SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
XX Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934.
For the period ended March 31, 2004.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934.
For the transition period from__ to__.
COMMISSION FILE NUMBER: 0-16128
TUTOGEN MEDICAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3100165
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1130 MCBRIDE AVENUE, WEST PATERSON, NEW JERSEY 07424
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 785-0004
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01
(Title of Class) (Name of Each Exchange on Which Registered)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
- -
As of April 30, 2004 there were outstanding 15,778,960 shares of Tutogen
Medical, Inc. Common Stock, par value $0.01.
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information. Page No.
ITEM 1. Financial Statements.
Consolidated Balance Sheets - March 31, 2004 1
(unaudited) and September 30, 2003.
Consolidated Statements of Operations for the 2
three and six months ended March 31, 2004 and
2003(unaudited).
Consolidated Statements of Cash Flows for
the six 3 months ended March 31, 2004 and
2003(unaudited).
Consolidated Statements of Stockholders'
Equity 4 for the year ended September 30,
2003 and the six months ended March 31,
2004 (unaudited).
5
Notes to Consolidated Financial Statements
(unaudited).
ITEM 2. 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 4. Controls and Procedures 16
PART II. Other Information.
ITEM 4. Submission of Matters to a Vote of Security- 17
Holders
ITEM 6. Reports on Form 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,438 $ 5,049
Accounts receivable - net 4,415 5,526
Inventories - net 15,430 11,992
Deferred income taxes 741 709
Other current assets 875 1,098
------------ ------------
26,899 24,374
PROPERTY, PLANT AND EQUIPMENT, NET 5,144 4,842
DEFERRED INCOME TAXES 1,578 1,187
------------ ------------
TOTAL ASSETS $ 33,621 $ 30,403
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other accrued expenses $ 7,939 $ 7,438
Accrued commissions 520 445
Current portion of deferred distribution fees 646 617
Current portion of long-term debt 98 91
------------ ------------
9,203 8,591
OTHER LIABILITIES
Deferred distribution fees 2,867 3,038
Long-term debt 728 728
SHAREHOLDERS' EQUITY 20,823 18,046
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,621 $ 30,403
============ ============
See accompanying Notes to Consolidated Financial Statements.
1
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
----------------------------- -----------------------------
2004 2003 2004 2003
---- ---- ---- ----
REVENUE $ 7,089 $ 6,743 $ 14,574 $ 13,317
COST OF REVENUE 1,998 2,520 4,987 5,366
------------ ------------ ------------- -------------
Gross margin 5,091 4,223 9,587 7,951
OPERATING EXPENSES
General and administrative 1,221 1,130 2,379 2,059
Distribution and marketing 2,236 2,419 4,306 4,761
Research and development 386 298 725 546
Depreciation and amortization 56 46 128 87
------------ ------------ ------------- -------------
3,899 3,893 7,538 7,453
OPERATING INCOME 1,192 330 2,049 498
OTHER EXPENSE (63) (33) (80) (59)
INTEREST EXPENSE (13) (13) (27) (25)
------------ ------------ ------------- -------------
(76) (46) (107) (84)
INCOME BEFORE INCOME TAX EXPENSE 1,116 284 1,942 414
Income tax expense 463 149 706 148
------------ ------------ ------------- -------------
NET INCOME $ 653 $ 135 $ 1,236 $ 266
============ ============ ============= =============
Comprehensive Income:
Foreign currency translation adjustments 1,189 189 1,389 386
------------ ------------ ------------- -------------
COMPREHENSIVE INCOME $ 1,842 $ 324 $ 2,625 $ 652
============ ============ ============= =============
AVERAGE SHARES OUTSTANDING FOR BASIC
EARNINGS PER SHARE 15,738,218 15,527,577 15,702,512 15,340,813
============ ============ ============= =============
BASIC EARNINGS PER SHARE $ 0.04 $ 0.01 $ 0.08 $ 0.02
============ ============ ============= =============
AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE 16,566,237 16,070,210 16,602,321 15,881,977
============ ============ ============= =============
DILUTED EARNINGS PER SHARE $ 0.03 $ 0.01 $ 0.07 $ 0.02
============ ============ ============= =============
See accompanying Notes to Consolidated Financial Statements
2
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
-----------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,236 $ 266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 473 283
Deferred distribution fees revenue (321) (278)
Deferred income taxes 706 148
Changes in assets and liabilities:
Accounts receivable 1,187 (1,416)
Inventories (3,165) (407)
Other current assets 274 (323)
Accounts payable and other accrued expenses 49 1,653
Accrued commissions 76 151
------------ ------------
Net cash provided by operating activities 515 77
