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

May 12, 2010 | About:

Derma Sciences Inc. (NASDAQ:DSCI) filed Quarterly Report for the period ended 2010-03-31.

Derma Sciences Inc. has a market cap of $30.6 million; its shares were traded at around $5.09 with and P/S ratio of 0.6.

Highlight of Business Operations:

Consolidated net sales increased $2,412,491, or 23.1% (19.0% adjusted for exchange), in 2010 versus 2009. Canadian net sales increased $1,345,370, or 61.0%, to $3,550,775 in 2010 from $2,205,405 in 2009. This increase was driven by favorable exchange of $433,334 associated with a 16.4% strengthening of the Canadian dollar, coupled with sales growth of $912,036. The sales growth reflects the impact of inventory rationalization on the part of our exclusive Canadian distributor of $696,454 together with $215,582 attributable to intrinsic growth. Real growth as measured by sales of our Company s products reported by our exclusive distributor, unadjusted for foreign exchange, approximated 6.1%. U.S. net sales increased $946,399, or 11.5%, to $9,172,885 in 2010 from $8,226,486 in 2009. The increase was principally driven by higher advanced wound care sales of $727,098, or 54.9%, and first aid product sales of $219,084, or 7.4%. The balance of U.S. sales consisting of traditional wound care, private label, specialty fixation, burn care and skin care and bathing sales were flat period to period. The higher advanced wound care sales reflect continued growth of our new products in response to our expanded sales and marketing efforts. The increase in first aid products sales reflects new business and improving demand. Sales of $120,722 associated with our recently initiated international growth strategy also contributed.

Sales expense increased $243,386, or 20.0% (14.2% adjusted for exchange), in 2010 versus 2009. Expenses in Canada increased $40,025 (including a $28,847 increase related to exchange) due to higher sales volume related group purchasing organization fees and higher advanced wound care related consulting expenses, partially offset by lower 3rd party sales commission due to discontinuation of the program. Expenses in the U. S. increased $160,862. This increase is attributable to first aid products related severance expense of approximately $165,000 and incremental costs of approximately $50,000 to commence expansion of the advanced wound care sales force, partially offset by lower administrative related compensation and benefit and operating expenses. Incremental international expenses of $42,499 associated with the start up of our international growth initiative also contributed.

General and administrative expense increased $154,890, or 8.5% (2.1% adjusted for exchange), in 2010 versus 2009. Expenses in Canada increased $72,962 (including a $75,383 increase related to exchange). Net of exchange, expenses were down with no significant change in the underlying expense base. Expenses in the U. S. increased $39,980. This increase reflects higher planned investor relations expenses of $35,417designed to increase investor awareness and improve our stock s trading volume, incremental amortization expense of $34,787 associated with the Worldwide Medihoney License Agreement and bad debt expense of $21,989 partially offset by lower equity based compensation expense of approximately $43,000 and other lower operating expenses. Incremental international expenses of $41,948 associated with the start up of our international growth initiative also contributed.

Other income increased $107,970 to $109,506 in 2010 from $1,536 in 2009. The main drivers for the net year-to-year increase was an exchange gain of $172,554 (2010 income of $92,636 versus a 2009 loss of $79,918), partially offset by the non-recurrence of approximately $60,000 of gains on miscellaneous asset sales principally associated with the closure of the first aid product manufacturing operation.

At March 31, 2010 and December 31, 2009, we had cash and cash equivalents on hand of $812,602 and $243,524, respectively. The $569,078 increase in cash reflects net cash provided by operating activities of $125,265 and financing activities of $2,639,933, together with cash provided as a result of exchange rate changes of $96,807. These increases were essentially offset by cash used in investing activities of $2,292,927.

On February 22, 2010, we raised $4,511,840 (net of commission and other offering expenses) from the sale in a secondary public offering of shares of our common stock. These proceeds, together with $2,032,818 of previously restricted cash, were used to acquire the worldwide Medihoney licensing rights for $2,250,000, pay off the outstanding U.S. term loan of $3,300,000 and pay off our $500,000 promissory note due April 14, 2010, leaving $494,658 of the net proceeds available for ge

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