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Derma Sciences Inc. Reports Operating Results (10-Q)

November 12, 2010 | About:
10qk

10qk

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Derma Sciences Inc. (DSCI) filed Quarterly Report for the period ended 2010-09-30.

Derma Sciences Inc. has a market cap of $31.5 million; its shares were traded at around $4.8 with and P/S ratio of 0.7.

Highlight of Business Operations:

Consolidated net sales increased $2,213,709, or 17.2% (16.0% adjusted for exchange), in 2010 versus 2009. Canadian net sales increased $251,138, or 8.7%, to $3,144,667 in 2010 from $2,893,529 in 2009. This increase was driven by favorable exchange of $152,221 associated with a 5.3% strengthening of the Canadian dollar, coupled with sales growth of $98,917. The sales growth reflects the impact of real growth of $499,229, or 17.3% due to higher demand, partially offset by an inventory decrease on the part of our exclusive Canadian distributor of $400,312 during the quarter. U.S. net sales increased $1,622,782, or 16.2%, to $11,611,678 in 2010 from $9,988,896 in 2009. The increase was principally driven by higher first aid product sales of $1,413,528, or 42.7%, and advanced wound care sales of $458,754, or 21.3%, partially offset by lower private label sales of $279,539, or 12.5%. The balance of U.S. sales consisting of traditional wound care, specialty fixation, burn care and skin care and bathing sales were up 1.3% quarter to quarter. The increase in first aid products sales reflects new business, improving demand and the spot sale of slow moving inventory. The higher advanced wound care sales reflect continued growth of our new products in response to expanded sales and marketing efforts. The decrease in private label sales reflects the loss of business and timing. Advanced wound care sales of $339,789 associated with our recently initiated international growth strategy also contributed to the consolidated net sales increase.

Consolidated advanced wound care sales increased $852,311, or 38.1%, to $3,087,831 in 2010 from $2,235,520 in 2009. All other sales (core sales) increased $1,361,398, or 12.8%, to $12,008,303 in 2010 from $10,646,905 in 2009.

Sales expense increased $512,927, or 39.3% (38.5% adjusted for exchange), in 2010 versus 2009. Expenses in Canada increased $10,752 (including a $9,871 increase related to exchange) due to higher compensation and benefit and commission costs, partially offset by lower group purchasing organization fees. Expenses in the U.S. increased $304,149. This increase is principally attributable to incremental expense associated with the planned expansion of the U.S. sales force from ten to twenty representatives that was completed by the end of June, partially offset by lower first aid products compensation and benefits associated with a position eliminated in the first quarter and not replaced. Incremental international expenses of $198,026 for compensation and benefits, travel, recruiting and sample expenses associated with the start up of our international growth initiative also contributed.

General and administrative expense increased $472,873, or 30.4% (29.2% adjusted for exchange), in 2010 versus 2009. Expenses in Canada increased $31,510 (including a $19,004 increase related to exchange). Net of exchange, expenses were up $12,506 driven principally by compensation and benefits associated with inflationary increases and one new position, coupled with higher insurance and audit expenses. Expenses in the U. S. increased $414,878. This increase reflects incremental amortization expense of $112,700 associated with the worldwide Medihoney license agreement signed in February 2010, higher legal expense of $89,600 principally associated with intellectual property maintenance expenses, higher board related expense of $72,900, higher planned investor relations expenses of $43,200 designed to increase investor awareness and improve our stock s trading volume, bad debt expense of $35,900, together with higher travel, professional service and inflation driven compensation and benefit expenses. Incremental international expenses of $26,485 consisting of transition related management, legal and travel expenses associated with the start up of our international growth initiative also contributed.

We recorded a $23,057 foreign income tax provision for 2010 consisting of a $25,174 current foreign tax provision and a $2,117 deferred foreign tax benefit based on our Canadian subsidiary s operating results. No tax benefit was recorded for our U.S. operations in 2010 or 2009 due to uncertainty surrounding our ability to use available net operating loss carry forwards and net deferred tax assets. In 2009, we recorded a $5,237 foreign income tax provision consisting of a $3,896 current foreign tax provision and a $1,341 deferred foreign tax provision based on our Canadian subsidiary s operating results.

We generated a net loss of $502,552, or ($0.08) per share (basic and diluted), in 2010 compared to a net income of $139,603, or $0.03 per share (basic and diluted), in 2009.

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