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (542) (229)
Increase in patents and trade marks - (21)
------------ ------------
Net cash used in investing activities (542) (250)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 153 829
Repayment of long-term debt (39) (31)
------------ ------------
Net cash provided by financing activities 114 798
EFFECT OF EXCHANGE RATE CHANGES ON CASH 302 195
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 389 820
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,049 3,083
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,438 $ 3,903
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 27 $ 25
============ ============
See accompanying Notes to Consolidated Financial Statements
3
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 2003 AND SIX MONTHS ENDED MARCH 31, 2004
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED COMMON
COMMON ADDITIONAL OTHER SHARES
STOCK PAID-IN COMPREHENSIVE ACCUMULATED ISSUED AND
($.01 PAR) CAPITAL INCOME (1) DEFICIT TOTAL OUTSTANDING
BALANCE, OCTOBER 1, 2002 $ 152 $ 35,135 $ (925) $ (20,434) $ 13,928 15,158,110
Stock issued on exercise of options 5 845 - - 850 509,000
Net income - - - 2,262 2,262 -
Foreign currency translation adjustment - - 1,006 - 1,006 -
--------- --------- ---------- ---------- --------- -----------
BALANCE, SEPTEMBER 30, 2003 157 35,980 81 (18,172) 18,046 15,667,110
Stock issued on exercise of options 1 152 - - 153 91,850
Net income - - - 1,235 1,235 -
Foreign currency translation adjustment - - 1,389 - 1,389 -
--------- --------- ---------- ---------- --------- -----------
BALANCE, MARCH 31, 2004 $ 158 $ 36,132 $ 1,470 $ (16,937) $ 20,823 15,758,960
========= ========= ========== ========== ========= ===========
(1) Represents foreign currency translation adjustments.
See accompanying Notes to Consolidated Financial Statements.
4
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2004
(in thousands, except share data)
(1) OPERATIONS AND ORGANIZATION
Tutogen Medical, Inc. with its consolidated subsidiaries (the "Company")
processes, manufactures and distributes worldwide, specialty surgical
products and performs tissue processing services for neuro, orthopedic,
reconstructive and general surgical applications. The Company's core
business is processing human donor tissue, utilizing its patented
Tutoplast(R) process, for distribution to hospitals and surgeons. The
Company processes at its two manufacturing facilities in Germany and the
United States and distributes its products and services to over 30
countries worldwide.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated balance sheet of the of the Company
as of March 31, 2004 and the unaudited results of operations for the three
and six months ended March 31, 2004 and 2003 and the unaudited cash flows
for the six months ended March 31, 2004 have been prepared in conformity
with accounting principles generally accepted in the United States of
America for interim financial reporting. Accordingly, they do not include
all of the information and notes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments necessary in
order to make the financial statements not misleading have been made.
Operating results for the three and six months ended March 31, 2004 are not
necessarily indicative of the results, which may be expected for the fiscal
year ending September 30, 2004. The interim financial statements should be
read in conjunction with the audited consolidated financial statements of
the Company for the year ended September 30, 2003.
NEW ACCOUNTING PRONOUNCEMENTS - The FASB issued SFAS No. 146, ACCOUNTING
FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS NO. 146
NULLIFIES EMERGING ISSUES TASK FORCE ("EITF") NO. 94-3, LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO
EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN AS RESTRUCTURING).
The principal difference between SFAS No. 146 and EITF No. 94-3 relates to
its requirements for recognition of a liability for a cost associated with
an exit or disposal activity. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost
was recognized at the date of an entity's commitment to an exit plan. SFAS
No. 146 was effective for exit and disposal activities that are initiated
after December 31, 2002. The provisions of SFAS No. 146 did not have a
material impact on its financial position or results of operations.
The FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE, which amends SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. (Under the fair value
based method, compensation cost for stock options is measured when options
are issued). In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 to require more prominent and more frequent disclosures in
financial statements of the effects of stock-based compensation. The
Company adopted SFAS No. 148 beginning in the second fiscal quarter of
fiscal 2003 and such disclosures are included as herein.
