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 June 30, 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 July 31, 2004 there were outstanding 15,888,960 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 - June 30, 2004 1
(unaudited) and September 30, 2003.
Consolidated Statements of Operations for the 2
three and nine months ended June 30, 2004 and
2003(unaudited).
Consolidated Statements of Cash Flows for the nine 3
months ended June 30, 2004 and 2003(unaudited).
Consolidated Statements of Stockholders' Equity 4
for the year ended September 30, 2003 and the nine
months ended June 30, 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 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)
JUNE 30, SEPTEMBER 30,
2004 2003
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,255 $ 5,049
Accounts receivable - net of allowance for doubtful
accounts of $202 in 2004 and $283 in 2003 3,851 5,526
Inventories - net 16,552 11,992
Deferred income taxes 736 709
Other current assets 1,294 1,098
---------- ----------
27,688 24,374
PROPERTY, PLANT AND EQUIPMENT, NET 5,422 4,842
DEFERRED INCOME TAXES 1,316 1,187
---------- ----------
TOTAL ASSETS $ 34,426 $ 30,403
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other accrued expenses $ 7,564 $ 6,926
Accrued commissions 1,186 957
Current portion of deferred distribution fees 641 617
Current portion of long-term debt 99 91
---------- ----------
9,490 8,591
OTHER LIABILITIES
Deferred distribution fees 2,684 3,038
Long-term debt 694 728
SHAREHOLDERS' EQUITY 21,558 18,046
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,426 $ 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 JUNE 30, NINE MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
REVENUE $ 6,823 $ 8,933 $ 21,397 $ 22,250
COST OF REVENUE 2,287 3,621 7,274 8,987
----------- ----------- ----------- -----------
Gross margin 4,536 5,312 14,123 13,263
OPERATING EXPENSES
General and administrative 1,127 1,176 3,551 3,268
Distribution and marketing 2,408 2,431 6,797 7,245
Research and development 336 275 1,061 821
Litigation Contingency (405) - (405) -
----------- ----------- ----------- -----------
3,466 3,882 11,004 11,334
OPERATING INCOME 1,070 1,430 3,119 1,929
OTHER EXPENSE (19) (70) (99) (129)
INTEREST EXPENSE (17) (13) (44) (39)
----------- ----------- ----------- -----------
(36) (83) (143) (168)
INCOME BEFORE INCOME TAX EXPENSE 1,034 1,347 2,976 1,761
Income tax expense 399 529 1,105 677
----------- ----------- ----------- -----------
NET INCOME $ 635 $ 818 $ 1,871 $ 1,084
=========== =========== =========== ===========
Comprehensive Income:
Foreign currency translation adjustments (72) 205 1,317 591
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 563 $ 1,023 $ 3,188 $ 1,675
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING FOR BASIC
EARNINGS PER SHARE 15,758,053 15,647,110 15,720,959 15,442,912
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.04 $ 0.05 $ 0.12 $ 0.07
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE 16,468,810 16,265,537 16,515,915 16,012,301
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.04 $ 0.05 $ 0.11 $ 0.07
=========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements
2
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
--------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,871 $ 1,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 602 402
Deferred distribution fees revenue (479) (429)
Deferred income taxes 1,105 692
Reserve for bad debts - 90
Reserve for obsolesence (121) (31)
Changes in assets and liabilities:
Accounts receivable 1,733 (1,990)
Inventories (4,213) (214)
Other current assets (151) (771)
Accounts payable and other accrued expenses (424) 1,641
Accrued commissions 741 336
----------- -----------
Net cash provided by operating activities 664 810
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (988) (423)
Increase in patents and trade marks - (36)
----------- -----------
Net cash used in investing activities (988) (459)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 324 829
Proceeds from revolving credit arrangements - 338
Repayment of revolving credit arrangements - (338)
Repayment of long-term debt (63) (52)
----------- -----------
Net cash provided by financing activities 261 777
EFFECT OF EXCHANGE RATE CHANGES ON CASH 269 286
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 206 1,414
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,049 3,083
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,255 $ 4,497
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 44 $ 39
=========== ===========
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 JUNE 30, 2004
(Unaudited)
(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 2 322 - - 324 221,850
Net income - - - 1,871 1,871 -
Foreign currency translation adjustment - - 1,317 - 1,317 -
------- ---------- ------------- ---------- -------- -----------
BALANCE, June 30, 2004 $ 159 $ 36,302 $ 1,398 $ (16,301) $ 21,558 15,888,960
======= ========== ============= ========== ======== ===========
(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)
JUNE 30, 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 June 30, 2004 and the unaudited results of operations for the three
and nine months ended June 30, 2004 and 2003 and the unaudited cash flows
for the nine months ended June 30, 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 nine months ended June 30, 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. 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.
