PMTI's S-3 share registration filed with the SEC on 12 Dec 97 contains some
significant news. Here are the highlights:
CTI Does Not Yet Derive Revenue!
--------------------------------
The S-3 has provided what I believe to be the first officical statement on
CTI's laser centre shared revenues:
"To date, CTI has established fourteen sites. CTI does not yet derive revenue
from its operations."
This confirms suspicions raised by myself and several others on various stock
boards, that the CTI laser centres roll-out has not gone well at all.
Reporting a loss would be bad enough, but perhaps understandable; however,
ZERO REVENUES requires an explanation by PMTI. This certainly is at great
variance with the impression of a successful business created in past
conference calls.
Here is how CTI's CEO, Thomas O'Brien, answered some relevant questions in
the 18 Mar 97 conference call:
Q. If you could just give me some guidance. Once these facilities with
Columbia are operational, could you give me a low-end to high-end, in terms
of how much revenue you can anticipate moving forward, each year?
A. Each of these centres are very specialized, specific centres, and the
only revenue that I would even want to guess at is what we're doing now in
our typical centres, and not what we're doing with Columbia. In our typical
centres, right now, we do anywhere from a million-and-a-half to 2 million
dollars of revenue, in each centre. So again, and you heard what Steve's
[Georgiev] goals and my goals are for how many centres we're going to open,
and clearly until we get fully operational with Columbia, we don't want to
make any claims on what the revenue might be in those centres.
Q. As of today, how many centres do you have?
A. We have as of today about 10 centres now operational, and contracts for
many, many more, as you know.
Q. Okay, and how many are we going to be adding on a monthly basis?
A. Again, as we grow and beef up the organization - right now from March
forward, we're typically ready to open 2 to 4 a month, with the kind of staff
that we have, and obviously now we're gearing up and beefing up that staff
and interviewing people every day.
Q. And the numbers you are projecting: anywhere from a million to 3 million
- are you basing these numbers on what you're seeing already from the 10
centres, or are these numbers that you obtained early last year?
A. With the typical ramp-up of centres - and again we're very conservative,
we don't expect in the first three months or so, to be at anywhere more than
at say a 25 percent ramp-up, and we ramp-up pretty conservatively. What we've
seen so far, you know, 4 to 6 months now into some centre's operational, the
numbers that, depending where they are, and depending on the type of
advertsing and marketing that's been done, and right now we're doing
absolutely everything we need to do, these numbers are still right on target.
In the conference call of 15 May 97, O'Brien pulled back on the number of
operational sites:
"We currently have five sites operational, Scottsdale, Arizona; West L.A.;
Washington D.C.; one in Australia; and one in British Columbia."
However, he remained bullish:
"The operational sites are performing on schedule, according to our models,
and we've have proved right now to be on target. This an exciting business.
Its an exploding business, as we all knew it would be, and we anticipate
other contractual opportunities worldwide. I currently have in excess of a
couple of hundred contracts, and now we're putting together the operational
support groups to launch and perform on those contracts."
The BIG QUESTION is how did CTI manage in only 7 months to go from an
"exploding business" that had been "performing on schedule", with "typical
centres [doing] anywhere from a million-and-a-half to 2 million dollars of
revenue [anually], in each centre", to one that they now report "does not yet
derive revenue from its operations"?
Even if the once "exploding business" only recently became the imploding
business, where is the revenue from last spring? How does one ramp-up and
still manage to produce zero revenue?
And what became of the "couple of hundred contracts" of 15 May? Why are there
barely half the number of centres that were projected in the 30 July
conference call?
