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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|X| Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 2004.
| | Transition report under 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.
(Name of Registrant as specified in Its Charter)
FLORIDA 59-3100165
(State of Incorporation) (IRS Employer Identification No.)
1130 MCBRIDE AVENUE WEST PATERSON, NEW JERSEY 07424
(Address of principal executive offices)
(973) 785-0004
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 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
---
Indicate by check mark if no disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
The aggregate market value of the voting and non-voting common equity held by
non-affiliates (approximately 5,397,000 shares), computed by reference to the
bid and ask of such common equity on the American Stock Exchange, was
$16,137,000 as of November 30, 2004.
As of November 30, 2004, there were 15,915,960 shares outstanding of the
issuer's Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion contained in this annual report under Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for the
issuer's fiscal year ended September 30, 2003 (this "Report"), contains
forward-looking statements that involve risks and uncertainties. The issuer's
actual results could differ significantly from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Description of Business" and "Management's Discussion
and Analysis or Plan of Operation" as well as those discussed elsewhere in this
Report. Statements contained in this Report that are not historical facts are
forward-looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the issuer's actual results for 2004 and beyond to differ materially
from those expressed in any forward-looking statement made by or on behalf of
the issuer.
PART I
ITEM 1. BUSINESS.
Tutogen Medical, Inc., a Florida corporation, was formed in 1985, and
with its consolidated subsidiaries (collectively, the "Company" or "Tutogen"),
develops, manufactures and markets sterile biological implant products made from
human (allograft) and animal (xenograft) tissue. Tutogen utilizes its
Tutoplast(R) Process of tissue preservation and viral inactivation to
manufacture and deliver sterile bio-implants used in spinal/trauma, urology,
dental, ophthalmology, head and neck and general surgery procedures.
One of the Company's wholly owned subsidiaries, Tutogen Medical GmbH,
designs, develops, processes, manufactures, markets, and distributes specialty
surgical products and services to over 30 countries through a worldwide
distribution network. Another subsidiary, Tutogen Medical (United States), Inc.,
was formed in 1994 to process, market and distribute allografts for the U.S.
market.
The Company's corporate headquarters is in West Paterson, New Jersey, a
manufacturing facility in Alachua, Florida, international executive offices and
processing and manufacturing facilities in Neunkirchen, Germany, and a sales
office in Boulogne, France.
The Company contracts with independent tissue banks and procurement
organizations to provide donated human tissue for processing under the Company's
proprietary TUTOPLAST process. The TUTOPLAST process utilizes solvent
dehydration and chemical inactivation which is applied to two types of preserved
allografts: soft tissue; consisting of fascia lata, fascia temporalis,
pericardium, dermis, sclera, ligaments, tendons and cartilage, and bone tissue;
consisting of various configurations of cancellous and cortical bone material.
Processed pericardium, fascia lata and dermis are collagenous tissue used to
repair, replace or line native connective tissue primarily in neurosurgery,
ophthalmology, urology procedures, plastic and reconstructive surgeries, dermis
is also used in pelvic floor reconstruction, sclera is used in ophthalmology
procedures such as, anterior and posterior segment patch grafting applications
for glaucoma, retina and trauma surgery and oculoplastics as well as contour
wrapping of an orbital implant, while ligaments, tendons and cartilage are used
primarily in orthopedic and trauma repairs. Processed cortical and cancellous
bone material is used in a wide variety of applications in spinal and dental
surgeries. All processed tissues have a shelf life of five (5) years and require
minimal time for rehydration. The Company processes bone and soft tissues in
both manufacturing facilities.
The Tutoplast(R) processed allografts have been used successfully in
over 1,000,000 procedures performed for over thirty (30) years.
In contrast to other processors using freeze-drying, deep freezing or
cryopreservation for human tissues, the TUTOPLAST process utilizes a technique
in which tissues are soaked and washed in a series of aqueous solutions and
organic solvents, removing water and substances that could cause rejection or
allergic reaction. This technique dehydrates the tissue keeping the tissue's
structure intact, allowing it to act after implantation as a scaffold, which is
replaced by newly formed body own tissue. During processing, the tissues are
treated with agents shown to inactivate viruses such as hepatitis and HIV, the
virus that causes
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AIDS, to render the allografts safe for the recipient. Soft tissue is also
treated with chemicals shown to be effective against the agent causing
Creutzfeldt-Jakob Disease ("CJD"). Once packaged, tissues are terminally
sterilized by low dosage radiation, which allows them to be labeled "sterile".
MANUFACTURING AND PROCESSING
All of the Company's Allografts and Xenografts are prepared, preserved
and processed by application of Tutogen's proprietary manufacturing TUTOPLAST
process. Allograft tissues are obtained from approved tissue procurement
organizations and institutions and undergo an extensive donor-screening regimen
prior to processing. Although several operations are automated, most of the
process is manual and relies on trained, highly skilled personnel. The entire
process takes place under controlled clean room processing conditions. All
incoming, untreated tissue is stored in special quarantine cold-storage rooms or
refrigerators until released by quality assurance for processing. To prevent
possible cross-contamination and ensure constant tissue identification, all
tissue is stored individually and strictly maintained in labeled containers
during the entire process. Samples are taken from processed tissue for each
donor for test purposes and reference samples are retained for ten (10) years
beyond the date of expiration. Documentation allows reverse traceability of
tissue implants to the donor and by the Tissue Utilization Records to the
recipient. All processed implants have a batch number and a donor number printed
on each single package. Processed tissue may be safely stored for up to five (5)
years at room temperature storage.
QUALITY ASSURANCE - All tissues are accompanied by specific medical and
donor documentation, including blood serum infectious disease testing results
performed by independent laboratories appropriately certified for these tests
under the Clinical Laboratory Improvement Amendment of 1988 (CLIA 1988).
Tutogen's implants and processed tissues are subject to a series of biological,
physical and chemical tests, from incoming unprocessed donated tissues to
sterile, finished goods. Tissues that do not meet regulatory standards are
rejected and destroyed. See "Government Regulations".
MARKETING AND DISTRIBUTION
Tutogen's products and processing services are provided through direct
representatives in Germany and France, with the Company billing the hospital or
end-user directly. Internationally, with a focus on Europe, the Company
distributes and invoices directly to a network of contract distributors.
Tutogen's personnel, with distributors and their representatives, conduct
product training sessions, make joint customer calls, set objectives and
evaluate their representatives' performance. Personnel also call on selected
physicians and key hospital accounts in order to provide needed clinical and
technical information services. In the U.S., Zimmer Spine Inc. ("Spine"), and
Zimmer Dental Inc. ("Dental"), subsidiaries of Zimmer Holdings, Inc., provide
marketing services for the Company's products for the spine and dental markets,
with the Company, beginning in May 2003 billing Spine directly and in the case
of Dental, billing the hospital or end-user directly.