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.
5
Three Months Ended Nine Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
Net Income, as reported: $635 $818 $1,871 $1,084
Pro-forma expense as if stock options were
charged against net income 81 29 101 86
---- ---- ------ ------
Pro-forma net income using the fair value method $554 $789 $1,770 $998
==== ==== ====== ======
Basic EPS:
As reported $0.04 $0.05 $0.12 $0.07
Pro forma using the fair value method $0.04 $0.05 $0.11 $0.06
Diluted EPS:
As reported $0.04 $0.05 $0.11 $0.07
Pro forma using the fair value method $0.03 $0.05 $0.11 $0.06
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 June 30, 2004.
6
(3) INVENTORIES
Major classes of inventory at June 2004 and September 30, 2003 were as
follows:
June 30, September 30,
2004 2003
---- ----
Raw materials $ 2,395 $ 2,439
Work in process 5,454 3,316
Finished goods 11,818 9,335
-------- --------
19,668 15,090
Less reserves for obsolescence 3,116 3,098
-------- --------
$ 16,552 $ 11,992
======== ========
(4) INCOME TAXES
The Company has incurred cumulative net operating losses through June 30,
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 June 30, 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 June 30,
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 June 30, 2004 and 2003, respectively are as follows:
2004 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 5,440 $ 3,998 $ 9,438
Less - intercompany (2,615) - (2,615)
---------- ----------- ----------
Total revenue - third party $ 2,825 $ 3,998 $ 6,823
========== =========== ==========
Operating income (loss) $ 1,414 $ (344) $ 1,070
========== =========== ==========
Depreciation and amortization $ 127 $ 60 $ 187
========== =========== ==========
Interest expense $ 11 $ 6 $ 17
========== =========== ==========
Net income (loss) $ 883 $ (248) $ 635
========== =========== ==========
Capital expenditures $ 318 $ 182 $ 500
========== =========== ==========
Total assets $ 11,903 $ 34,421 $ 46,324
Less intercompany advances - (11,898) (11,898)
---------- ----------- ----------
$ 11,903 $ 22,523 $ 34,426
========== =========== ==========
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 5,151 $ 6,700 $ 11,851
Less - intercompany (2,918) - (2,918)
---------- ----------- ----------
Total revenue - third party $ 2,233 $ 6,700 $ 8,933
========== =========== ==========
Operating income (loss) $ 1,607 $ (177) $ 1,430
========== =========== ==========
Depreciation and amortization $ 122 $ 60 $ 182
========== =========== ==========
Interest expense $ 12 $ 1 $ 13
========== =========== ==========
Net income $ 807 $ 11 $ 818
========== =========== ==========
Capital expenditures $ 201 $ 73 $ 274
========== =========== ==========
Total assets $ 11,953 $ 31,956 $ 43,909
Less intercompany advances - (14,934) (14,934)
---------- ----------- ----------
$ 11,953 $ 17,022 $ 28,975
========== =========== ==========
8
A summary of the operations and assets by segment as of and for the nine
months ended June 30, 2004 and 2003, respectively are as follows:
2004 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 17,371 $ 13,078 $ 30,449
Less - intercompany (9,052) - (9,052)
---------- ----------- ----------
Total revenue - third party $ 8,319 $ 13,078 $ 21,397
========== =========== ==========
Operating income (loss) $ 3,581 $ (462) $ 3,119
========== =========== ==========
Depreciation and amortization $ 376 $ 226 $ 602
========== =========== ==========
Interest expense $ 35 $ 9 $ 44
========== =========== ==========
Net income (loss) $ 2,110 $ (239) $ 1,871
========== =========== ==========
Capital expenditures $ 664 $ 324 $ 988
========== =========== ==========
Total assets $ 11,903 $ 34,421 $ 46,324
Less intercompany advances - (11,898) (11,898)
---------- ----------- ----------
$ 11,903 $ 22,523 $ 34,426
========== =========== ==========
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 11,431 $ 15,508 $ 26,939