Dilution Accelerates In November
--------------------------------
As of 30 Nov, outstanding shares had grown to 43,116,141. Referring to the
following table, there has been a 48 percent increase in a little more than
one year; 30 percent in just the past 4 months:
7 Oct 96 28,409,007
14 Nov 96 28,930,357
16 Dec 96 29,474,776
31 Dec 96 30,596,812
30 Jul 97 33,149,170
30 Sep 97 39,750,574
31 Oct 97 40,276,310
30 Nov 97 43,116,141
The 10Q of 14 Nov revealed that on 13 Nov, the Swiss Franc Debenture was
converted into common shares:
"As of November 13, 1997, acting under appropriate provisions of the
indentures, the Company notified the holders of the Swiss Franc Debentures
that is is causing the conversion of all of the Debentures into an aggregate
of 914,024 shares of the Company's Common Stock."
Earlier, I had reported my assumption that these were outstanding shares;
however, the S-3 clarifies that they remain reserved shares, since the
Debentures are still outstanding.
Big Increase in Reserved Shares
-------------------------------
The S-3 reports that on 30 Nov 97, there were 34,505,015 reserved shares, as
tabulated below. Of those, 20.2 million were attached to convertible
debentures and preferred stock, much of them likely to be converted within
the next year.
As the table shows, since 30 Sep, the number of reserved shares is growing
more rapidly than the number of outstanding shares. This is due in large part
to that rapid decline in share price, which determines the number of shares
issued upon conversion.
11 July 30 Sep 30 Nov
---------- ---------- ----------
Convertible debentures 7,073,958 7,353,599 11,407,322
Stock option plans 3,872,500 3,709,504 3,709,504
Warrants 9,577,940 9,577,940 9,412,940
Employee 401(k) plan 212,600 212,690 212,690
Employee stock purchase plan 997,586 991,606 984,623
Convertible preferred stock 9,937,176 6,395,151 8,777,936
---------- ---------- ----------
Total Reserved 31,671,850 28,240,490 34,505,015
Total Outstanding 33,123,190 39,750,574 43,116,141
Divestiture News: Dynaco Buyout Terms Revealed
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The 10 Q issued 14 Nov 97 had reported:
"Subsequent to quarter end, the Company entered into two non-binding letters
of intent with the management of TTI and the management of Dynaco setting
forth terms of a potential management buy-out of TTI and of Dynaco and its
subsidiaries, respectively. The divestiture of TTI is not anticipated to have
a material impact on the Company's financial statements; the divestiture of
Dynaco and its subsidiaries may have a material impact on the Company's
results of operations."
The S-3 had no news on the Tissue buyout, but did provide the following new
information on the Dynaco buyout:
"The Company has signed an agreement with the current management of Dynaco to
sell to them Dynaco and its subsidiaries in a two phase transaction; the
first phase begins with the immediate sale of Comtel and Dynamem and, in the
second phase, Dynaco will be sold by June 30, 1998 at the latest. The overall
sale price for both phases is approximately ten million dollars in notes,
common stock and warrants, payable over time."
Given these subsidiaries' history of significant losses, I suspect PMTI
sharholders would have preferred to see some up-front cash from this deal.
StarLite Diode Hair Removal Laser
---------------------------------
The S-3 appears to have provided the first public reference by name to the
diode laser hair removal device:
"The Company's StarLite(TM) diode hair-removal laser has not yet received FDA
clearance, and is currently under an Investigative Device Exemption."
It would not surprise me in the least to see this, and similar competing
devices, receive fairly speedy FDA-clearance, since all that is required is
to demonstrate substantial equivalence with a predicate device, along with
clinical data conforming to Thermolase's rather minimal SoftLight protocol.
I strongly doubt that diode laser hair removal efficacy will be any better
than that of the present devices, since all that appears to be changing is
the method of generating the laser pulses. As long as wavelength, fluence and
pulse width fall within the range of the present devices, then the same poor
efficacy will be realized.
Diode's principal advantages appear to be potentially lower cost and a
smaller physical size. It will be interesting to see how they are received in
a market that has already been glutted with perhaps 1,000 of the various
previously FDA-cleared devices.
Ted Molczan
molczan@fox.nstn.ca |