5
The following table reconciles net income and basic and diluted earnings
pre share (EPS), as reported, to pro-forma net income and basic and diluted
EPS, as if the Company had expensed the fair value of stock options as
permitted by SFAS No. 123, as amended by SFAS No. 148, since it permits
alternative methods of adoption.
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Net Income, as reported: $653 $135 $1,236 $266
Pro-forma expense as if stock options were
charged against net income 5 42 21 57
----- ----- ------ -----
Pro-forma net income using the fair value method $648 $93 $1,215 $209
==== ===== ====== =====
Basic EPS:
As reported $0.04 $0.01 $0.08 $0.02
Pro forma using the fair value method $0.04 $0.01 $0.07 $0.01
Diluted EPS:
As reported $0.04 $0.01 $0.08 $0.02
Pro forma using the fair value method $0.04 $0.01 $0.07 $0.01
In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 amends SFAS No.
133 for certain decisions made by the Board as part of the Derivatives
Implementation Group ("DIG") process and is effective for contracts entered
into or modified after June 30, 2003. In addition, SFAS No. 149 should be
applied prospectively. The provisions of SFAS No. 149 that relate to SFAS
No. 133 Implementation Issues that have been effective for fiscal quarters
that began prior to June 15, 2003, should continue to be applied in
accordance with their respective effective dates. The adoption of SFAS No.
149 did not have an impact on the results of operations or financial
position.
In June 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY
to improve the accuracy of securities issuers' accounting for such
financial instruments. For earlier transactions, the provisions of SFAS No.
150 take effect at the start of the first interim period beginning after
December 15, 2003. The adoption of SFAS No. 150 did not have a material
impact on the results of operations or financial position.
In January 2003, the FASB issued FIN No. 46, as restated by FIN No. 46R,
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AND AN INTERPRETATION OF ARB
51. FIN No. 46 defines when a business enterprise must consolidate a
variable interest entity. This interpretation applies immediately to
variable interest entities created after January 31, 2003. It applies in
the first fiscal year or interim period beginning after December 15, 2003,
to entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company does not have variable
interest entities as of March 31, 2004.
6
(3) INVENTORIES
Major classes of inventory at March 31, 2004 and September 30, 2003 were as
follows:
March 31, September 30,
2004 2003
---- ----
Raw materials $ 2,842 $ 2,439
Work in process 3,819 3,316
Finished goods 12,112 9,335
--------- ---------
18,773 15,090
Less reserves for obsolescence 3,343 3,098
--------- ---------
$ 15,430 $ 11,992
========= =========
(4) INCOME TAXES
The Company has incurred cumulative net operating losses through March 31,
2004 of approximately $16 million, generated from its U.S. and German
operations of $8 million and $8 million, respectively. These net operating
losses are the primary component of the Company's net deferred tax asset of
$2.0 million as of March 31, 2004, generated from its U.S. and German
operations. A full valuation allowance had been provided on all but $135
thousand of the U.S. deferred tax asset and no valuation allowance has been
provided on its German operations in the Company's consolidated financial
statements. The Company establishes valuation allowances in accordance with
the provisions of FASB Statement No. 109, Accounting for Income Taxes. The
Company continually reviews the adequacy and necessity of the valuation
allowance and recognizes these benefits only as reassessment, based on
recent developments including income from new contracts, indicates that it
is more likely than not that the benefits will be realized. As of March 31,
2004 the Company continues to record the existing valuation allowance on
its U.S. operations and has not provided a valuation allowance on its
German operations based upon future taxable income projections.
(5) SEGMENT DATA
The Company operates principally in one industry providing specialty
surgical products and tissue processing services. These operations include
two geographically determined segments: the United States and Europe
("International"). The accounting policies of these segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on net profit or loss from operations,
not including non-recurring and foreign exchange gains or losses. The
Company accounts for intersegment sales and transfers at contractually
agreed-upon prices.
The Company's reportable segments are strategic business units that offer
products and services to different geographic markets. They are managed
separately because of the differences in these markets as well as their
physical location.
