ScripsAmerica Inc. (SCRCQ)

[coolerheadsprevail]

LOL, see what I mean? And so it begins...

The fact that both PIMD and MAV are now licensed in N.J.is an enormous event. Now, PIMD can ship all the compounding cream raw materials to MAV and thus can add to its revenues.

Why do you continue to tout this misleading and UNTRUE statement even though it has previously been explained multiple times in the past why it is untrue and has no merit to it???

PIMD and Main Ave are related parties, both majority-owned by SCRC and both 100% consolidated into SCRC's reporting entity for financial statement reporting purposes.

As such, ANY transactions between the two are ELIMINATED. THEY DO NOT COUNT. EVER. That is US GAAP 101. This means that all sales from PIMD to Main Ave result in ZERO revenues and ZERO earnings flowing thru either the top line or the bottom line.

Any sales that PIMD makes to Main Ave that it could have otherwise made to an unrelated 3rd party entity means that SCRC is LOSING revenues/earnings.

MAV will in turn probably be able to lower its cost of raw materials and thereby improve their margins.

Again, it makes ZERO diffeence what PIMD charges to Main Ave. PIMD could give away the materials for free to Main Ave or it could charge Main Ave a bajillion dollars -- IT MAKES NO DIFFERENCE. It all gets wiped out as inter-company transactions when SCRC's financial statements get put together.

In a nutshell, the COGS for SCRC will be whatever PIMD paid for it. That's it. End of story.

The ONLY incremental value to SCRC is IF...

(1)
Let's assume hypothetically that Main Ave currently pays $5 for its raw materials from its current wholesale supplier.

(2)
Let's assume that PIMD can get it for $4.

(3)
This means that as an entity, SCRC theoretically saves $1 in COGS.

(4)
If PIMD could have sold this product to another unrelated customer for $5, then PIMD (and SCRC) would have earned $5 in revenue and $1 in profit margin that would have flowed down to the bottom line.

(5)
SO... ...by selling to Main Ave instead of to an unrelated 3rd party customer, SCRC does NOT benefit whatsoever because although they are saving $1 in COGS by transferring the materials to Main Ave and lowering Main Ave's COGS, they are losing $1 in profit margin by not selling it to the other customer.

(6)
If PIMD sells to the 3rd party customer for less than $5 (let's use $4.75), then it is worth selling to Main Ave because then SCRC as an entity would be saving the $1 in COGS for Main Ave but losing only $0.75 in profit margin for PIMD, resulting in a net positive of $0.25 to earnings.

(7)
If PIMD were to sell to 3rd party customers for MORE than $5, then the corollary would be true and SCRC would be better off if PIMD bypassed Main Ave and sold as much as it could to 3rd parties because the incremental benefit to SCRC would be greater by selling to others instead of trying to save COGS for Main Ave.

(8)
My guess is that whatever Main Ave is currently paying its wholesaler is very close to market rates, and so whatever PIMD would be selling it for to other pharmacies must be pretty darn close to this amount -- otherwise it would not be able to be competitive.

(9)
As such, the most likely scenario is that it will be very close to a net zero washout with respect to any net benefit to SCRC from PIMD selling to Main Ave or to other unrelated customers.

In addition, PIMD will benefit from MAV requesting all their partners now and in the future employ PIMD raw materials for their creams.

What does this even mean???

What "partners" does Main Ave have??? It is a stand-alone independent local brick-and-mortar pharmacy. Main Ave has no influence on where other pharmacies obtain their raw materials from.

But, obviously, to the extent that UA/JJ outlets are located in states where PIMD has a license, I'm sure that PIMD sales people will be calling them up (as they should) to try to get them to buy from PIMD.

With all the other streams of income developing at PIMD, I would not be surprised to find PIMD surpassing MAV in top and bottom line sales and profits in the near future.

...OK, let's think about this for just half of a nano-second, folks...

...Main Ave's COGS was disclosed in the Q3'14 10Q as ranging from 9-15%, but averaging about 10% (based upon the COGS reported in the income statement). So this means that if Main Ave runs $50M in a year in revenues, then COGS is only approx $5M.

...Now, COGS to Main Ave is REVENUE for PIMD (in principle, but, obviously, due to related party issues, this specific example would never play out because of the inter-company eliminations as discussed above -- but the point is that COGS for PIMD's customers is the flipside of revenues for PIMD).

...What this means is that if PIMD were to be able to secure a sourcing deal with another compounding pharmacy like Main Ave (but unrelated to SCRC) that ran $50M in revenues per year, then this means that PIMD would generate $5M in top-line revenues each year from this pharmacy.

...So this means that in order to even match Main Ave's top-line revenues, PIMD would need to find TEN Main Ave clones that each generate $50M per year in revenues in order for PIMD to generate $5M of its own revenues from each of them. This would enable PIMD to "match Main Ave's top line numbers".

...BUT, the problem is not top-line numbers, it is bottom-line numbers. The margins for compounding pharmacies is the best in the retail pharma biz. On the other end of the spectrum, we already see that PIMD operates at a loss. REMEMBER, the reason margins are so high for compounding pharmacies is because the COGS is so low. So if the cost of raw materials is so low, then this logically means that margins for the wholesaler who is selling the raw materials to the pharmacies is low.

...SO, $50M in topline revenues for PIMD is NOT THE SAME as $50M in topline revenues for Main Ave. This is because $50M in revenues for Main Ave will result in exponentially MORE earnings than $50M of PIMD revenues will. Main Ave provides more bang for the buck. To match Main Ave's bottom line, PIMD would need to see topline revenues of anywhere from 3x-5x that of Main Ave -- which means finding 30-50 "Main Ave clones" as customers instead of just 10.

Impossible? No. But it ain't happening anytime soon in anyone's "near future", that much is certain.