Less - intercompany (4,689) - (4,689)
---------- ----------- ----------
Total revenue - third party $ 6,742 $ 15,508 $ 22,250
========== =========== ==========
Operating income (loss) $ 2,058 $ (130) $ 1,928
========== =========== ==========
Depreciation and amortization $ 277 $ 125 $ 402
========== =========== ==========
Interest expense $ 36 $ 3 $ 39
========== =========== ==========
Net income $ 956 $ 128 $ 1,084
========== =========== ==========
Capital expenditures $ 301 $ 122 $ 423
========== =========== ==========
Total assets $ 11,953 $ 31,956 $ 43,909
Less intercompany advances - (14,934) (14,934)
---------- ----------- ----------
$ 11,953 $ 17,022 $ 28,975
========== =========== ==========
9
(6) LITIGATION CONTINGENCY
A partial decision by the court of appeal in Germany has resulted in a
reduction of the original judgment received against the Company regarding a
dispute between the Company and a former international distributor in the
amount of $405. At June 30, 2004, $465 is accrued with respect to the
remaining appeal and legal costs. Management believes that such accrual is
sufficient and the final settlement will not have a material impact on its
results of operations or financial opinion.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS)
RESULTS OF OPERATIONS
REVENUE AND GROSS MARGIN
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 June 30, 2004, decreased 24% to $6,823 from
$8,933 for the comparable period. However, if we would compare this quarter with
2003 considering the new arrangement with Spine, as mentioned above, the
comparable quarter would have been $7,171 or a decrease in revenue from 2003 of
5%. The U.S. operation had a decrease in revenue of $2,702 from $6,700 to $3,998
for this quarter or 40%. The U.S. revenues decreased primarily, as pointed out
above, as a result of the new agreement with Spine. The Company's U.S. revenues
for the prior year quarter would have been $1,762 lower under the new agreement
with Spine, therefore, resulting in a decrease of U.S. revenue for this quarter
of 5%. The Spine business, after considering the new arrangement, decreased by
$1,000, which is the direct result of over-buying by Spine at the end of the
previous year. This decrease in Spine business was partially offset by 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 an increase $800 from the comparable quarter. The
International operation had an increase in revenue of $592 ($250 of the increase
was due to currency translation) from $2,233 to $2,825. The increase in
International revenue was due to an overall increase in the European and
international distributor business.
Revenues for the nine months ended June 30, 2004 decreased 4% to $21,397 from
$22,250 for the comparable period. Adjusting for the new agreement with Spine,
the sales for the comparable period in 2003 would have been $18,788. Therefore,
revenues for the nine months ended June 30, 2004 actually increased 14% over the
comparable period in 2003. Revenues from the U.S. operation increased 9% to
$13,078 from $11,946 (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 23% from $6,742 in 2003 to $8,319 in 2004.
Gross margins, for the three and nine months ended June 30, 2004 were 66%, as
compared to 59% and 60%, respectively for the comparable periods last year. The
higher gross 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 decreased 4% and increased 8% for the three
and nine months ended June 30, 2004, respectively, from the comparable periods
last year. Third quarter expenses decreased $49. Year-to-date expenses increased
$271, due to foreign exchange variance ($88), expenditures
11
related to the hiring of an investor relations/banker firms ($108), higher legal
expenses related to merger opportunities ($88) and other ($67). As a percentage
of revenues, for the three and nine months ended June 30, 2004, General and
Administrative expenses increased from 13% and 14% in 2003, respectively to 16%
in 2004.
