SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2005.
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, 2005 there were outstanding 15,922,960 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, 2005 1
(unaudited) and September 30, 2004.
Consolidated Statements of Operations for the 2
three and nine months ended June 30, 2005 and 2004
(unaudited).
Consolidated Statements of Cash Flows for the nine 3
months ended June 30, 2005 and 2004 (unaudited).
Consolidated Statements of Stockholders' Equity 4
for the year ended September 30, 2004 and the nine
months ended June 30, 2005 (unaudited).
Notes to Consolidated Financial Statements 5
(unaudited).
ITEM 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations.
ITEM 3. Quantitative Statements and Supplementary 15
Data.
ITEM 4. Controls and Procedures. 15
PART II. Other Information. 16
ITEM 6. Reports on Form 8-K 16
SIGNATURES 17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
2005 2004
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,294 $ 5,063
Marketable security 140 -
Accounts receivable - net of allowance for doubtful
accounts of $220 in June 2005 and $192 in
September 2004 4,845 4,922
Inventories - net 11,408 15,072
Deferred income taxes 553 425
Other current assets 1,374 1,409
------------- -------------
21,614 26,891
PROPERTY, PLANT AND EQUIPMENT, NET 6,510 6,138
DEFERRED INCOME TAXES 1,595 1,318
------------- -------------
TOTAL ASSETS $ 29,719 $ 34,347
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities $ 6,806 $ 6,521
Accrued commissions 1,847 1,521
Current portion of deferred distribution fees 622 642
Current portion of long-term debt 214 173
------------- -------------
9,489 8,857
OTHER LIABILITIES
Deferred distribution fees 2,068 2,580
Long-term debt 639 827
SHAREHOLDERS' EQUITY 17,523 22,083
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,719 $ 34,347
============== =============
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,
---------------------------- --------------------------
2005 2004 2005 2004
---- ---- ---- ----
REVENUE $ 9,281 $ 6,823 $ 23,908 $ 21,397
COST OF REVENUE 6,256 2,287 14,817 7,274
------------ ------------ ------------ ------------
Gross margin 3,025 4,536 9,091 14,123
OPERATING EXPENSES
General and administrative 1,206 1,127 3,641 3,551
Distribution and marketing 3,071 2,408 8,564 6,797
Research and development 406 336 1,248 1,061
Litigation contingency - (405) - (405)
------------ ------------ ------------ ------------
4,683 3,466 13,453 11,004
OPERATING (LOSS) INCOME (1,658) 1,070 (4,362) 3,119
FOREIGN EXCHANGE GAIN (LOSS) 317 (48) (80) (159)
OTHER INCOME 16 29 36 60
INTEREST EXPENSE (19) (17) (51) (44)
------------ ------------ ------------ ------------
314 (36) (95) (143)
(LOSS) INCOME BEFORE INCOME TAX EXPENSE (1,344) 1,034 (4,457) 2,976
Income tax (benefit) expense 88 399 (404) 1,105
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (1,432) $ 635 $ (4,053) $ 1,871
============ ============ ============ ============
Comprehensive Income:
Foreign currency translation adjustments 455 (72) 513 1,317
------------ ------------ ------------ ------------
COMPREHENSIVE (LOSS) INCOME $ (977) $ 563 $ (3,540) $ 3,188
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING FOR BASIC
(LOSS) EARNINGS PER SHARE 15,917,755 15,758,053 15,917,755 15,720,959
============ ============ ============ ============
BASIC (LOSS) EARNINGS PER SHARE $ (0.09) $ 0.04 $ (0.25) $ 0.12
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING FOR DILUTED
(LOSS) EARNINGS PER SHARE 15,917,755 16,468,810 15,917,755 16,515,915
============ ============ ============ ============
DILUTED (LOSS) EARNINGS PER SHARE $ (0.09) $ 0.04 $ (0.25) $ 0.11
============ ============ ============ ============
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,
--------------------------
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (4,053) $ 1,871
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 771 602
Deferred distribution fees revenue (479) (479)
Deferred income taxes (404) 1,105
Reserve for obsolesence 201 (121)
Changes in assets and liabilities:
Accounts receivable 13 1,733
Inventories 3,365 (4,213)
Other current assets 20 (151)
Accounts payable and other liabilities (399) (424)
Accrued commissions 325 741
------------ ------------