Approximately 42% of the Company's revenues come from outside the United
States. As a result of its foreign sales and facilities, the Company's
operations are subject to the risks of doing business on an international level.
A major effort is underway to increase penetration in the U.S. market, as it
accounts for 70% of the world market for biomaterials. The Company's marketing
efforts in the U.S. in recent years have focused on creating a market for the
pericardium and fascia lata tissues from donor tissues sourced in the U.S. In
addition, since the Company's foreign donor qualification standards are in full
compliance with the donor suitability standards of the Food and Drug
Administration ("FDA"), the Company has created a market for its bone tissue for
spine and dental applications.
The Company's U.S. marketing efforts have concentrated on rebuilding the
marketing and distribution organization [and re-entering the bone markets.]
Presently, allografts are provided to hospitals in the U.S. either directly by
the Company with the assistance of marketing services or through independent
distribution companies. These distributors employ, in the aggregate, over 500
field representatives who call
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on hospital and office-based medical practitioners, primarily surgeons. Tutogen
supports their activities with various types of technical allograft literature,
informational programs, reference materials, and training sessions and programs
designed to increase distributor call volume. In 2004, the Company increased its
independent distributor network for the distribution of allografts for fields of
use (i.e., sports medicine/ligament repair, ENT, and general surgery) that are
not otherwise covered under exclusivity. In addition, the Company has entered
into exclusive marketing and distribution agreements with other medical device
companies, under the TUTOPLAST label, for specialized indications. One such
distribution agreement with IOP, Inc., ("IOP") which has been in effect since
1998, is for TUTOPLAST implants for ophthalmic use. A second project, for use of
TUTOPLAST fascia lata in urological and gynecological indications, was concluded
in January 1998 with Mentor Corporation ("Mentor"). In fiscal year 2004, Mentor
has accounted for 9% and 11%, respectively, of the Company's total and U.S.
revenues. In March 2000, a project was concluded with Spine for marketing in the
U.S and distribution internationally of TUTOPLAST processed bone tissues for
spinal applications. Marketing of these products began in September 2000. In
September 2000, the Company entered into an agreement with Dental, whereby
Dental will market in the U.S. and distribute TUTOPLAST processed bone tissue
for dental applications in certain international markets. In October 2001, the
Company entered into a project with Mentor for use of TUTOPLAST processed Dermis
in urological and gynecological indication. In April 2003, the Company entered
into an Exclusive License and Distribution Agreement ("Agreement") with Spine
redefining the terms governing its relationship. Effective with this agreement,
Spine will continue to market the Tutoplast products for the spine market,
however, Spine has become a "stocking distributor", whereby Spine now purchases
the Company's products and invoices the customer directly. Finally, in August
2004, the Company expanded its dental market by signing an Exclusive
Distribution Agreement with Zimmer Dental to market its products in Canada.
Internationally, the Company has implemented a marketing and sales
restructuring plan, concentrating on an in-depth penetration of markets with
major needs, i.e. in Europe, specifically with a "focus" on countries such as
Germany, France, Italy, Spain and the U.K. The Company believes that the recent
collaborations with Spine and Dental will increase its penetration of the
international markets for processed bone tissue.
SOURCES OF TISSUE AND PRODUCTS
The Company receives donor tissue from multiple sites in Europe and the
United States. This tissue is procured by independent procurement organizations
and the Company reimburses these organizations for the costs of their
procurement (recovery fees). The Company continuously strives to comply and
remain current with existing laws and regulations related to procurement, donor
screening, donor suitability, testing, processing, storage and distribution. It
is anticipated that government laws and regulations involving human donor
tissues will continue to change in the countries presently serviced by the
Company (see Government Regulations). Accordingly, the Company continues to seek
additional contacts with authorized health care agencies, accredited tissue
banks, organ procurement organizations and governments. The Company expects
that, in most markets, demand for its TUTOPLAST processed allografts will
continue to exceed the current donor tissues available to the Company for
processing.
Tissue recoveries, both in the United States and internationally are
subject to a continuous quality program. The import program from Europe to the
U.S. has been given high priority, and the levels of shipments are increasing
steadily. The international tissue recovery base will be expanded to include
Tissue Services Coordinators who will monitor the levels and types of
recoveries. Domestic and European tissue recoveries are on track to meet the
plan for fiscal 2005. The Company has recently hired a tissue procurement
manager to expand the domestic tissue recovery base. While the Company continues
to emphasize expanding its supply base, there can be no assurance that changing
laws or donation trends, in the countries from which it presently obtains
tissues, will not have a material adverse effect on the Company's operations.
4
The FDA has published a Draft-note for implementation Donor Eligibility
Guidance to Industry document that discusses measures to reduce the possible
risk of transmission of Creutzfeldt-Jakob Disease (CJD) and variant
Creutzfeldt-Jakob Disease (vCJD) by human cells, tissue, and cellular and
tissue-based products. This document represents the agencies current thinking on
donor deferral criteria for donors that could have been potentially exposed to
the Bovine Spongiform Encephalopathy (BSE) agent ("Mad Cow" disease). The draft
is in the review stage, which precedes the adoption of a final version of the
FDA's position on this matter. Since 1996 the vCJD and BSE epidemics have
continued to evolve, and more BSE cases have been reported in Europe, including
new reports of BSE in Spain, Italy, Germany, the Czech Republic, Greece,
Slovenia, Slovakia, Austria, and Finland. Japan and Israel have also reported
BSE, and many other countries, which also imported meat and bone meal from the
UK from 1980 to 1996, may also have BSE. The impact of adoption of the draft
document for Tutogen may be the ban of tissue from countries with known cases of
BSE. This may result in a 10-15% reduction in importation of tissues to the US,
however management does not believe that it will have material adverse affect on
the Company's business, as new sources of tissues have been identified and are
available.
BACK ORDER
While Tutogen worldwide has back orders on certain tissue types and
tissue sizes, the allograft demand is most significant in the U.S. market. The
U.S. is the largest market in the world for allografts and has historically
represented the Company's largest market. The Company currently has back orders
that are expected to be filled within the next three months; however, the
Company cannot predict with absolute certainty its ability to fill specific
orders in this time frame. As of September 30, 2004, the Company's back order
for all tissues was approximately $110,000. Because orders may be canceled or
rescheduled, the Company believes that backlog is not always an accurate
indicator of results of operations for specific future periods.