7
A summary of the operations and assets by segment as of and for the three
months ended March 31, 2004 and 2003, respectively are as follows:
2004 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 6,236 $ 4,016 $ 10,252
Less - intercompany (3,163) - (3,163)
---------- ---------- ----------
Total revenue - third party $ 3,073 $ 4,016 $ 7,089
========== ========== ==========
Depreciation and amortization $ 113 $ 60 $ 173
========== ========== ==========
Interest expense $ 12 $ 1 $ 13
========== ========== ==========
Net income $ 780 $ (127) $ 653
========== ========== ==========
Capital expenditures $ 178 $ 60 $ 238
========== ========== ==========
Total assets $ 12,732 $ 33,418 $ 46,150
Less intercompany advances - (12,529) (12,529)
---------- ---------- ----------
$ 12,732 $ 20,889 $ 33,621
========== ========== ==========
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 3,573 $ 4,283 $ 7,856
Less - intercompany (1,113) - (1,113)
---------- ---------- ----------
Total revenue - third party $ 2,460 $ 4,283 $ 6,743
========== ========== ==========
Depreciation and amortization $ 83 $ 60 $ 143
========== ========== ==========
Interest expense $ 11 $ 2 $ 13
========== ========== ==========
Net income (loss) $ 204 $ (69) $ 135
========== ========== ==========
Capital expenditures $ 85 $ 56 $ 141
========== ========== ==========
Total assets $ 12,323 $ 31,192 $ 43,515
Less intercompany advances - (16,041) (16,041)
---------- ---------- ----------
$ 12,323 $ 15,151 $ 27,474
========== ========== ==========
8
A summary of the operations and assets by segment as of and for the six
months ended March 31, 2004 and 2003, respectively are as follows:
2004 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 11,932 $ 9,079 $ 21,011
Less - intercompany (6,437) - (6,437)
---------- ---------- ----------
Total revenue - third party $ 5,495 $ 9,079 $ 14,574
========== ========== ==========
Depreciation and amortization $ 247 $ 226 $ 473
========== ========== ==========
Interest expense $ 24 $ 3 $ 27
========== ========== ==========
Net income $ 1,226 $ 10 $ 1,236
========== ========== ==========
Capital expenditures $ 341 $ 201 $ 542
========== ========== ==========
Total assets $ 12,732 $ 33,418 $ 46,150
Less intercompany advances - (12,529) (12,529)
---------- ---------- ----------
$ 12,732 $ 20,889 $ 33,621
========== ========== ==========
9
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 6,280 $ 8,808 $ 15,088
Less - intercompany (1,771) - (1,771)
---------- ---------- ----------
Total revenue - third party $ 4,509 $ 8,808 $ 13,317
========== ========== ==========
Depreciation and amortization $ 160 $ 123 $ 283
========== ========== ==========
Interest expense $ 23 $ 2 $ 25
========== ========== ==========
Net income $ 9 $ 257 $ 266
========== ========== ==========
Capital expenditures $ 144 $ 106 $ 250
========== ========== ==========
Total assets $ 12,323 $ 31,192 $ 43,515
Less intercompany advances - (16,041) (16,041)
---------- ---------- ----------
$ 12,323 $ 15,151 $ 27,474
========== ========== ==========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS)
RESULTS OF OPERATIONS
REVENUE AND COST OF REVENUE
In April 2003, the Company signed a renegotiated U.S. Distribution Agreement
with Centerpulse Spine-Tech, now known as Zimmer Spine ("Spine"), whereby Spine
has become a "stocking distributor". The effect of this new arrangement means
that Spine is now invoicing the end customer directly. The new agreement also
eliminates marketing fees paid to Spine included in Distribution and Marketing.
Revenues for the three months ended March 31, 2004, increased 5% to $7,089 from
$6,743 for the comparable period. The International operation generated an
increase in revenue of $613 ($273 of the increase was due to currency
translation) from $2,460 to $3,073. This was partially offset by a decrease in
revenue from the U.S. operation of $267 from $4,283 to $4,016 for this quarter.
The U.S. revenue increased as a result of an increase in the demand for the
Company's Tutoplast(R) bone products for dental applications sold by Zimmer
Dental ("Dental"), the Company's marketing partner. This product line
contributed $700 of an increase in revenue. However, as pointed out above, the
Company's revenues for the prior year quarter would have been $800 lower under
the new agreement with Spine, therefore, resulting in an increase of U.S.
revenue for this quarter of 19%. The increase in international revenue was due
to an overall increase in the European and international distributor business.
Revenues for the six months ended March 31, 2004 increased 9% to $14,574 from
$13,317 for the comparable period. Adjusting for new agreement with Spine, the
sales for the comparable period in 2003 would have been $11,617. Therefore,
revenues for the six months ended March 31, 2004 actually increased 25% over the
comparable period in 2003. Revenues from the U.S. operation increased 28% to
$9,079 from $7,108 (as adjusted for the change in the new distribution
arrangement with Spine) for the same period last year and revenues from the
international operations increased 21% from $4,509 in 2003 to $5,495 in 2004.
