Dongsoo,
Over-paid or not, management and directors are accountable for the results.
A $15 million loss seems way off the mark, on revenue of $20 million. In
fact, I have found that even the revenue seems to raise some questions.
Referring to various SEC filings, I have compiled the following summary of
the last five quarter's revenue:
Fiscal Quarter: F'96 Q1 F'96 Q2 F'96 Q3 F'96 Q4 F'97 Q1
Quarter ending: 31-Mar-96 30-Jun-96 30-Sep-96 31-Dec-96 31-Mar-97
Medical Revenue 2,406,419 5,219,193 5,155,052 5,043,494 2,612,765
Nexar Revenue 117,468 2,033,811 9,190,147 7,353,938 8,824,758
Dynaco Revenue 4,401,114 10,285,015 10,345,771 8,547,021 8,688,915
--------------- --------- ---------- ---------- ---------- ----------
Total Revenue 6,925,001 17,538,019 24,690,970 20,944,453 20,126,438
Note the 18 percent decline in total revenue since F'96 Q3, and the 48 percent
decline in Medical revenue, in the recent quarter. I believe that investors
are especially interested in the Medical revenue, because PMTI has said that
is its future, once they spin-off the various electronics businesses. So was
there any clear warning that Medical revenue was about to fall by 48 precent
in one quarter?
Looking in the F'96 10KSB, filed on 11 Apr 97, I found this reference to
manufacturing problems affecting Tissue Technologies' TruPulse CO2 tubes:
"The Tissue Technology CO2 technology is based on recent technology advances
and as such is yet to be optimized. Currently, the most critical
component is manufactured by one supplier that has experienced problems in
tube reliability. The Company is currently seeking other alternative tube
suppliers as well as considering manufacturing and producing the CO2 tubes
themselves, and believes that this reliability issue will be rectified during
1997."
But I find no discussion of how this might have affected Tissue's revenues in
1996, nor how it might affect them in 1997. Bear in mind that the 10K was
released in mid-April 1997.
In the 10Q for F'97 Q1, the Medical revenue of $2,612,765 is compared only
with F'96 Q1 revenue of $2,406,419, which of course, shows a modest increase.
But I find no acknowledgment of the large drop in Medical revenue since the
previous quarter. There is only this discussion:
"In the medical segment of the Company's business revenues were $2.6 million
for the quarter ended March 31, 1997 compared to $2.4 million for the quarter
ended March 31, 1996. The increase of approximately $206,000 or 8.6% was due to
additional sales volume at Spectrum Medical Technologies Inc. ("Spectrum")
associated with its EpiLaser(TM) product of approximately $1,267,000 offset by a
decline of approximately $894,000 in sales volume at Tissue Technologies, Inc.
("Tissue") for its TruPulse(R) laser product. Spectrum began manufacturing and
shipping its EpiLaser in the third and fourth quarters of 1996. The decline in
sales volumes at Tissue was due to manufacturing and production issues
associated with the CO2 tubes for the Company's TruPulse product. The Company
anticipates that revenues from its medical segment will increase because in late
March 1997 the Company obtained clearance from the FDA to sell and market the
EpiLaser product for hair removal in the United States and the Company is
addressing manufacturing issues related to its TruPulse product and believes
that these production issues will be corrected in the near term."
So we learn that Tissues revenues were down $894,000 relative to one year ago,
due to the aforementioned manufacturing and production problems with CO2 tubes,
which "will be corrected in the near term". But we learn nothing about Tissue's
actual revenue, in either quarter. So, to get a clearer picture of the impact on
Tissue's revenue, I compiled this more detailed breakdown of Medical revenues,
again based on various SEC filings.
(Before I continue with Tissue, please note there are question marks after
several of Spectrum's quarterly revenues. I could not find a direct reference
to Spectrum's F'96 Q1 and Q2 revenue; however, I was able to determine that
they totalled $1.4 million, so I made an educated guess in apportioning them
across the two quarters. The uncertainty in the F'96 Q1 revenue creates
uncertainty in the F'97 Q1 figure, since only the change was given.)
Spectrum Revenue 500,000? 900,000? 1,500,000 3,200,000 1,767,000?