DISTRIBUTION AND MARKETING
Distribution and marketing expenses were essentially flat from $2,431 to $2,408
and decreased 6% to $6,797 from $7,245 for the three and nine months ended June
30, 2004, respectively, 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 $294 for the quarter and $1,850 for the nine months ended June 30,
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 $404 and $1,040 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 nine months ended June 30, 2004, as a percentage of revenues,
Distribution and Marketing expenses increased from 27% in 2003 to 35% in 2004
and decreased from 33% to 32%, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 22% and 29%, respectively, for the
three and nine months ended June 30, 2004, from the comparable periods last
year. The increase was due to increased development efforts in the spine, dental
and ligament product areas. For the three and nine months ended June 30, 2004,
as a percentage of revenues, Research and Development expenses increased from 3%
in 2003 to 5% in 2004 and 4% to 5%, respectively.
LITIGATION CONTINGENCY
A partial decision by the court of appeal in Germany has resulted in a reduction
of the original judgment received against the Company regarding a dispute
between the Company and a former international distributor in the amount of
$405. At June 30, 2004, $465 is accrued with respect to the remaining appeal and
legal costs. Management believes that such accrual is sufficient and the final
settlement will not have a material impact on its results of operations or
financial opinion.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was essentially flat for the three months ended
June 30, 2004 as compared to the same period last year, but for the nine months
ended June 30, 2004, depreciation increased from $153 to $197, primarily due to
the foreign exchange impact and additions to fixed assets.
OTHER EXPENSE
Other expenses decreased 73% and 23%, respectively, for the three and nine
months ended June 30, 2004, from the comparable periods last year as a result of
lower foreign exchange losses.
INTEREST EXPENSE
Interest expense was essentially flat from period to period.
12
NET INCOME
As a result of the above, net income for the three and nine months ended June
30, 2004 totaled $635 or $0.04 basic and diluted earnings per share and $1,871
or $0.12 basic and $0.11 diluted earnings per share, respectively, as compared
to a net income of $818 or $0.05 basic and diluted earnings per and net income
of $1,084 or $0.07 basic and diluted earnings per share for the same periods in
2003.
INVENTORY
Inventory has increased from $12.0 million at last year-end to $16.6 million at
June 30, 2004, a $4.6 million or 38% increase. Raw materials are down 2%, which
reflects the curtailment of incoming tissue, while work-in-process ("WIP") is up
64% or $2.1 million from last year-end to the end of this quarter. The increase
in WIP is due solely to the increase in the inventory to support the Dental
product lines. Finished goods are up 26% or $2.5 million. Here again, $1.3
million is due to the significant increase in the Dental business. The Dental
business is expected to increase by approximately 90% this year versus 2003.
Fascia inventories are higher than normal by $720 due to reduced demand and the
anticipation of the launch of a new product line. The 4% weakening of the dollar
against the Euro had the effect of increasing the inventory by $226.
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
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 is evaluated quarterly.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue on product sales is
recognized when persuasive evidence of an arrangement exists, the price is
fixed, 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.
13
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 June 30, 2004, the Company has working capital of $18.2 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 June 30, 2004, the Company had no borrowings against these lines.
The Company has experienced a positive cash flow of $206 for the nine months
ended June 30, 2004 as compared to a positive cash flow of $1,414 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
cash provided by operating activities, cash from financing activities and the
effect of exchange rate changes on cash, partially offset by higher purchases of
property and equipment. 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 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 June 30,
2004 are as follows:
14
2005 624
2006 282
2007 136
2008 74
------------
$ 1,586
============
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 June 30, 2004
are as follows:
2004 $ 99
2005 101
2006 106
2007 113
2008 376
------------
$ 795
============
NEW ACCOUNTING PRONOUNCEMENTS
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 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.
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
15
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 June 30, 2004.
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 6. REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the quarter ended
June 30, 2004.
17
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: August 4, 2004 /s/ Manfred Kruger
------------------
President and
Chief Operating Officer
Date: August 4, 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 June 30, 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: August 4, 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 June 30, 2004 as filed with the
Securities and Exchange commission on the date hereof (the "Report"), I Manfred
Krueger, as the 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: August 4, 2004
TUTOGEN MEDICAL, INC.
/s/ Manfred Krueger
-------------------
Manfred Krueger
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: AUGUST 4, 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: AUGUST 4, 2004
BY:
NAME: /S/ MANFRED KRUEGER
TITLE: CEO, PRESIDENT AND CHIEF OPERATING OFFICER
PAGE 2