COMPETITION
Tutogen is a leader in safe bioimplants for tissue repair. Tutogen's
competitive advantage is based on its TUTOPLAST process of tissue preservation
and viral inactivation. The TUTOPLAST process is based upon solvent dehydration,
which preserves the tissue's integrity, and allows the implants to remodel in
the course of normal healing. The TUTOPLAST process has an outstanding safety
record. Since its introduction more than thirty (30) years ago, more than
1,000,000 procedures have been successfully performed using TUTOPLAST processed
tissues, with no known complications from disease transmission or tissue
rejection attributable to the implants. TUTOPLAST processed implants have been
described in more than 400 published scientific papers.
The majority of the medical procedures suitable for allografts are
currently being performed with autografts (tissues derived from the patient)
requiring a second surgical procedure. The advantages of autografts include the
decreased incident of tissue rejection and disease transmission. The
disadvantages are the dual surgical procedures, increased pain and recovery time
and the limitation on the amount and quality of tissue. Allograft advantages
include the elimination of a second surgical site resulting in lower infection
rates, the possible reduction in surgical procedure time, faster recovery times
and lower costs, while disadvantages include availability and possible
rejection. Availability and safety are the primary factors in the ability of
TUTOPLAST processed allografts to compete with autografts for use by the
surgical community.
The industry in which the Company operates is highly competitive. The
1996 departure of a major German competitor from the business of soft tissue
allografts left Tutogen as the largest processor in the international market.
Processors of allograft tissue for transplantation in the U.S. include
commercial processors such as Osteotech, Inc., Regeneration Technologies, Inc.
and CryoLife, Inc., companies well established in the fields of bones and heart
valves respectively, and which have substantially greater financial resources
than the Company. Not-for-profit tissue banks that procure and process tissue
for distribution are
5
considered competitors for certain applications and in certain markets.
Management believes that the TUTOPLAST process, with its impressive record for
safety in the surgical community, gives the Company a competitive advantage over
its competitors. However, due to government regulation, disrupted sources of
availability and increasing competition, there can be no assurance that the
Company will be able to continue to compete successfully. In addition, there can
be no assurance that in the future the Company's allografts will be able to
compete successfully with newly developed tissue substitutes being developed by
other companies.
GROWTH STRATEGY
The Company estimates the worldwide market for its present products to
be about $1 billion, including all procedures in its field of use. The Company's
existing tissue supply network, established processing facilities and proven
TUTOPLAST technology provides the foundation for continued growth into fiscal
2005 and beyond. The future growth may be aided by new sources of tissue, new
applications and products and expansion into new markets.
TISSUE SUPPLY AND PROCESSING
The Company has an established network in the United States and Europe
for tissue supply that meets or exceeds the high standards set by the FDA, the
German Health Authority ("BfArM") and other regulatory agencies. This network
incorporates a reliable logistic system that provides for a continuous supply of
tissue with complete traceability. Individual tissue reference samples are
stored for ten (10) years beyond the date of expiration. These high standards of
recovery permit such tissue to be imported into the U.S. The Company is engaged
in an aggressive program to expand its donor network in the U.S.
Tutogen operates two processing facilities, one in Alachua, Florida and
the other in Neunkirchen, Germany. Both facilities are registered with the FDA
Center for Biologics Evaluation and Research (CBER) in accordance with
registration and listing requirements for human tissue based products; and have
ISO 9001 and ISO 13485 certification. The Alachua, Florida facility is
registered with the FDA Center for Devices and Radiological Health (CDRH) as a
medical device manufacturer and is licensed in the States of New York and
Florida. The German facility is registered as a pharmaceutical and medical
device manufacturer. Tutogen is an accredited member of The American Association
of Tissue Banks ("AATB"). The expansion of the Alachua facility into bone
production complements a major expansion and modernization initiated at the
Neunkirchen facility. These expansions will allow the Company to keep pace with
growing product demands for the next several years.
XENOGRAFTS
The worldwide demand for allografts, tissue derived from human sources,
is anticipated to represent a significant challenge. Faced with this constraint,
the Company embarked on a program in 1993 to develop xenografts, tissue derived
from animals, as an allograft substitute. The current revenue mix worldwide is
approximately 85% allografts and 15% xenografts. As with allografts, xenografts
processed using the Company's proprietary TUTOPLAST process have their
biomechanical properties and remodeling capacity preserved with removal of
antigenicity and infection risk. Studies have shown, that TUTOPLAST processed
xenografts are at least equivalent to Allografts as demonstrated by actual
clinical use and laboratory studies. To date, the Company has received CE-Marks,
the European equivalent to an FDA medical device approval, for bovine
pericardium (1998), bovine cancellous bone (1997) and bovine compact (cortical)
bone (1999) which permits distribution throughout Europe of products derived
from such tissues. In the US the Company has received FDA 510(k) clearances for
bovine pericardium, allowing the Company to market the first xenograft tissues,
Tutopatch(R) and Tutomesh(R), for indications of general and plastic surgery.
Tutopatch(R) and Tutomesh(R) are intended to be produced from bovine pericardium
obtained from U.S. cattle, a source
6
deemed free of Bovine Spongiform Encephalopathy ("BSE") and inspected/cleared by
the United States Department of Agriculture (USDA).
The superior biomechanical properties of bovine tissues combined with
the absence of those supply constraints associated with allografts, permits the
use of xenograft tissues, in areas that cannot be optimally addressed with human
tissue.
NEW APPLICATIONS AND PRODUCTS
A major component of Tutogen's growth strategy is focused on the
introduction of new products and applications for TUTOPLAST processed tissues.
In November 2001, the Company developed a TUTOPLAST Processed Dermis(TM)
product to be exclusively distributed by the Mentor Corporation. The TUTOPLAST
Processed Dermis(TM) has application in Mentor's Suspend(TM) procedure that is
used to treat female incontinence as well as for pelvic floor surgical
procedures. Female incontinence is an extremely unpleasant medical condition
suffered by a large and growing population. In the procedure the surgeon
repositions and levels the bladder by creating a sling that cradles the bladder.
The procedure was developed and pioneered by Mentor. The Company contributed
their tissue engineering and preservation expertise knowledge to in the support
of the development of the procedure. The procedure has won rapid and wide
acceptance as a safe and effective treatment for this condition. The number of
women electing to have this procedure each year continues to climb.
In September 2002, Tutogen entered the market for sports medicine with
the introduction of its LigaTech(TM) product line for ligament replacement and
repair. This product line includes TUTOPLAST processed specialty allograft
products utilizing soft tissue and BTB combination products for ACL repair and
reconstruction. There are over 200,000 ACL procedures performed in the U.S.
annually with an aggregate market size of $500 million. TUTOPLAST soft membrane
and bone allograft products have also been successfully used in shoulder, hip,
and hand repair, as well as achilles tendon repair and reconstruction. These
products are being distributed through a network of independent distributors in
the U.S. and Europe.