Net cash (used in) provided by operating activities (640) 664
CASH FLOWS USED IN INVESTING ACTIVITIES
Investment in a marketable security (140) -
Purchase of property and equipment (1,144) (988)
------------ ------------
Net cash used in investing activities (1,284) (988)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 6 324
Proceeds from short-term borrowings 626 -
Repayment of short-term borrowings (200) -
Repayment of long-term debt (130) (63)
------------ ------------
Net cash provided by financing activities 302 261
EFFECT OF EXCHANGE RATE CHANGES ON CASH (147) 269
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,769) 206
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,063 5,049
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,294 $ 5,255
============ ============
----------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 51 $ 44
============ ============
Income taxes paid $ 151 $ -
============ ============
See accompanying Notes to Consolidated Financial Statements
3
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 2004 AND NINE MONTHS ENDED JUNE 30, 2005
(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, 2003 $ 157 $ 35,980 $ 81 $ (18,172) $ 18,046 15,667,110
Stock issued on exercise of options 2 365 - - 367 248,850
Net income - - - 1,503 1,503 -
Foreign currency translation adjustment - - 2,167 - 2,167 -
--------- --------- ---------- ---------- --------- -----------
BALANCE, SEPTEMBER 30, 2004 159 36,345 2,248 (16,669) 22,083 15,915,960
Stock issued on exercise of options - 6 - - 6 7,000
Net loss - - - (4,053) (4,053) -
Foreign currency translation adjustment - - (513) - (513) -
--------- --------- ---------- ---------- --------- -----------
BALANCE, June 30, 2005 $ 159 $ 36,351 $ 1,735 $ (20,722) $ 17,523 15,922,960
========= ========= ========== ========== ========= ===========
(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, 2005
(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) BASIS OF PRESENTATION
The accompanying unaudited consolidated balance sheet of the of the
Company as of June 30, 2005 and the unaudited results of operations for
the three and nine months ended June 30, 2005 and 2004 and the unaudited
cash flows for the nine months ended June 30, 2005 and 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, 2005 are not necessarily indicative
of the results which may be expected for the fiscal year ending
September 30, 2005. The interim financial statements should be read in
conjunction with the audited consolidated financial statements of the
Company for the year ended September 30, 2004.
(3) NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement 123 (Revised, "SFAS 123R"), SHARE-BASED PAYMENT, that
will require compensation costs related to share-based payment
transactions to be recognized in the financial statements. On April 14,
2005, the compliance date for SFAS 123R was extended. The Company will
be required to comply with SFAS 123R for the three months ended March
31, 2006. The Company is currently assessing the impact of FASB No. 123
(Revised) on the results of operations or financial position of the
Company.
In March 2005, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 107, SHARE-BASED PAYMENT ("SAB No.
107"), which provides interpretive guidance related to the interaction
between SFAS No. 123R and certain SEC rules and regulations, as well as
provides the SEC staff"s views regarding the valuation of share-based
payment arrangements. The Company is currently assessing the impact of
SAB No. 107 on the results of operations or financial position of the
Company.
In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS, AN
AMENDMENT OF ARB NO. 43. SFAS No. 151 requires idle facility expenses,
freight, handling costs, and wasted material (spoilage) costs to be
excluded from the cost of inventory and expensed when incurred. It also
requires that
5
allocation of fixed overheads to the costs of conversion be based on the
normal capacity of the production facilities. This statement is
effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151 is not expected to
have a material impact on the results of operations or financial
position of the Company.
(4) STOCK-BASED COMPENSATION
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 and such
disclosures are included as herein.