Incremental Spine and Dental revenues contributed the entire increase in
revenue.
Cost of revenue, for the three and six months ended March 31, 2004 were 28% and
34%, respectively, as compared to 37% and 40%, respectively for the comparable
periods last year. The lower cost of revenue margin was primarily due to the
significant reduction in scrap as the result of improved manufacturing
efficiencies from the International operation, partially offset by start-up
expenses related to the introduction of bone production in the U.S. operation.
Historically, the U.S. operation solely manufactured membranes or soft tissue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 8% and 16% for the three and six
months ended March 31, 2004, from the comparable periods last year. Second
quarter expenses increased $91, primarily due to the foreign exchange impact of
$81. Year-to-date expenses increased $320, due to foreign exchange variance
($161), expenditures related to the hiring of an investor relations/banker firms
($57), higher legal expenses related to merger opportunities ($40) and other
($60). As a percentage of revenues, for year-to-date, General and Administrative
expenses were flat in 2004 and 2003 at 16%.
11
DISTRIBUTION AND MARKETING
Distribution and marketing expenses decreased 8% from $2,419 to $2,236, and
decreased 10% to $4,306 from $4,761 for the three and six months ended March 31,
2004, from the comparable periods last year. The decrease was primarily due to
lower marketing fees as a result of the new agreement with Spine, whereby the
Spine marketing fees have been eliminated. Such fees decreased $1,053 for the
quarter and $2,166 for the six months ended March 31, 2004 as compared to the
comparable periods in 2003. The partial offset to the decrease in the Spine
marketing fees was due to higher marketing fees paid to Dental of $323 and $609
for the quarter and year-to-date, respectively as a result of increased Dental
sales. The balance of the increase was due to increased sales efforts
internationally and foreign exchange variances. For the three and six months
ended March 31, 2004, as a percentage of revenues, Distribution and Marketing
expenses decreased from 36% in 2003 to 32% in 2004 and from 36% to 30%,
respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 30% and 33%, respectively, for the
three and six months ended March 31, 2004, from the comparable periods last
year. The increase was due to increased development efforts in the spine, dental
and ligament product areas. As a percentage of revenues, Research and
Development expenses increased from 4% in 2003 to 5% in 2004.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was essentially flat for the three months ended
March 31, 2004 as compared to the same period last year, but for the six months
ended the same period depreciation increased from $87 to $128, primarily due to
the foreign exchange impact and additions to fixed assets.
OTHER EXPENSE
Other expenses were essentially flat from period to period.
INTEREST EXPENSE
Interest expense was essentially flat from period to period.
NET INCOME
As a result of the above, net income for the three and six months ended March
31, 2004 totaled $653 or $0.04 basic and $0.03 diluted earnings per share and
$1,236 or $0.08 basic and $0.07 diluted earnings per share, respectively, as
compared to a net income of $135 or $0.01 basic and diluted earnings per and net
income of $266 or $0.02 basic and diluted earnings per share for the same
periods in 2003.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described in Note 2
to the consolidated financial statements in the annual report. However, certain
of the accounting policies are particularly important to the portrayal of the
financial position and results of operations and require the application of
12
significant judgment by management; as a result, they are subject to an inherent
degree of uncertainty. In applying those policies, management uses its judgment
to determine the appropriate assumptions to be used in the determination of
certain estimates. Those estimates are based on historical experience, terms of
existing contracts, observance of trends in the industry, information provided
by customers and information available from other outside sources, as
appropriate. The Company's significant accounting policies include:
INVENTORIES. Inventories are valued at the lower of cost (weighted average
basis) or market. Work in process and finished goods include costs attributable
to direct labor and overhead. Reserves for slow moving and obsolete inventories
are provided based on historical experience and current product demand. The
adequacy of these reserves are evaluated quarterly.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue on product sales is
recognized when persuasive evidence of an arrangement exists, the price is fixed
and final, delivery has occurred and there is a reasonable assurance of
collection of the sales proceeds. Oral or written purchase authorizations are
generally obtained from customers for a specified amount of product at a
specified price and consider delivery to have occurred at the time of shipment.