In October 2002, the Company entered the European market with
Tutomesh(R) a TUTOPLAST processed biological membrane for hernia and abdominal
wall repair. In 2001, there were 880,000 hernia surgery procedures (in the
U.S.), with an aggregate market size of $250 million. Tutomesh(R) has already
been successfully used in abdominal wall surgery of neonates and children with
hernia defects. These products are initially being sold through the Company's
direct sales force in Germany. In Europe, a distributor network is being
established, focusing on Italy, Spain and Great Britain.
In February 2003, the Company introduced the Cervical Spacer, an
anterior cervical intervertebral fusion, marketed and distributed by Spine.
Several patents and trademarks have been submitted to the appropriate
agencies in order to assist and accomplish the goals for expansion and growth.
EXPANSION INTO NEW MARKETS
TUTOPLAST processed tissues and products have application in numerous
surgical indications. The Company enjoys high degrees of success in two such
niches, ophthalmology and urological/gynecological with its strategic partners
IOP and Mentor, and has established similar relationships to address additional
markets. One such relationship was established in March 2000 with Spine for the
worldwide distribution of TUTOPLAST processed bone tissues for spinal
applications. Marketing of the traditional bone products began in September
2000. In November 2001, Spine commenced marketing of the Company's first
biological specialty graft, the Tutogen Medical ALIF (Anterior Lumbar Interbody
Fusion). Also, in September 2000,
7
the Company entered into collaboration with Dental whereby Dental will market in
the U.S. and distribute internationally TUTOPLAST processed bone tissue for
dental applications. In February 2002, Spine commenced marketing of an
additional specialty graft, the Tutogen PLIF (Posterior Lumbar Interbody
Fusion). In February 2003, Spine commenced marketing of the Cervical Spacer
(anterior cervical intervertebral fusion) developed by the Company.
INTERNATIONAL OPERATIONS
Approximately 42%, 30% and 34% of the Company's net sales, respectively
for fiscal years 2004, 2003 and 2002 were derived from outside the United
States. The Company currently has sales in more than 30 countries located
primarily in the United States and Europe. As a result of it foreign sales and
facilities, the Company's operations are subject to the risks of doing business
internationally.
-------------------------- ------------------- ------------------ -----------------
(IN THOUSANDS) United States International Consolidated
-------------------------- ------------------- ------------------ -----------------
Revenues
-------------------------- ------------------- ------------------ -----------------
Year ended September 30,
-------------------------- ------------------- ------------------ -----------------
2004 $17,126 $12,204 $29,330
-------------------------- ------------------- ------------------ -----------------
2003 $21,168 $ 9,092 $30,260
-------------------------- ------------------- ------------------ -----------------
2002 $ 7,031 $13,716 $20,747
-------------------------- ------------------- ------------------ -----------------
For a discussion of the Company's long-lived assets as of September 30,
2004, 2003 and 2002 see Note 9 of "Notes to Consolidated Financial Statements"
and for the deferred tax assets for the years ended September 30, 2004, 2003 and
2002 see Note 10 of "Notes to Consolidated Financial Statements".
RESEARCH AND DEVELOPMENT
Tutogen continues to engage in research and development ("R&D"). The
Company's scientific personnel and university level consultants contractively
collaborate on research activities related to allograft and non-allograft tissue
development. The Company follows an Internal Product Development plan and
organizes all R&D activities, including the Zimmer Spine and Dental
collaboration. R & D expenditures increased 70% from $826,000 in 2003 to
$1,432,000 in 2004.
In allograft-related areas, R&D activities focus primarily on the
development of surgical solutions, standardized and tailor-made products instead
of offering grafting material to the surgeon. Also, continuing progress on the
application of the Company's proprietary TUTOPLAST process to various other
tissues has met with success. The Company continues to independently review its
processing technology to improve tissue safety and efficacy. Non-allograft
activities relate to explorations into the use of xenografts, tissue-engineered
grafts and improving healing. Clinical studies, evaluation and follow-up are
conducted on these activities. The Company's research efforts are subsidized by
its collaboration with non-profit research institutions. These activities will
be expanded substantially pending the availability of the necessary financial
resources. The Company is referred to in more than 400 publications.
CUSTOMERS
Spine and Mentor are principal customers to the Company, accounting for
approximately 13% and 9%, respectively, of the Company's net sales for the year
ended September 30, 2004. No other customer accounted for more than 10% of the
Company's net sales for the fiscal year 2004. In April 2003, the Company entered
into an Exclusive License and Distribution Agreement with Spine redefining the
terms governing its relationship. Effective with this agreement, Spine will
continue to market the TUTOPLAST products for the spine market, however, Spine
has become a "stocking distributor", whereby Spine now purchases the spine
products from the company and invoices the customers directly. The Company has
Exclusive Distribution Agreements with Mentor granting a license to exclusively
distribute the TUTOPLAST
8
Processed Fascia Lata, Pericardium and Dermis in their field of use, which is
defined as all urological and gynecological applications and procedures in the
United States and certain foreign markets.
PATENTS, LICENSES AND TRADEMARKS
Wherever possible, Tutogen seeks to protect its proprietary information,
products, methods and technology by obtaining patent and trademark protection.
Tutogen has 18 patents pending and has 15 registered trademarks covering several
countries worldwide. In the United States, the Company has two FDA accepted
510(k) applications for its various products or processes. The Company believes
that it has established itself through the TUTOPLAST trademark identity and a
record of safety and quality assurance that will survive beyond the life of the
patents.
GOVERNMENT REGULATION
Tutogen has contracts to receive, process and provide tissues worldwide.
Every country has its own regulatory requirements that are constantly under
review and subject to change. The Company believes it currently complies with
all appropriate governmental requirements and standards in each country where it
does business. There can be no assurance that changing governmental
administration or laws will not negatively impact the Company.
In the United States, the FDA has determined that all xenograft tissues
are subject to all provisions of the Food, Drug and Cosmetic Act and are
regulated as a medical device. The FDA Title 21, code of Federal Regulations,
Parts 1270 and 1271 Human Tissue Intended for Transplantation, currently
regulates all human tissues processed currently by the Company. Similarly,
tissue banks and procurement organizations, which provide the tissues to the
Company for processing, also must comply with the FDA Parts 1270 and 1271 and
its own country/state regulatory requirements.
In Germany, allografts are classified as drugs and the German government
regulates Tutogen tissue processing and distribution within Germany under
approvals as regulated by the German Drug Law. The European Commission has
issued a human tissue directive on April 7, 2004 to regulate allografts within
the European Community. At present, Tutogen's German facility is licensed and in
compliance with German law.
