almost 30%. Year over year sales growth up over 40%. The company restructured its management, changed its strategy to emphasize contract manufacturing, prepared for significant anticipated future growth, established several long-term manufacturing partnerships, and made significant investments in capital improvements. [Bold print inserted for emphasis throughout] We made every effort to finish the year with all significant financial issues related to the change in management fully recognized, and we believe that any remaining issues should not impact future financial results. R&D expenses were higher than normal due to initial production of 15 new gum formulations during the quarter. Sales from the new formulations over the coming months will more than justify the initial start-up costs associated with putting them into production. The loss can be attributed primarily to the expansion of our production facilities in anticipation of increased order volume in future quarters. Our new manufacturing partnerships began to pay off as we grew net sales 30% over the prior quarter, and we expanded our production capacity through additional space and equipment in order to handle what we believe will be significant increases in future order volume. << Mr. Kehoe's statments >> Net sales grew for the fourth quarter in a row, and we expect sales for the first quarter of 1999 will also show a continued and steady increase. We developed some very significant relationships in 1998 with companies such as Breath Asure, Inc., Ranir/DCP Corp., Heritage Consumer Products, and Pharma Green Ltd., and we are pleased to see a steadily increasing level of reorders from these customers in the first quarter of 1999. Ranir continues to bring in new private label customers, Pharma Green had a very successful rollout of several gums in Israel. On the manufacturing side, we spent almost $1 million over the course of the year on capital improvements that will enable us to handle large volumes in the dental and nicotine areas. Finally, the test marketing of the ZICAM(TM) homeopathic cold remedy, in preparation for next year's cold season, is going exceptionally well. We have received greater interest from retail chains than we had expected this year, and the product is selling well. We continue to be optimistic about the significant growth in our business from our recently developed manufacturing relationships, and we are particularly optimistic about the potential sales growth represented by the marketing of ZICAM(TM). Together, these developments will make 1999 a pivotal year in the history of this company. Negative statements The company showed a loss of $1.8 million for the quarter, of which $1.13 million consisted of one-time charges. Factoring out these non-recurring adjustments, we had $697,000 in losses on an operating basis. Statements that should have no effect According to Hemelt, "We recorded charges for several large, non-recurring expenses during the quarter. We took a non-cash charge of $732,000 in connection with the resolution of a dispute over options granted to a customer in late 1997. The settlement of the dispute provided for the grant of 200,000 options at an exercise price of $9. We also wrote off or reserved approximately $260,000 for inventory obsolescence. Finally, we elected to write off over $136,000 in expenses from legal fees, settlements, and reserves, all related to changes in management.