Customers are provided with a limited right of return. Revenue is recognized at
shipment. Reasonable and reliable estimates of product returns are made in
accordance with SFAS No. 48 and of allowances for doubtful accounts based on
significant historical experience. Revenue from service sales is recognized when
the service procedures have been completed or applicable milestones have been
achieved. Revenue from distribution fees include nonrefundable payments received
as a result of exclusive distribution agreements between the Company and
independent distributors. Distribution fees under these arrangements are
recognized as revenue as products are delivered.
FOREIGN CURRENCY TRANSLATION. The financial position and results of operations
of the Company's foreign subsidiary is measured using local currency (Euro) as
the functional currency. Assets and liabilities of the foreign subsidiary are
translated at the rate of exchange in effect at the end of the period. Revenues
and expenses are translated at the average exchange rated for the period.
Foreign currency translation gains and losses not impacting cash flows are
credited to or charged against other comprehensive income (loss). Foreign
currency translation gains and losses arising from cash transactions are
credited to or charged against current earnings.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company has working capital of $17.7 million as compared
to September 30, 2003 of $15.8 million. The Company maintains current working
capital credit lines totaling (euro)1.5 million Euros (approximately $1.9
million) with several German banks and a $1.0 million credit line with a U.S.
bank. At March 31, 2004, the Company had no borrowings against these lines.
The Company has experienced a positive cash flow of $389 for the six months
ended March 31, 2004 as compared to a positive cash flow of $820 for the same
period in 2003. In 2003, the cash flow was influenced by increased issuance of
common shares from the exercise of stock options and lower purchases of property
and equipment. The primary reason for the positive cash flow in 2004 was due to
the increase in net income for the period.
The Company's ability to generate positive operational cash flow is dependent
upon increasing processing revenues through increased recoveries by tissue banks
in the U.S. and Europe, and the
13
development of additional markets and surgical applications worldwide. While the
Company believes that it continues to make progress in both these areas, there
can be no assurances that changing governmental regulations will not have a
material adverse effect on the results of operations and cash flow.
Future minimum rental payments required under Company's leases that have initial
or remaining non-cancelable lease terms in excess of one year as of March 31,
2004 are as follows:
Long-term debt consists of senior debt, 5.75% interest until March 30, 2008 when
terms are renegotiable, due 2008. Future minimum payments as of March 31, 2004
are as follows:
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 nullifies Emerging Issues Task Force
("EITF") No. 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION
BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED
IN AS RESTRUCTURING). The principal difference between SFAS No. 146 and EITF No.
94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF No. 94-3, a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. SFAS
No. 146 was effective for exit and disposal activities that are initiated after
December 31, 2002. The provisions of SFAS No. 146 did not have a material impact
on its financial position or results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE, which amends SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION. SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based
14
method of accounting for stock-based employee compensation. (Under the fair
value based method, compensation cost for stock options is measured when options
are issued). In addition, SFAS No. 148amends the disclosure requirements of SFAS
No. 123 to require more prominent and more frequent disclosures in financial
statements of the effects of stock-based compensation. The Company adopted SFAS
No. 148 beginning in the second fiscal quarter of fiscal 2003 and such
disclosures are included as herein.
The following table reconciles net income and basic and diluted earnings pre
share (EPS), as reported, to pro-forma net income and basic and diluted EPS, as
if the Company had expensed the fair value of stock options as permitted by SFAS
No. 123, as amended by SFAS No. 148, since it permits alternative methods of
adoption.
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Net Income, as reported: $653 $135 $1,236 $266
Pro-forma expense as if stock options were
charged against net income 5 42 21 57
---- -- -- ----
Pro-forma net income using the fair value method $648 $93 $1,215 $209
==== === ====== ====
Basic EPS:
As reported $0.04 $0.01 $0.08 $0.02
Pro forma using the fair value method $0.04 $0.01 $0.07 $0.01
Diluted EPS:
As reported $0.04 $0.01 $0.08 $0.02
Pro forma using the fair value method $0.04 $0.01 $0.07 $0.01
In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 amends SFAS No. 133
for certain decisions made by the Board as part of the Derivatives
Implementation Group ("DIG") process and is effective for contracts entered into
or modified after June 30, 2003. In addition, SFAS No. 149 should be applied
prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133
Implementation Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. The adoption of SFAS No. 149 did not have an impact
on the results of operations or financial position.
In June 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY to improve the
accuracy of securities issuers' accounting for such financial instruments. For
earlier transactions, the provisions of SFAS No. 150 take effect at the start of
the first interim period beginning after December 15, 2003. The adoption of SFAS
No. 150 did not have a material impact on the results of operations or financial
position.