Both the FDA and German regulatory agencies conduct inspections of
processing facilities. The Company believes that worldwide regulation of
allografts is likely to intensify as governments increase their focus on the
growing demand for this type of tissue and the need to ensure the health and
welfare of its citizens. Management believes that the Company and its industry
will always be subject to changing regulations that could have a material
adverse effect on its financial condition and results of operations. Management
further believes that they can reduce this exposure by continuing to work
closely with government regulators in understanding the industry and drafting
reasonable and proper legislation. While the Company believes that it is in
compliance with all existing regulations, there can be no assurance that
changing laws or interpretations of existing laws will not have a material
adverse effect on the results of operations and cash flow.
ENVIRONMENTAL REGULATIONS
The Company's allografts and xenografts as well as the chemicals used in
processing are handled and disposed of in accordance with country-specific,
federal, state and local regulations. Since 1995, the Company has used outside
third parties to perform all biohazard waste disposal.
The Company contracts with a third party to perform all gamma-terminal
sterilization of its allografts. In view of the engagement of a third party to
perform irradiation services, the requirements for compliance with radiation
hazardous waste does not apply, and therefore the Company does not anticipate
9
that having any material adverse effect upon its capital expenditures, results
of operations or financial condition. However, the Company is responsible for
assuring that the service is being performed in accordance with applicable
regulations. Although the Company believes it is in compliance with all
applicable environmental regulations, the failure to fully comply with any such
regulations could result in the imposition of penalties, fines and/or sanctions
which could have a material adverse effect on the Company's business.
TECHNOLOGICAL CHANGE AND COMPETITION
The biomedical field continues to experience rapid and significant
technological change. Tutogen's success will depend upon its ability to
establish and maintain a competitive position in the marketplace with its
products and its ability to develop and apply its technology. There are many
well-established companies and academic institutions with greater resources that
are capable of developing products based on similar or new technology that could
effectively compete with those products offered by the Company.
FOREIGN EXCHANGE RATES AND FOREIGN TRANSACTIONS
A significant portion of the Company's revenues is derived from its
German operations, all of which are denominated in Euros. Fluctuations in the
U.S. Dollar/Euro exchange rate may therefore have a significant effect on the
Company's dollar results. Transactions with foreign suppliers and foreign
customers could be materially adversely affected by possible import, export,
tariff and other restrictions that may be imposed by the United States or other
countries.
EMPLOYEES
As of September 30, 2004, the Company employed a total of 186 full-time
and 18 part-time employees, of whom 35 full-time and 4 part-time were employed
in the United States and the remainder in Germany. Management believes its
relations with its employees are good.
ITEM 2. PROPERTIES.
UNITED STATES. The Company's domestic facilities are located in New
Jersey and Florida. In West Paterson, New Jersey, the Company leases
approximately 1,400 square feet of office space in which its administrative
headquarters is located. The lease will expire in December 2006 and has a base
rent of approximately $2,500 per month. The Company's processing plant in
Alachua, Florida has expanded from approximately 13,449 square feet to 20,205
square feet of leased space. The Florida lease expires January 31, 2006 and
rents for approximately $25,913 per month. The Company believes it is adequate
in space and condition for its current needs.
GERMANY. The Company's facility in Neunkirchen consists of six buildings
totaling some 28,000 square feet on approximately two acres of land. This
property is owned by the Company and should be sufficient in size and condition
to handle anticipated production levels for international markets into the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
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.
At September 30, 2004 and 2003, the Company accrued $476,000 and $836,000,
respectively with respect to the remaining appeal and
10
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no submission of matters to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
Since August 17, 2000, the Company's Common Stock has been traded on the
American Stock Exchange under the symbol "TTG". The following table sets forth
the range of high and low closing price information for the Company's Common
Stock for each quarter within the last two fiscal years.
Fiscal 2003 High Low
------------ ---- ---
First Quarter $ 3.50 $ 2.30
Second Quarter 3.60 2.45
Third Quarter 3.49 2.40
Fourth Quarter 5.55 3.30
Fiscal 2004
-----------
First Quarter $ 5.50 $ 4.05
Second Quarter 5.06 3.85
Third Quarter 4.59 3.89
Fourth Quarter 4.16 2.79
Such market quotations reflect inter-dealer prices, without retail
mark-ups, markdowns or commissions and may not necessarily represent actual
transactions.
HOLDERS
As of November 30, 2004, the approximate number of holders of record of
the Company's Common Stock was 372. The Company estimates that there are
approximately 2,100 beneficial holders.
DIVIDENDS
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying cash dividends in the foreseeable future until
earnings would generate funds in excess of those required to provide for the
growth needs of the Company.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding the
Company's equity compensation plan as of September 30, 2004.
11
- ----------------------------------------------- ------------------------- -------------------- -----------------------
Number of securities
Remaining available
For future issuance
Weighted-average under Equity
Number of securities to Exercise price of compensation plans
be Issued upon exercise Outstanding (excluding securities
of Outstanding options, options, reflected in column
Plan Category warrants and rights Warrants and rights (a))
- ----------------------------------------------- ------------------------- -------------------- -----------------------
(a) (b) (c)
Equity compensation plan approved by
Securities holders (1)..................... 2,138,768 $ 2.72 407,903
- ----------------------------------------------- ------------------------- -------------------- -----------------------
Equity compensation plan not approved by
Securities holders......................... -0- -0- -0-
- ----------------------------------------------- ------------------------- -------------------- -----------------------
- ----------------------------------------------- ------------------------- -------------------- -----------------------
Total 2,138,768 $ 2.72 407,903
- ----------------------------------------------- ------------------------- -------------------- -----------------------
- ----------------------------------------------- ------------------------- -------------------- -----------------------
(1) Reflects options to purchase shares of the Company's common stock and shares available for Issuance under the
Company's Stock Option Plan.
