Effective July 1, 2004, the Registrant and its consolidated subsidiaries began reporting in three reportable segments, consistent with reorganization of its business organization. The Registrant had previously reported as one operating segment: the manufacture and distribution of electrical stimulation products for pain management, rehabilitation and fitness applications. Nevertheless, because of the establishment and growth of the Registrant’s consumer products segment in the United States, which includes electrical stimulation products for consumer distribution, the Registrant reorganized the manner in which it reviewed and managed its business. Commencing with the first quarter of the fiscal year ending June 30, 2005, the Registrant has revised its reporting structure based on a geography in segmenting its international and U.S. operations and has further segmented its U.S. operations based on product offerings by separating its U.S. consumer from its U.S. medical division. The Registrant’s U.S. medical segment consists of electrical stimulation products for rehabilitation, pain management and accessories and supplies distributed to patients through healthcare providers. Customers of the Registrant’s U.S. medical segment require a physicians’ prescription to purchase or rent products, and the Registrant is normally reimbursed through a third party reimbursement organization such as an insurance company, health maintenance organization, or a governmental agency under Medicare, Medicaid, workers compensation or other programs. The Registrant’s U.S. consumer segment consists of the sale of electrical stimulation products over the counter to consumers without prescription. Because the regulatory requirements and the markets differ substantially from the regulatory requirements and markets in the United States, the Registrant sells a completely different line of both medical, sport, fitness and wellness products over the counter under the Compex name in Europe. There is no reporting distinction between medical and consumer products within the Registrant’s international reporting segment, because the European regulatory environment does not necessitate the distinction between method of distribution of medical and consumer products as is necessary in the U.S.
The Registrant’s chief operating decision makers make operating and strategic decisions based on measure of segment profit that includes gross profit less selling and marketing expenses.
The Registrant has reported segment information on such basis in its quarterly report on Form 10-Q for the quarter ended September 30, 2004, and included in such report comparable segment information for the quarter ended September 30, 2003. The Registrant will include segment information for the current fiscal period, and for the comparable fiscal period during the prior fiscal year, in its Form 10-Q for the quarter ended December 31, 2004, Form 10-Q for the quarter ending March 31, 2005, and Form 10-K for the fiscal year ending June 30, 2005. In order to better inform investors in advance of such filings, however, the registrant furnishes the following segment information for the six months ended December 31, 2003, the nine months ended March 31, 2004, and the twelve months ended December 31, 2004.
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1. Revenue, cost of sales and rentals, and selling expenses by division are as follows:
For the Six Months Ended December 31, 2003
U.S. Medical
U.S. Consumer
International
Total
Revenue
$
25,736,635
$
268,909
$
15,615,321
$
41,620,865
Cost of sales and rentals
6,754,289
86,415
6,757,049
13,597,753
Gross margin
18,982,346
182,494
8,858,272
28,023,112
Percentage
73.8
%
67.9
%
56.7
%
67.3
%
Selling and marketing expenses
11,137,947
1,179,550
4,553,594
16,871,091
Segment profit (loss)
7,844,399
(997,056
)
4,304,678
11,152,021
For the Nine Months Ended March 31, 2004
U.S. MedicalU.S. ConsumerInternational
Total
Revenue
$
39,018,520
$
417,892
$
23,836,050
$
63,272,462
Cost of sales and rentals
10,489,603
176,751
10,011,951
20,678,305
Gross margin
28,528,917
241,141
13,824,099
42,594,157
Percentage
73.1
%
57.7
%
58.0
%
67.3
%
Selling and marketing expenses
16,666,307
2,388,217
7,121,470
26,175,994
Segment profit (loss)
11,862,610
(2,147,076
)
6,702,629
16,418,163
For the Twelve Months Ended June 30, 2004
U.S. MedicalU.S. ConsumerInternational
Total
Revenue
$
52,025,672
$
791,757
$
33,143,234
$
85,960,663
Cost of sales and rentals
13,943,173
333,540
14,158,967
28,435,680
Gross margin
38,082,499
458,217
18,984,267
57,524,983
Percentage
73.2
%
57.9
%
57.3
%
66.9
%
Selling and marketing expenses
22,541,852
3,805,755
9,415,693
35,763,300
Segment profit (loss)
15,540,647
(3,347,538
)
9,568,574
21,761,683
2. Reconciliation of segment profit to income from operations:
For the Six
For the Nine Months
For the Twelve
Months Ended
Ended
Months Ended
December 31
March 31
June 30
2003
2004
2004
Total profit from segments
$
11,152,021
$
16,418,163
$
21,761,683
Unallocated corporate expenses:
General and administrative
7,021,317
10,721,783
14,197,056
Research and development
1,275,150
2,054,784
2,554,290
Income from operations
$
2,855,554
$
3,641,596
$
5,010,337
3. Net revenue by product lines are as follows:
For the Six
For the Nine Months
For the Twelve
Months Ended
Ended
Months Ended
December 31
March 31
June 30
2003
2004
2004
Rehabilitation products
$
9,049,828
$
13,484,038
$
17,693,448
Pain management
7,920,380
12,240,048
16,652,988
Consumer products
12,012,482
18,466,046
26,116,237
Accessories and supplies
12,638,175
19,082,330
25,497,990
$
41,620,865
$
63,272,462
$
85,960,663
The Company does not have a single customer that accounts for more than 5% of consolidated revenue or more than 5% of total accounts receivable as of December 31, 2004.
4. Assets by segment are as follows:
U.S. Medical
U.S. Consumer
International
Total
Segment assets at December 31, 2003
$
24,644,017
$
2,631,484
$
16,756,960
$
44,032,461
Segment assets at March 31, 2004
$
25,412,590
$
2,497,363
$
16,242,502
$
44,152,455
Segment assets at June 30, 2004
$
25,771,895
$
2,972,642
$
14,621,634
$
43,366,171
5. Reconciliation of segment assets to total assets:
For the Six
For the Nine Months
For the Twelve
Months Ended
Ended
Months Ended
December 31
March 31
June 30
2003
2004
2004
Assets from segments
$
44,032,461
$
44,152,455
$
43,366,171
Unallocated corporate assets:
30,475,620
29,315,386
32,843,225
Total assets
$
74,508,081
$
73,467,841
$
76,209,396
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