Operating Segments

3 Months Ended

Mar. 31, 2015

Operating Segments [Abstract]

Operating Segments

7. 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, devices and skin substitutes 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 closure strips, catheter fasteners and skin care products. Pharmaceutical wound care products consist of DSC127, a novel, first in class angiotensin peptide for the treatment of a variety of dermal applications.

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 care providers and through retail. 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 for diabetic foot ulcers and pre-clinical work on scar prevention.

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 2015 and 2014 were as follows:

Three Months Ended March 31, 2015
	Advanced Wound Care			Traditional Wound Care			Pharmaceutical Wound Care			Other			Total Company
Net sales	$	9,771,024		$	9,727,628		$	-		$	-		$	19,498,652
Gross profit		4,901,124			2,634,002			-			-			7,535,126
Direct expense		(8,435,080	)		(1,313,451	)		(4,158,276	)		-			(13,906,807	)
Segment contribution	$	(3,533,956	)	$	1,320,551		$	(4,158,276	)		-			(6,371,681	)
Indirect expenses										$	(4,237,896	)		(4,237,896	)
Net loss													$	(10,609,577	)

Three Months Ended March 31, 2014
Net sales	$	8,352,062		$	11,434,972		$	-		$	-		$	19,787,034
Gross profit		3,926,975			2,985,350			-			-			6,912,325
Direct expense		(7,645,934	)		(1,308,169	)		(4,179,167	)		-			(13,133,270	)
Segment contribution	$	(3,718,959	)	$	1,677,181		$	(4,179,167	)		-			(6,220,945	)
Indirect expenses										$	(4,049,070	)		(4,049,070	)
Net loss													$	(10,270,015	)

The following table presents net sales by geographic region:

	Three Months Ended March 31,
	2015			2014
United States		84	%		74	%
Canada		10	%		16	%
Other		6	%		10	%

For the three months ended March 31, 2015 and 2014, the Company had a major Canadian customer comprising 10% and 16%, respectively, of consolidated net sales. Due to outstanding rebate obligations, the Company was in a net liability position to this customer at March 31, 2015.