- ----------------------------------------------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED SEPTEMBER 30,
2004 2003 2002 2001 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 29,330 $ 30,260 $ 20,747 $ 13,162 $ 16,626
Gross margin % 60% 62% 59% 34% 51%
Operating income (loss) 3,528 3,820 1,666 (2,295) 2,837
Net income (loss) 1,503 2,262 901 (672) 2,801
Average shares outstanding for basic
earnings (loss) per share 15,734,000 15,495,000 15,114,000 14,749,000 11,900,000
Basic earnings (loss) per share 0.10 0.15 0 .06 (0.05) 0.24
Average shares outstanding for
diluted earnings (loss) per share 16,469,000 16,095,000 15,960,000 14,749,000 14,012,000
Diluted earnings (loss) per share 0.09 0.14 0.06 (0.05) 0.20
Balance Sheet Data:
Working capital $18,173 $15,783 $10,856 $8,805 $9,409
Total assets 34,347 30,403 23,748 19,277 14,840
Long-term debt 827 728 693 707 745
Stockholders' equity 22,083 18,046 13,928 12,457 11,738
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
RESULTS OF OPERATIONS
REVENUE AND COST OF REVENUE
Revenue for the year ended September 30, 2004 decreased $1.0 million or
3% to $29.3 million from $30.3 million in 2003. The US operation revenues were
$17.1 million or 19% lower than the 2003 revenues of $21.2 million. The decrease
in revenue was due to the new arrangement with Zimmer Spine ("Spine"). In April
2003, the Company signed a renegotiated U.S. Distribution Agreement with
Centerpulse Spine-Tech, now known as Zimmer Spine, whereby Spine has become a
"stocking distributor". The effect of this new arrangement means that Spine has
now been invoicing the end customer directly. The new agreement also has
eliminated marketing fees paid to Spine included in Distribution and Marketing.
The Company's U.S. revenues for the prior year would have been $17.2 million or
$4.0 million lower under the new agreement with Spine as compared to the U.S.
revenues of $17.1 million for 2004. The Spine business, after considering the
new arrangement, decreased by $2.0 million, which is the direct result of
over-buying by Spine at the end of the prior year. This decrease in the Spine
business was fully offset by an increase in the demand for the Company's
TUTOPLAST processed Puros(TM) Bone Grafting Material for dental applications
sold by Zimmer Dental ("Dental"), the Company's marketing partner. This product
line contributed an increase in revenue of $3.2 million from the comparable
year.
The International operation had revenues of $12.2 million or an increase
of 24% or $2.2 million from the 2003 revenues of $9.1 million. The increase in
revenues was positively impacted in the amount of $1.3 million by currency
exchange rates. The balance of the increase in revenues was primarily due to
increased penetration of the French market and improved distributor revenues
worldwide.
Gross margins for the year ended September 30, 2004 decreased to 60%
from 61% in 2003. The slightly lower margins were primarily due to an
unfavorable mix of lower margin products from the dental product revenues versus
the spine revenues. The Dental revenues as a percentage of total revenues
increased to 24% of total revenues versus 12% a year ago. This unfavorable mix
was partially offset by improved manufacturing efficiencies.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses decreased 6% in 2004 to $4.2 million
from $4.5 million in 2003. The overall decrease was due primarily to lower
compensation from unfilled positions and lower bonus ($462,000) and reduced bad
debt reserves ($237,000), partially offset by unfavorable foreign exchange
variance ($227,000), merger and acquisition expenses ($190,000) and other
expenses ($3,000). As a percentage of revenues, General and Administrative
expenses remained at 15% in 2004 and 2003.
DISTRIBUTION AND MARKETING
Distribution and Marketing expenses were essentially flat decreasing
$0.1 million in 2004 to $8.7 million from $8.8 million in 2003. 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 since May 1, 2003.
The Spine marketing fees of $2.9 million in 2003 were completely eliminated in
2004, while the marketing fees paid to Dental increased from $1.7 million in
2003 to $3.2 million in 2004 as a result of increased Dental revenues. The
reduction in overall marketing fees of $1.4 million was offset by unfavorable
foreign exchange variance ($526,000), higher compensation due to the re-building
of the direct sales force in Germany and new product managers in the U.S.
($398,000), product brochures and other marketing expenses
13
($175,000), higher travel expenses ($107,000), office expenses ($104,000),
increased commissions ($80,000) and other expenses ($10,000). As a percentage of
revenues, Distribution and Marketing expenses increased from 29% in 2003 to 30%
in 2004.
RESEARCH AND DEVELOPMENT
Research and Development expenses increased 75% in 2004 to $1.4 million
from $0.8 million in 2003. The increase was due to increased development efforts
in the spine, dental and ligament product areas. It was noted in last years MD &
A that the Company's R & D effort would increase in 2004. As a percentage of
revenues, Research and Development expenses increased from 3% in 2003 to 5% in
2004.
LITIGATION CONTINGENCY
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
$406. At September 30, 2004 and 2003, the Company accrued $476 and $836,
respectively 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.
OTHER INCOME/EXPENSE
Other expense for 2004 increased $233,000 from $368,000 in 2003 to
$601,000 in 2004. This was primarily the result of higher foreign exchange
losses due to the weakness of the dollar versus the euro and higher
inter-company balances at year-end.
INTEREST EXPENSE
Interest expenses in 2004 increased due to the leasing of capital
expenditure equipment.
PROVISION FOR INCOME TAXES
The provision for income taxes is solely due to the foreign entity being
taxed. The Company continues to record the existing valuation allowance on its
U.S. operations.
NET INCOME
As a result of the above, net income for the year ended September 30,
2004 totaled $1.5 million, $0.10 basic and $0.09 diluted earnings per share as
compared to a net income of $2.3 million, $0.15 basic and $0.14 diluted earnings
per share for 2003. As a percentage of revenues, net income decreased from 7.5%
in 2003 to 5.1% in 2004.
ACCOUNTS RECEIVABLE
The accounts receivable balance decreased in 2004 by 11% due to an
increase in collection efforts resulting in a 32% improvement of the day's sales
outstanding from 71 in 2003 to 50 in 2004.
INVENTORY
The inventory balance increased to $15.1 million at September 30, 2004
or 26% from $12.0 million at September 30, 2003. This increase was partially due
to a 12% weakening of the dollar against the euro.
14
The higher inventory also reflects the meeting of contractual commitments in
terms of safety stock with its two major marketing partners, Spine and Dental
and the building of inventory associated with the introduction of two new
product lines for dental applications.
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
RESULTS OF OPERATIONS
REVENUE AND COST OF REVENUE
Revenue for the year ended September 30, 2003 increased $9.5 million or
46% to $30.3 million from $20.7 million in 2002. The US operation revenues were
$21.2 million or 54% higher than 2002. The revenue increase was primarily due to
an increase in the demand for the Company's TUTOPLAST processed bone products
for spinal and dental applications sold by Spine and Dental, the Company's
marketing partners. These products contributed $8.1 million of the increase in
revenue. This increase was fueled by the introduction, by Spine in February of a
new TUTOPLAST specialty graft, the C-Graft for cervical spine fusion, and
increased sales levels for the Puros(TM) Symmetry(TM) PLIF Allograft System for
spine applications and the Puros(TM) Bone Grafting Material for dental
applications. The International operation had revenues of $9.1 million or an
increase of 30% from 2002. The increase in revenues was primarily due to
increased penetration of the German market and improved distributor revenues
worldwide.