The following table reconciles net (loss) income and basic and diluted
(loss) earnings per share ("EPS"), as reported, to pro-forma net (loss)
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 Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
Net (loss) income, as reported: ($1,432) $635 ($4,053) $1,871
Pro-forma expense as if stock options were
charged against net (loss) income 2 81 34 101
-------- -------- -------- --------
Pro-forma net (loss) income using the fair value method ($1,434) $554 ($4,087) $1,770
======== ======== ======== ========
Basic EPS:
As reported ($0.09) $0.04 ($0.25) $0.12
Pro forma using the fair value method ($0.09) $0.04 ($0.26) $0.11
Diluted EPS:
As reported ($0.09) $0.04 ($0.25) $0.11
Pro forma using the fair value method ($0.09) $0.03 ($0.26) $0.11
(5) MARKETABLE SECURITY
The marketable security represents one U.S. Treasury Note with a face
value of $140 and a coupon rate of 1.875% maturing on December 31, 2005.
6
(6) INVENTORIES
Major classes of inventory at June 30, 2005 and September 30, 2004 were
as follows:
June 30, September 30,
2005 2004
---- ----
Raw materials $ 1,756 $ 2,171
Work in process 5,178 6,560
Finished goods 7,069 8,791
---------- ----------
14,003 17,522
Less reserves for obsolescence 2,595 2,450
---------- ----------
$ 11,408 $ 15,072
========== ==========
(7) INCOME TAXES
The Company has approximately $11,200 of federal net operating loss
carryforwards expiring beginning in 2008 and state net operating loss
carryforwards of approximately $14,200 that will begin to expire in
2005.
The Company has a corporate net operating loss carryforward for German
income tax purposes of approximately $3,400 (2,800 Euros), and a trade
net operation loss carryforward for German income tax purposes of
approximately $1,000 (800 Euros), which can be carried forward
indefinitely. These net operating losses are the primary component of
the Company's net deferred tax asset of $2.2 million as of June 30,
2005, 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 continually reviews the adequacy and necessity of the
valuation allowance in accordance with the provisions of FASB Statement
No. 109, ACCOUNTING FOR INCOME TAXES. As of September 2002, the Company
eliminated the full valuation allowance on its International operations
based upon future taxable income projections and its ability, based on
German tax law, to carryforward its net operating losses indefinitely.
As of June 30, 2005 the Company continues to record the existing
valuation allowance on its U.S. operations.
(8) 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 inter-segment 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, 2005 and 2004, respectively areas follows:
2005 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 5,042 $ 6,529 $ 11,571
Less - intercompany (2,290) - (2,290)
---------- ----------- ----------
Total revenue - third party $ 2,752 $ 6,529 $ 9,281
========== =========== ==========
Operating income (loss) $ 382 $ (2,040) $ (1,658)
========== =========== ==========
Depreciation and amortization $ 143 $ 90 $ 233
========== =========== ==========
Interest expense $ 14 $ 5 $ 19
========== =========== ==========
Net income (loss) $ 136 $ (1,568) $ (1,432)
========== =========== ==========
Capital expenditures $ 340 $ 27 $ 367
========== =========== ==========
Total identifiable assets $ 17,181 $ 12,538 $ 29,719
========== =========== ==========
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 identifiable assets $ 11,903 $ 22,523 $ 34,426
========== =========== ==========
8
A summary of the operations and assets by segment as of and for the nine
months ended June 30, 2005 and 2004, respectively are as follows:
2005 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 13,292 $ 16,172 $ 29,464
Less - intercompany (5,556) - (5,556)
---------- ----------- ----------
Total revenue - third party $ 7,736 $ 16,172 $ 23,908
========== =========== ==========
Operating loss $ (801) $ (3,561) $ (4,362)
========== =========== ==========
Depreciation and amortization $ 554 $ 217 $ 771
========== =========== ==========
Interest expense $ 38 $ 13 $ 51
========== =========== ==========
Net loss $ (888) $ (3,165) $ (4,053)
========== =========== ==========
Capital expenditures $ 996 $ 92 $ 1,088
========== =========== ==========
Total identifiable assets $ 17,181 $ 12,538 $ 29,719
========== =========== ==========
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 $ 2,110 $ (239) $ 1,871
========== =========== ==========
Capital expenditures $ 664 $ 324 $ 988
========== =========== ==========
Total identifiable assets $ 11,903 $ 22,523 $ 34,426
========== =========== ==========
9
(9) HEDGING TRANSACTION
The Company entered into forward foreign exchange contracts as hedges to
reduce the risk from exchange rate fluctuations on intercompany
inventory purchases with its German subsidiary. At June 30, 2005, the
Company had foreign exchange contracts of $700 for July 2005 and $350
for the months of August and September 2005, totaling $1.4 million. At
June 30, 2005, the fair value of these contracts resulted in immaterial
unrealized losses.