Tissue Revenue 1,618,510 3,881,490 3,300,000 1,300,000 724,510
Other Medical 287,909 437,703 355,052 543,494 121,255
---------------- --------- --------- --------- --------- ---------
Total Medical 2,406,419 5,219,193 5,155,052 5,043,494 2,612,765
Now it becomes clear that Tissue's revenue is way down - by 81 percent since
F'96 Q2, and that it also was way down in the previous quarter. So the CO2
tube problem appears to be having a very serious affect on revenues. Also,
how will this affect the start-up CTI's cosmetic laser centers, which will
feature TruPulse lasers, as well as the Epilaser?
But there is more - here are some highlights from Palomar's PR of 12 Feb 96,
announcing its aquistion of Tissue Technologies:
"According to Palomar's chairman and chief executive officer, Steven Georgiev,
the acquisition positions Palomar to be a "major factor in the cosmetic laser
marketplace.""
"Tissue Technologies, said Georgiev, has a current backlog of $20 million in
wrinkle removal laser systems. Based in Albuquerque, N.M., Tissue Technologies
is privately held and manufactures and sells a patented and FDA-approved C02
laser system for wrinkle removal.'
And on 30 April 96, another Palomar press release announced:
"Palomar Medical Technologies Inc. expects to complete it acquisition of Tissue
Technologies Inc. for about $34.5 million this week, the Wall Street Journal
reported, citing Steven Georgiev, Palomar's chairman and chief executive. He
said Albuquerque, New Mexico-based Tissue Technologies has a skin-resurfacing
laser based on technology licensed from Los Alamos National Laboratory that has
gross margins of more than 50 percent, even though the product is inexpensive.
Georgiev said that within three months Tissue Technologies will raise production
of its skin-resurfacing lasers to 100 a month from 50 a month because of a
backlog of 400 orders valued at about $20 million, the paper reported."
But when the deal was finally done on 6 May 96, this PR made no mention of
the backlog:
""We are pleased to finalize the acquisition of Tissue Technologies, which we
believe makes Palomar the only laser company in the world with a broad line of
cosmetic laser products," said Steven Georgiev, chairman and chief executive
officer of Palomar. "Tissue Technologies has significantly increased its
production capacity to meet the extraordinary demand from the medical community
for its laser.""
"Mario Barton, chairman of Tissue Technologies, said, "We believe that becoming
a member of Palomar's family of companies will propel Tissue Technologies into
further prominence as one of the premier cosmetic laser companies in the world."
(I find Barton's comment a bit over-blown, given that Tissue had only begun
selling its laser in the last quarter of 1995.)
But in its definitive proxy statement, DEFS14A, filed 11 Jun 96, there was
this comment:
"Palomar entered, and gained a considerable share of, the market for skin
resurfacing through the acquisition of Tissue Technologies. This Company
had a $20 million backlog (as of February 1996) for its superior carbon
dioxide laser product for this cosmetic market."
That was the lastest reference I could find to the backlog.
So how well has Palomar/Tissue done in expoiting this 400 unit, $20 million
backlog? Over the past 4 quarters, total Tissue revenue was $9.2 million.
Assuming all of this was due to lasers, and $50,000 per laser, then that is
equivalent to about 184 lasers. Either way, they revenued only about 46
percent of the announced $20 million backlog. Also, the peak monthly
production appears to have been about 78 units, in F'96 Q2, well below
Georgiev's forecast of 100 units. And in the most recent quarter, revenue
was equivalent to about 14 units!
I find that difficult to reconcile with this statement that appeared in
Palomar's 18 Feb 97 PR, announcing Tissue's FDA clearance for wrinkle
removal:
"The Albuquerque, N.M.-based subsidiary's patented laser system had
previously received FDA clearance for skin resurfacing, and has been selling
briskly in the cosmetic laser marketplace since May, 1996."
I suppose that depends on how "briskly" is defined, but around the time of
the press-release, Tissue's average rate of revenue was equivalent to less
than 4 lasers per week, which does not seem brisk to me.
As I have stated before, the SEC filings are invaluable to investors, but
only if they read them. Dongsoo, your consistent expressions of doubt
regarding PMTI suggest that you are among those who did your homework.
Ted Molczan |
