« Previous | Next » | All Messages |  DSCI Message Board Home | recommend post |  Ignore Poster

DSCI News Derma Sciences to Restate 2005 and 2006 Financial Statements; No Material Impact on 2006 Earnings or Operating Cash Flows

PRINCETON, N.J.--(BUSINESS WIRE)--Derma Sciences, Inc. (OTCBB: DSCI), a manufacturer and full line supplier of wound and skin care products, today announced that on March 22, 2007, the Company’s management and the audit committee of the board of directors concluded that the Company’s consolidated financial statements for the year ended December 31, 2005 and for each of the quarters from June 30, 2005 through September 30, 2006, should not be relied upon because of errors in accounting for the Company’s exclusive distribution agreement in Canada, as described below.

In May 2005, the Company entered into a five-year agreement with a Canadian company to serve as the Company’s exclusive distributor in Canada. The distribution agreement requires the Company to pay a distribution fee to the distributor. Prior to October 1, 2006, the Company classified this distribution fee in operating expenses. The Company has since concluded that this fee should be classified as an adjustment to gross sales in arriving at net sales, similar to trade rebates and other adjustments to gross sales. Further, the Company has concluded that the distribution fee should be accrued and expensed at the time of sale to the distributor. Previously, the Company expensed the fee when billed by the distributor to the Company.

The Company’s management and the audit committee have determined that the adjustments noted above resulted from a material weakness in internal control related to the lack of a formal process to evaluate and document all of the accounting implications that may be associated with new and non-routine contracts, including distribution agreements.

As a result of the foregoing adjustments, the Company, upon recommendation of its audit committee and upon concurrence of its board of directors, will restate its financial statements for the quarterly periods ending June 30, 2005 (unaudited) and September 30, 2005 (unaudited) and the financial statements and accompanying notes for the year ended December 31, 2005 (audited) and the unaudited financial statements for the first three quarters of 2006.

The restatement will have no impact on the Company’s consolidated operating cash flows for the affected periods. A summary of the expected impact of the restatement upon the Company’s consolidated balance sheets and consolidated statements of operations is outlined below:

At December 31, 2005 current assets will decrease $297,060 from $6,409,920 to $6,112,860 and current liabilities will decrease $94,196 from $3,055,127 to $2,960,931. At September 30, 2006 current assets will decrease $306,608 from $8,239,993 to $7,933,385 and current liabilities will decrease $102,109 from $3,406,693 to $3,304,584.

For the year ended December 31, 2005 net sales will decrease $745,835 from $23,545,475 to $22,799,640 and net loss will increase $190,886 from $909,104 to $1,099,990. For the nine months ended September 30, 2006 net sales will decrease $819,520 from $21,019,902 to $20,200,382 and net income will increase $7,434 from $768,704 to $776,138.

Loss per share for the year ended December 31, 2005 will increase from $0.07 to $0.09 while earnings per share of $0.04 – basic and $0.03 – fully diluted for the nine months ended September 30, 2006 will be unaffected.

About Derma Sciences, Inc.

Derma Sciences, Inc. provides a full range of skin care; wound management and specialty securement devices that are used primarily in the professional markets, specifically hospitals, nursing homes and home care settings. For more information about Derma Sciences, Inc., visit its home page on the Internet at http://www.dermasciences.com.

Forward-looking Statements

Statements contained in this release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate” or “continue” are intended to identify forward-looking statements. Readers are cautioned, that certain important factors may affect the Company’s actual results and could cause such results to differ materially from any forward-looking statements which may be made in this release or which are otherwise made by or on behalf of the Company. Factors which may affect the Company’s results include, but are not limited to, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. Additional factors that could cause or contribute to differences between the Company’s actual results and forward-looking statements Include but are not limited to, those discussed in the Company’s filings with the Securities and Exchange Commission.