(10) LEGAL PROCEEDINGS
The Company is party to various claims, legal actions, complaints and
administrative proceedings arising in the ordinary course of its
business. In management's opinion, the ultimate disposition of these
matters will not have a material adverse effect on the Company's
financial condition.
In 2003, the Company received a proposed judgment in Germany as the
result of a dispute between the Company and a former international
distributor. The estimated settlement, including legal costs was accrued
as a litigation contingency. In 2004, a decision by the court of appeal
in Germany has resulted in a reduction of the original proposed judgment
received against the Company by $405. At June 30, 2005 and September 30,
2004, the Company accrued $476 with respect to the remaining appeal and
legal costs.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(IN THOUSANDS)
RESULTS OF OPERATIONS
REVENUE AND GROSS MARGIN
Revenues for the three months ended June 30, 2005, increased 36% to $9,281 from
$6,823 in 2004. The U.S. operation had a 63% increase in revenues from $3,998 in
2004 to $6,529 for this quarter. This increase was fueled by the continuing
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.
The Dental business increased 112% from a year ago. The spine revenues continue
to be impacted by the high inventory levels at the Company's marketing partner,
Zimmer Spine. The spine revenues were flat at $1.3 million posting a $100,000
increase from a year ago. The urology business is beginning to show some
improvement increasing from $400,000 in 2004 to $700,000 this quarter. The
International revenues were flat at $2.8 million this quarter, essentially the
same as last year. The International operation is still recovering from the
resolution of certain regulatory issues in France and a temporary backlog of
xenograft product lines. An analysis of revenues by major business segment is as
follows:
------------------------ ------------ ------------- ------------ -------------
(000's omitted) Three Three Nine Nine
Months Months Months Months
------------------------ ------------ ------------- ------------ -------------
6/30/05 6/30/04 6/30/05 6/30/04
------------------------ ------------ ------------- ------------ -------------
------------------------ ------------ ------------- ------------ -------------
Spine 1,260 1,160 2,792 4,243
------------------------ ------------ ------------- ------------ -------------
Dental 3,969 1,874 9,670 4,896
------------------------ ------------ ------------- ------------ -------------
Urology 725 393 2,093 2,039
------------------------ ------------ ------------- ------------ -------------
Ophthalmic 413 391 1,053 1,139
------------------------ ------------ ------------- ------------ -------------
Other 162 180 564 760
------------------------ ------------ ------------- ------------ -------------
Total - U.S. 6,529 3,998 16,172 13,077
------------------------ ------------ ------------- ------------ -------------
------------------------ ------------ ------------- ------------ -------------
Germany 594 657 1,493 2,131
------------------------ ------------ ------------- ------------ -------------
France 319 595 956 1,597
------------------------ ------------ ------------- ------------ -------------
ROW 1,698 1,433 4,845 4,172
------------------------ ------------ ------------- ------------ -------------
Other 141 139 442 420
------------------------ ------------ ------------- ------------ -------------
Total-International 2,752 2,825 7,736 8,320
------------------------ ------------ ------------- ------------ -------------
------------------------ ------------ ------------- ------------ -------------
Total Consolidated 9,281 6,823 23,908 21,397
------------------------ ------------ ------------- ------------ -------------
Gross margin, for the three and nine months ended June 30, 2005 was 33% and 38%,
respectively, as compared to 66% for the three and nine month comparable periods
last year. The lower gross margin for the three months and year-to-date was due
to an unfavorable product mix of lower margin products from the dental product
revenues versus the higher margin spine revenues and the initial start-up
manufacturing
11
costs of $1.6 million, expensed in this quarter, associated with shifting
production of the dental product lines from Germany to the U.S. Year-to-date
spine revenues have decreased to 12% of total revenues versus 20% a year ago.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 7% and 3% for the three and nine
months ended June 30, 2005 from the comparable periods last year. The increase
for the quarter was primarily due to expenses related to the Sarbanes-Oxley
Project ($55), and other increases ($24). As a percentage of revenues, for the
three and nine months ended June 30, 2005, General and Administrative expenses
were 13% and 15%, respectively for 2005 compared to 17% of revenues for the
comparable periods in 2004.