15
In January 2003, the FASB issued FIN No. 46, as restated by FIN No. 46R,
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AND AN INTERPRETATION OF ARB 51.
FIN No. 46 defines when a business enterprise must consolidate a variable
interest entity. This interpretation applies immediately to variable interest
entities created after January 31, 2003. It applies in the first fiscal year or
interim period beginning after December 15, 2003, to entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The Company does not have variable interest entities as of March 31, 2003.
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13 a-14. Based
upon that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) that is required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There have been no significant changes in the Company's internal
controls or, to the Company's knowledge, in other factors that could
significantly affect those internal controls subsequent to the date the Company
carried out its evaluation.
16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
An annual Meeting of Stockholders was held on April 20, 2004. All
management's nominees for director, as listed in the Proxy
Statement for the Annual Meeting, were elected. Listed below are
the matters voted on by stockholders and the number of votes cast
at the Annual Meeting:
(A) ELECTION OF EIGHT MEMBERS OF THE BOARD OF DIRECTORS.
Broker
Voted Votes Non-Votes
Name Voted For Against Withheld and Abstentions
---- --------- ------- -------- ---------------
G. Russell Cleveland 13,188,918 0 330,179 0
Roy D. Crowninshield 13,190,903 0 328,194 0
Robert C. Farone 13,219,875 0 299,222 0
J. Harold Helderman 13,223,875 0 295,222 0
Manfred K. Kruger 13,190,603 0 328,494 0
Richard J. May 13,222,875 0 296,222 0
Thomas W. Pauken 13,189,803 0 329,294 0
Carlton E. Turner 13,221,875 0 297,222 0
(B) RATIFICATION OF THE APPOINTMENT OF DELOITTE AND TOUCHE L.L.P. AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2004.
Voted For: 13,460,426
Voted Against: 54,591
Votes Abstained: 4,080
Broker Non-Votes 0
ITEM 6. REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the quarter ended
March 31, 2004.
17
CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of
Tutogen Medical, Inc. (the "Company") that the Quarterly Report of the Company
on Form 10-QSB for the periods ended March 31, 2004 fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 and that
the information contained in such report fairly presents, in all material
respects, the financial condition of the Company at the end of such periods and
the results of operations of the Company for such periods.
SIGNATURES
Registrant has duly caused this report to be signed on its behalf by the
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
undersigned, thereunto duly authorized.
TUTOGEN MEDICAL, INC.
Date: May 13, 2004 /s/ Manfred Kruger
------------------
President and Chief Executive Officer
Date: May 13, 2004 /s/ George Lombardi
-------------------
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10QSB of Tutogen Medical, Inc.
(the "Company") for the three months ended March 31, 2004 as filed with the
Securities and Exchange commission on the date hereof (the "Report"), I George
Lombardi, as the Chief Financial Officer of the Company, hereby certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or
15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 13, 2004
TUTOGEN MEDICAL, INC.
/s/ George Lombardi
-------------------
George Lombardi
Chief Financial Officer, Treasurer and Secretary
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10QSB of Tutogen Medical, Inc.
(the "Company") for the three months ended March 31, 2004 as filed with the
Securities and Exchange commission on the date hereof (the "Report"), I Manfred
Krueger, as the Chief Executive Officer, President and Chief Operating Officer
of the Company, hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or
15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 13, 2004
TUTOGEN MEDICAL, INC.
/s/ Manfred Krueger
-------------------
Manfred Krueger
Chief Executive Officer, President and
Chief Operating Officer
CERTIFICATION
I George Lombardi certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Tutogen Medical,
Inc.
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in the Quarterly Report fairly present in all material
respects, the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Quarterly
Report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) Presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves Management or
other employees who have a significant role in the registrant's
internal controls.
CERTIFICATION
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2004
BY:
Name: /s/ George Lombardi
Title: Chief Financial Officer,
Treasurer and Secretary
Page 2
CERTIFICATION
I Manfred Krueger certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Tutogen Medical,
Inc.
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in the Quarterly Report fairly present in all material
respects, the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Quarterly
Report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) and 15d-15(e)) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) Presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves Management or
other employees who have a significant role in the registrant's
internal controls.
CERTIFICATION
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2004
BY:
Name: /s/ Manfred Krueger
Title: CEO, President and Chief Operating Officer
Page 2