Operating Segments

3 Months Ended

Mar. 31, 2013

Operating Segments [Abstract]

Operating Segments

6. Operating Segments

The Company operates in three segments: advanced wound care, traditional wound care and pharmaceutical wound care products. They are managed separately as each segment requires different technology, marketing and sales strategies. Advanced wound care products principally consist of both novel and otherwise differentiated dressings, bandages and ointments designed to promote wound healing and/or prevent infection. Traditional wound care products principally consist of commodity related dressings, ointments, gauze bandages, adhesive bandages, wound closer strips, catheter fasteners and skin care products. Pharmaceutical wound care products consist of DSC127, a novel product for the treatment of diabetic foot ulcers which is presently under development.

Advanced and traditional wound care products are marketed globally to acute care, extended care, home health care, wound and burn care clinics and physician offices. The Company utilizes a broad network of well-established distributors to deploy the majority of its products to end users. A smaller portion of the Company's sales are sold directly to end users. The advanced and traditional wound care products are both manufactured internally and sourced from third party suppliers. The majority of marketing expenses are deployed in support of advanced wound care products with traditional wound care products requiring limited support. The Company utilizes direct sales representatives, distributor relationships and contractual relationships with buying groups and wound care service providers to sell its products. Direct sales representatives are used solely in support of advanced wound care sales in the U.S. and the U.K. and for both advanced and traditional wound care products in Canada.

The pharmaceutical wound care segment is presently limited to the development of DSC127.

Each operating segment is managed at the segment contribution level consisting of gross profit minus direct expense consisting of distribution, marketing, sales, research and development and intangible amortization expenses. Expenses are allocated directly by segment to the extent possible. Expenses common to all three operating segments are allocated consistently using activity based assumptions. The aggregation or allocation of indirect expenses by segment is not practical.

Operating segment sales, gross profit, segment contribution and other related information for 2013 and 2012 were as follows:

		Three Months Ended March 31, 2013
		Advanced Wound Care			Traditional Wound Care			Pharmaceutical Wound Care			Other			Total Company
Net sales	$	7,488,381		$	11,301,365		$	-		$	-		$	18,789,746
Gross profit		3,629,141			3,075,324			-			-			6,704,465
Direct expense		(5,223,589	)		(1,202,968	)		(3,016,092	)		-			(9,442,649	)
Segment contribution	$	(1,594,448	)	$	1,872,356		$	(3,016,092	)		-			(2,738,184	)
Indirect expenses										$	(3,506,594	)		(3,506,594	)
Net loss													$	(6,244,778	)

	Three Months Ended March 31, 2012
Net sales	$	4,497,054		$	10,780,312		$	-		$	-		$	15,277,366
Gross profit		2,102,709			2,773,451			-			-			4,876,160
Direct expense		(3,013,807	)		(1,034,839	)		(1,125,035	)		-			(5,173,681	)
Segment contribution	$	(911,098	)	$	1,738,612		$	(1,125,035	)		-			(297,521	)
Indirect expenses										$	(2,241,380	)		(2,241,380	)
Net loss													$	(2,538,901	)

The following table presents net sales by geographic region.

	Three Months Ended March 31,
	2013			2012
United States		75	%		70	%
Canada		16	%		21	%
Other		9	%		9	%

For the three months ended March 31, 2013 and 2012, the Company had a major Canadian customer comprising 15% and 21%, respectively, of consolidated net sales. Due to outstanding rebate obligations, the Company was in a net liability position to this customer at March 31, 2013.