DISTRIBUTION AND MARKETING
Distribution and marketing expenses increased 28% and 26% for the three and nine
months ended June 30, 2005, respectively, from the comparable periods last year.
The increase was primarily due to higher marketing fees paid to Dental of $1,735
versus $879 a year ago as a result of a 112% increase in Dental revenues this
quarter, partially offset by a decrease in expenses as part of a reorganization
of the international sales group. As a percentage of revenues, for the three and
nine months ended June 30, 2005, Distribution and Marketing expenses increased
from 35% and 32%, respectively in 2004 to 33% and 36%, respectively for 2005.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 21% and 18% for the three and nine
months ended June 30, 2005, respectively, from the comparable periods last year.
The increase was primarily due to increased effort in this area and the timing
of certain projects. As a percentage of revenues, for the three and nine months
ended June 30, 2005, Research and Development expenses remained flat at 5% for
2005 and 2004.
FOREIGN EXCHANGE GAIN/(LOSS)
The Company had a foreign exchange gain for the quarter of $317 as the dollar
gained some ground against the euro at June 30, 2005. However, for the nine
months ended June 30, 2005, there is a foreign exchange loss of $80. This was
the result of the settlement of inter-company payments due to the strengthening
of the dollar versus the euro during this period.
OTHER INCOME
Other income decreased by $13 and $24, for the three and nine months ended June
30, 2005, respectively, from the comparable periods a year ago, primarily due to
fluctuations in interest income.
INTEREST EXPENSE
Interest expense was essentially flat from period to period.
12
NET (LOSS) INCOME
As a result of the above, net loss for the three and nine months ended June 30,
2005 totaled $1,432 or $0.09 basic and diluted loss per share and $4,053 or
$0.25 basic and diluted loss per share, as compared to a net income of $635 or
$0.04 basic diluted earnings per share and $1,871 or $0.12 basic and $0.11
diluted earnings per share for the comparable periods in 2004.
INVENTORY
Inventory decreased 24%, from $15.1 million at last fiscal year-end to $11.4
million at June 30, 2005. Raw materials are down 19%, which reflects the delay
in the receipt of shipments of human tissue from the European procurement sites;
work-in-process ("WIP") is down 21%. Finished goods are down 20% from last
fiscal year-end. The decrease in WIP and Finished Goods is the result of the
successful effort to improve production planning and control and reduce overall
inventory levels.
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. Delivery is 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 includes 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 functional currency of the Company's German
subsidiary is the Euro for the years 2005 and 2004. Assets and liabilities of
foreign subsidiaries are translated at the period end exchange rate while
revenues and expenses are translated at the average exchange rate for the year.
The
13
resulting translation adjustments, representing unrealized, non-cash losses are
made directly to comprehensive income. Gains and losses resulting from
transactions of the Company and its subsidiaries, which are made in currencies
different from their own, are included in income as they occur. The Company
recognized currency losses of $80 and $159 for the nine months ending June 30,
2005 and 2004, respectively. The exchange rates at June 30, 2005 and 2004 were
dollar 1.22/euro and dollar 1.21/euro, respectively.