Gross margins for the year ended September 30, 2003 increased to 62%
from 59% in 2002. The higher margins were primarily due to a favorable mix of
higher margin products from the spinal revenues. The Spine revenues contributed
$10.8 million versus $5.1 million in 2002. This combined with improved
manufacturing efficiencies resulted in higher margins.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses increased 34% in 2003 to $4.5
million from $3.3 million in 2002. The overall increase was due primarily to
support the Company's 46% increase in revenue growth, resulting in additional
staff ($359,000), foreign exchange variance ($296,000), increased provision for
bad debts ($250,000), higher office expenses ($122,000), telephone expenses
($48,000), investor relations/banker ($23,000) and other expenses ($234,000). As
a percentage of revenues, General and Administrative expenses decreased from 16%
in 2002 to 15% in 2003.
DISTRIBUTION AND MARKETING
Distribution and Marketing expenses increased $2.5 million or 39% in
2003 to $8.8 million from $6.4 million in 2002. The increase was primarily due
to the re-building of the direct sales force in Germany ($595,000), foreign
exchange variance ($549,000), higher travel expenses ($124,000), product
brochures and other marketing expenses ($295,000) and increased marketing fees
paid under the agreements with Spine and Dental as a result of the increase in
the spine and dental revenues ($897,000). Such fees increased from $3.7 million
in 2002 to $4.6 million in 2003. As a percentage of revenues, Distribution and
Marketing expenses decreased from 31% in 2002 to 29% in 2003.
RESEARCH AND DEVELOPMENT
Research and Development expenses decreased 10% in 2003 to $0.8 million
from $0.9 million in 2002. The decrease was due to the timing of certain
projects. It is anticipated that the Company's R & D effort will increase in
2004. As a percentage of revenues, Research and Development expenses decreased
from 4% in 2002 to 3% in 2003.
15
LITIGATION CONTINGENCY
This represents a provision for a judgment received against the Company
in Germany regarding a dispute between the Company and a former international
distributor in the amount of $657,000 in 2003 and $46,000 in 2002. The judgment
is expected to be appealed.
OTHER INCOME/EXPENSE
Other expense for 2003 increased substantially from income of $75,000 in
2002 to expense of $368,000 in 2003. This was primarily the result of
unfavorable foreign exchange losses due to the weakness of the dollar versus the
euro ($350,000) and other miscellaneous expense ($18,000).
INTEREST EXPENSE
Interest expenses in 2003 decreased 15% due to the Company's ability to
maintain minimum revolving credit balances.
PROVISION FOR INCOME TAXES
The provision for income taxes is solely due to the foreign entity being
taxed. The Company continues to record the existing valuation allowance on its
U.S. operations.
NET INCOME
As a result of the above, net income for the year ended September 30,
2003 totaled $2.3 million $0.15 basic earnings and $0.14 diluted earnings per
share as compared to a net income of $0.9 million or $0.06 basic and $0.06
diluted earnings per share for 2002. As a percentage of revenues, net income
increased from 4.3% in 2002 to 7.5% in 2003.
ACCOUNTS RECEIVABLE
The accounts receivable balance increased in 2003 by 74% due to the 46%
increase in revenues and a significant change in the mix of class of customer
(doctors, hospitals, etc.) as a result of the increase in the spine and dental
product revenues from year to year. The day's sales outstanding have increased
from 60 in 2002 to 71 in 2003.
INVENTORY
The inventory balance increased in 2003 by 21% or $2.0 million while the
total revenues increased by 46%. This increase was primarily due to the
weakening of the dollar against the euro as the result of a 17% weakening of the
dollar. The higher inventory also reflects the meeting of contractual
commitments in terms of safety stock with its two major marketing partners,
Spine and Dental.
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
16
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 includes costs
attributable to direct labor and overhead. Reserves for slow moving and obsolete
inventories are provided based on historical experience, current product demand
and the remaining shelf life. 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. 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 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 2004, 2003 and 2002. 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 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 $700,000, $350,000 and $51,000 in
2004, 2003 and 2002, respectively. The exchange rates at September 30, 2004,
2003 and 2002 were Euro 0.083/U.S. Dollar, Euro 0.86/U.S. Dollar and Euro
1.01/U.S. Dollar, respectively.
CONCENTRATION OF CREDIT RISK
The exposure to risk related to foreign currency exchange is limited
primarily to inter-company transactions. The Company currently does not utilize
forward exchange contracts or any other type of hedging instruments.
The Company's principal concentration of credit risk consists of trade
receivables. Distribution of products and revenues is provided through a broad
base of independent distributors. Two customers accounted for 22% of
consolidated revenue in 2004 while the same two customers accounted for 30% of
consolidated revenue in 2003 and one customer accounted for 22% in 2002. The
Company does not believe that this concentration of sales and credit risks
represents a material risk of loss with respect to the financial position as of
September 30, 2004 and 2003.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004 and 2003 the Company had working capital of $18.1
million and $15.8 million, respectively, an increase of 15%. In the past, the
Company has relied upon its available working capital lines and institutional
investors to fund operational cash flow, when needed.
Net cash remained flat from 2003 to 2004 primarily as the result of
increased purchases of property and equipment, from purchases of $690 in 2003 to
$1,759 in 2004.
17
Net cash provided from operating activities was $380,000 in 2004
compared to net cash provided from operating activities of $1,116,000 in 2003.
The decrease resulted primarily from the decrease in net income of $759,000.
Net cash used in investing activities, representing purchases of capital
expenditures, was $1,759,000 in 2004 and $690,000 in 2003. The increase was due
to the construction of clean room facilities in Germany and expansion in the
Florida facility and replacement manufacturing equipment.
Net cash from financing activities in 2004 and 2003 of $496,000 and
$769,000 relates primarily to the exercise of stock options, partially offset by
payments on long-term debt. In 2004, the Company financed the purchase of
manufacturing equipment for the Florida facility through an equipment lease debt
instrument.
The Company's future minimum commitments and obligations under current
operating leases for its offices and manufacturing facilities in the U.S. and
Germany, as well as several leases related to office equipment and automobiles
through 2008 total $1,965,000. The Company considers these commitments and
obligations to be reasonable in order to maintain the current and future
business requirements.
