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  • dlhild Nov 7, 2012 10:16 PM Flag

    Does the TISSUE COST CENTER Operate at a Loss?

    rroach76, I have discussed the poor margins and likely unprofitability of the Preservation Services (Cardiac and Tissue) cost center several times in the past. You must have me on ignore! Don't you find it quite amazing though that almost half of the sales are in a cost center that appears to operate at an operating loss, not operating income mind you, but at an actual operating loss? I have put forth specific number on this from CRY’s financial statements several times. I did this because if my analysis was somehow flawed, then someone could explain to me the error of my accounting ways. So far nobody has challenged my analysis though. IMO, if the analysts here were any good, instead of being in cahoots with SA, they would ask this question. SA so far doesn't want to touch this subject, because it shows how bad he is at managing the profitability of the company. My own guess as to why SA keeps running the Preservation Services cost center is because it is his baby going back to the beginning of the company, and he just can’t give up on it. IMO this is a typical flaw of an entrepreneur. IMO SA was just never able to make the jump from a privately run corporation to a publicly traded one. Also, IMO I suspect he still has the mentality of someone that owns the entire company, and still thinks he can run it that way. IMO this type of environment may lend itself to pettiness, and may not lend itself to an efficiently run entity. This is all guess work on my part. I know of no way to test my premise.

    One of my recent posts on this subject is set forth below.

    Conference Call Question #1 - TISSUE:
    By dlhild.Oct 23, 2012 11:39 AM.Permalink

    Does the combined cardiac and vascular tissue cost center, which composes roughly 50% of total sales, operate at an operating loss?

    During CY2011, tissue sales were $59,793,000. COGS was $34,340,000. This resulted in a gross profit of $25,453,000. If operating expenses are then allocated to each cost center, using a pro-rata based upon total revenue allocation calculation, $32,089,766 in operating expenses gets allocated to the tissue cost center. Subtract $32,089,766 from $25,453,000 and you get a tissue cost center operating loss of negative $6,636,766. If you credit back taxes using a 40% tax rate, the after tax tissue cost center operating loss drops to negative $3,982,060. The math certainly makes it appear that the tissue cost center does operate at an operating loss.

    The question again: “Does the combined cardiac and vascular tissue cost center operate at an operating loss”? Yes/No. Explain. Do your own due diligence.

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    • Yes, I remember you discussing this issue as far back as 2010. What I don't understand is the "CRY's response was a resounding non response" part. When has CRY been asked this question and/or when has CRY given this response?

      Sentiment: Hold

      • 1 Reply to rroach76
      • dlhild Nov 9, 2012 9:53 AM Flag

        People at CRY read this message board. I bet SA himself has read some of it. Therefore, SA has been effectively asked this question several times.

        CRY is IMO really quite amazing. The preservation services cost center, roughly 50% of sales, appears to operate at an operating loss. I would guess that all of the other cost centers, with the exception of BioGlue, operate at an operating loss as well. My reason for thinking this is because the other cost centers don't have sufficient volumes yet to contribute much (if anything) to operating income. If I'm correct, this would mean that the ONLY COST CENTER GENERATING OPERATING INCOME would be the BioGlue cost center. The BioGlue cost center appears safe for now, as I don't see where the competitive sales would come from. This could change should somebody else decide to come after their BioGlue market. But this would require FDA approval of a competitor's product. Also, right now it doesn't appear that the FDA is doing much of anything for anybody. They are approving things very slowly not only for CRY, but for other companies as well. The FDA seems to more or less be equally slow across the board.

        By late 2013, a lot more will be known about CRY's latest acquisition. By Q3 2013 and Q4 2013, the sales growth for these newly acquired products better be hitting at least 6% growth QoQ, and that is on the low end. Otherwise the acquisition will prove to have been a mistake. They might reach profitable growth targets, it is just too early to know that yet.

        As for PerClot, I think this cost center will operate at an operating loss for 2-3 years yet. Probably until CRY receives FDA approval (looking more like 2015 to me). Then the patent fight will need to be fought and CRY will either win it, or lose it. Remember though, Medafor owns a patent. To my knowledge CRY does not. So who knows what the outcome will be. But no doubt about it, CRY does have a substantial risk of losing. CRY may prevail though. Nobody knows with certainty the outcome of this, so I consider it a crap shoot.

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