DERIVATIVE INSTRUMENTS. The Company has forward foreign exchange contracts,
which have been designated as a cash flow hedge. The effective portion of the
derivative's gain or loss is initially reported as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. The ineffective
portion of the gain or loss is reported in earnings immediately.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, the Company has working capital of $12.1 million as compared
to September 30, 2004 of $18.0 million. The Company maintains current working
capital credit lines totaling 1.5 million euros (approximately $1.8 million)
with several German banks and a $1.0 million credit line with a U.S. bank. At
June 30, 2005, the Company had no borrowings against the German and U.S. credit
lines.
The Company has experienced a negative cash flow of $1,719 for the nine months
ended June 30, 2005 as compared to a positive cash flow of $206 for the same
period in 2004. The primary reason for the negative cash flow in 2005 was due to
the net loss for the nine-month period and the payments for capital expenditures
associated with the completion of a new clean room at the German manufacturing
facility. However, this quarter the Company has experienced a positive cash flow
of $743, primarily the result of reducing and controlling its inventory levels.
The Company's ability to generate positive operational cash flow is dependent
upon increasing revenues supported by increased raw tissue 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,
2005 are as follows:
2005 $ 970
2006 673
2007 584
2008 389
2009 36
------------
$ 2,652
============
14
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, 2005
are as follows:
2006 $ 214
2007 154
2008 105
2009 113
2010 267
------------
$ 853
Less current portion 214
------------
$ 639
============
ITEM 3. QUANTITATIVE STATEMENTS AND SUPPLEMENTARY DATA
For information regarding the Company's exposure to certain market risks, see
Item 7A, Quantitative Statements and Supplementary Data, in the Annual Report on
Form 10K for the year ended September 30, 2004. There have been no significant
changes in our market risk exposures form the fiscal 2004 year-end, except that
in January 2005, the Company has now engaged in a hedging program as explained
in Note 9, Hedging Transaction, of the Notes to the Consolidated Financial
Statements.
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.
15
PART II. OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the quarter ended
June 30, 2005.
16
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 15, 2005 /s/ Guy L. Mayer
----------------
Chief Executive Officer
Date: August 15, 2005 /s/ George Lombardi
-----------------------
Chief Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
17
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 10Q of Tutogen Medical, Inc.
(the "Company") for the three and nine months ended June 30, 2005 as filed with
the Securities and Exchange commission on the date hereof (the "Report"), I
George Lombardi, as the Chief Financial Officer, Treasurer and Secretary 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 15, 2005
TUTOGEN MEDICAL, INC.
/s/ George Lombardi
-------------------
George Lombardi
Chief Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
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 10Q of Tutogen Medical, Inc.
(the "Company") for the three and nine months ended June 30, 2005 as filed with
the Securities and Exchange commission on the date hereof (the "Report"), I Guy
L. Mayer, as the Chief Executive 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 15, 2005
TUTOGEN MEDICAL, INC.
/s/ Guy L. Mayer
----------------
Chief Executive Officer
CERTIFICATION
I GEORGE LOMBARDI CERTIFY THAT:
1. I HAVE REVIEWED THIS QUARTERLY REPORT ON FORM 10-Q 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 ARE RESPONSIBLE FOR
ESTABLISHING AND MAINTAINING DISCLOSURE CONTROLS AND PROCEDURES (AS
DEFINED IN EXCHANGE ACT RULES 13A-15E AND 15D-15E) AND INTERNAL CONTROL
OVER FINANCIAL REPORTING (AS DEFINED IN EXCHANGE ACT RULES 13A-15F AND
15D-15F 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) DESIGNED SUCH INTERNAL CONTROL OVER FINANCIAL REPORTING, OR
CAUSED SUCH INTERNAL CONTROL OVER FINANCIAL REPORTING TO BE
DESIGNED UNDER OUR SUPERVISION, TO PROVIDE REASONABLE ASSURANCE
REGARDING THE RELIABILITY OF FINANCIAL REPORTING AND THE
PREPARATION OF FINANCIAL STATEMENTS FOR EXTERNAL PURPOSES IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES;
C) 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
D) DISCLOSED IN THIS REPORT ANY CHANGE IN THE REGISTRANT'S INTERNAL
CONTROL OVER FINANCIAL REPORTING THAT OCCURRED DURING THE
REGISTRANT'S MOST RECENT FISCAL QUARTER (THE REGISTRANT'S FOURTH
FISCAL QUARTER IN THE CASE OF AN ANNUAL REPORT) THAT HAS
MATERIALLY AFFECTED, OR IS REASONABLY LIKELY TO MATERIALLY
AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING; AND
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 AND MATERIAL WEAKNESSES IN THE
DESIGN OR OPERATION OF INTERNAL CONTROL OVER FINANCIAL REPORTING
WHICH ARE REASONABLY LIKELY TO ADVERSELY AFFECT THE REGISTRANT'S
ABILITY TO RECORD, PROCESS, SUMMARIZE AND REPORT INFORMATION;
AND
B) ANY FRAUD, WHETHER OR NOT MATERIAL, THAT INVOLVES MANAGEMENT OR
OTHER EMPLOYEES WHO HAVE A SIGNIFICANT ROLE IN THE REGISTRANT'S
INTERNAL CONTROL OVER FINANCIAL REPORTING.
DATE: AUGUST 15, 2005
BY:
NAME: /S/ GEORGE LOMBARDI
TITLE: CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
PAGE 2
CERTIFICATION
I GUY L. MAYER CERTIFY THAT:
1. I HAVE REVIEWED THIS QUARTERLY REPORT ON FORM 10-Q 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 ARE RESPONSIBLE FOR
ESTABLISHING AND MAINTAINING DISCLOSURE CONTROLS AND PROCEDURES (AS
DEFINED IN EXCHANGE ACT RULES 13A-15E AND 15D-15E) AND INTERNAL CONTROL
OVER FINANCIAL REPORTING (AS DEFINED IN EXCHANGE ACT RULES 13A-15F AND
15D-15F FOR THE REGISTRANT AND HAVE:
B) 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) DESIGNED SUCH INTERNAL CONTROL OVER FINANCIAL REPORTING, OR
CAUSED SUCH INTERNAL CONTROL OVER FINANCIAL REPORTING TO BE
DESIGNED UNDER OUR SUPERVISION, TO PROVIDE REASONABLE ASSURANCE
REGARDING THE RELIABILITY OF FINANCIAL REPORTING AND THE
PREPARATION OF FINANCIAL STATEMENTS FOR EXTERNAL PURPOSES IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES;
D) 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
D) DISCLOSED IN THIS REPORT ANY CHANGE IN THE REGISTRANT'S INTERNAL
CONTROL OVER FINANCIAL REPORTING THAT OCCURRED DURING THE
REGISTRANT'S MOST RECENT FISCAL QUARTER (THE REGISTRANT'S FOURTH
FISCAL QUARTER IN THE CASE OF AN ANNUAL REPORT) THAT HAS
MATERIALLY AFFECTED, OR IS REASONABLY LIKELY TO MATERIALLY
AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING; AND
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 AND MATERIAL WEAKNESSES IN THE
DESIGN OR OPERATION OF INTERNAL CONTROL OVER FINANCIAL REPORTING
WHICH ARE REASONABLY LIKELY TO ADVERSELY AFFECT THE REGISTRANT'S
ABILITY TO RECORD, PROCESS, SUMMARIZE AND REPORT INFORMATION;
AND
B) ANY FRAUD, WHETHER OR NOT MATERIAL, THAT INVOLVES MANAGEMENT OR
OTHER EMPLOYEES WHO HAVE A SIGNIFICANT ROLE IN THE REGISTRANT'S
INTERNAL CONTROL OVER FINANCIAL REPORTING.
DATE: AUGUST 15, 2005
BY:
NAME: /S/ GUY L. MAYER
TITLE: CHIEF EXECUTIVE OFFICER
PAGE 2