The following table summarizes the Company's contractual obligations as
of September 30, 2004:
------------------------------- ---------- ------------ ---------- --------- ---------- ---------
(In thousands) Total 2005 2006 2007 2008 2009
------------------------------- ---------- ------------ ---------- --------- ---------- ---------
------------------------------- ---------- ------------ ---------- --------- ---------- ---------
Long-term debt $1,000 $ 173 $182 $195 $60 $390
------------------------------- ---------- ------------ ---------- --------- ---------- ---------
Operating lease obligations $1,965 $1,146 $521 $214 $64 $ 20
------------------------------- ---------- ------------ ---------- --------- ---------- ---------
The Company maintains current working capital credit lines totaling 1.5
million euros (approximately $1.9 million) with three German banks and a $1.0
million credit line with a U.S. bank. At September 30, 2004 the Company had no
borrowings against these lines. There are no covenants on the credit lines and
senior and equipment debt. The Company's ability to generate positive
operational cash flow is dependent upon increasing processing revenue through
increased recoveries by tissue banks in the U.S. and Europe, and the development
of additional markets and surgical applications for its products 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 results of operations or cash flow.
The Company may seek additional financing to meet the needs of its
long-term strategic plan. The Company can provide no assurance that such
additional financing will be available, or if available, that such funds will be
available on favorable terms.
ITEM 7A. QUANTITATIVE STATEMENTS AND SUPPLEMENTARY DATA.
In the United States and in Germany the Company is exposed to interest
rate risk. Changes in interest rates affect interest income earned on cash and
cash equivalents and interest expense on revolving credit arrangements. The
Company does not enter into derivative transactions related to cash and cash
equivalents or debt. Accordingly, we are subject to changes in interest rates.
Based on September 30, 2004 cash and cash equivalents and long-term debt, a 1%
change in interest rates would have a negligible impact on our results of
operations.
The value of the U.S. dollar affects our financial results. Changes in
exchange rates may positively or negatively affect revenues, gross margins,
operating expenses and net income. The Company does not maintain hedging
programs to mitigate the potential exposures of exchange rate risk. Accordingly,
the results of operations are adversely affected by the weakening of the U.S.
dollar against the Euro, since
18
certain products are manufactured and imported form the Company's wholly owned
subsidiary in Germany. Because of the foregoing factors, as well as other
variables affecting the operating results, past financial performance should not
be considered a reliable indictor of future performance.
ITEM 8. FINANCIAL STATEMENTS.
The information required by this Item is found immediately following the
signature page of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company's principal executive officer and principal financial
officer evaluated the Company's disclosure controls and procedures (as defined
in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended) as of a date within 90 days before the filing of this annual report
(the "Evaluation Date"). Based on that evaluation, the principal executive
officer and principal financial officer of the Company concluded that, as of the
Evaluation Date, the disclosure controls and procedures, established by the
Company were adequate to ensure that information required to be disclosed by the
Company in reports that the Company files under the Exchange Act, is recorded,
processed, summarized and reported on a timely basis in accordance with
applicable rules and regulations. There have been no 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.
ITEM 9B. OTHER INFORMATION.
None PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of the directors and
executive officers of the Company (each, a "Director" and/or "Officer"), the
positions and offices that each Director and Officer held with the Company, and
the period during which each served in such positions and offices. Each Director
serves for a term of one (1) year, until his successor is duly elected and
qualified.
19
TABLE OF DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
NAME AGE POSITIONS/OFFICES PERIOD SERVED IN
OFFICE/POSITION
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
G. Russell Cleveland 66 Director 1997 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Roy D. Crowninshield, Ph.D. 56 Chairman of the Board and CEO July 2004 - present
Director 2003 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Robert C. Farone 62 Director May 1999 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
J. Harold Helderman, MD 59 Director 1997 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Manfred K. Kruger 58 President July 1999 - present
Chief Executive Officer December 1999 - June
2004
Chief Operating Officer July 1999 - present
Director June 1997 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
George Lombardi 61 Chief Financial Officer, 1998 - present
Treasurer and Secretary
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Richard J. May 40 Director April 2004 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Thomas W. Pauken 60 Director January 1999 - present
Chairman of the Board April 2000 - April 2004
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
Carlton E. Turner, Ph.D. 64 Director 2000 - present
- ------------------------------------------ ---------- --------------------------------------- ----------------------------
The following is a summary of the business experience of each of the
Company's Officers and Directors listed in the above-referenced table, and of
certain other significant employees of the Company, during the past five (5)
years.
OFFICERS AND DIRECTORS
G. RUSSELL CLEVELAND is the President, Chief Executive Officer, sole
Director, and majority shareholder of Renaissance Capital Group, Inc.
("Renaissance"). He is also President, Chief Executive Officer, and a director
of Renaissance Capital Growth & Income Fund III, Inc. Mr. Cleveland is a
Chartered Financial Analyst with more than thirty-five (35) years experience as
a specialist in investments for smaller capitalization companies. A graduate of
the Wharton School of Business, Mr. Cleveland has served as President of the
Dallas Association of Investment Analysts. Mr. Cleveland currently serves on the
Boards of Directors of Renaissance U.S. Growth & Income Trust PLC, Cover-All
Technologies, Inc., Digital Recorders, Inc., Integrated Security Systems, Inc.,
and BFS U.S. Special Opportunities Trust PLC (London).
ROY D. CROWNINSHIELD, PH.D. is the current Chairman of the Board and
CEO. Prior to joining Tutogen, Dr. Crowninshield served twenty-one (21) years in
various capacities at Zimmer Holdings, Inc., including President of Zimmer's
U.S. operations and most recently as the Company's Chief Scientific Officer.
Prior to joining Zimmer, Inc. in 1983, he was a faculty member at the University
of Iowa where he led many research projects evaluating the function of total
joint implants. He currently holds academic appointments as a professor in the
Orthopedic Surgery Department at Rush Medical College in Chicago, Illinois and
as an adjunct professor in the College of Engineering of the University of Notre
Dame. He holds undergraduate and doctorate degrees from the University of
Vermont. He has worked in the orthopedic industry for over twenty (20) years and
has extensive experience in the research and development, manufacture, and
clinical investigation of orthopedic implants. He has authored more than 100
journal articles, book chapters, and published abstracts in orthopedics and
engineering.
20
ROBERT C. FARONE has been Vice President/General Manager of Samsonite
Company Stores since June 2001. Samsonite Company Stores is a chain of 188
retail luggage stores. Mr. Farone had been President of Bag'n Baggage, Ltd. from
June 1985 through February 2001. Bag'n Baggage is an 80-store retailer of
luggage and leather goods operating in eight (8) states under the trade names
Bag'n Baggage, Biagio, Houston Trunk Factory, Malm and Roberto's. Mr. Farone has
also served as a director on the board of Caribbean Marine, Inc. from June 1985
to April 2001. From September 1985 to July 1986 he served as a director on the
board of 50 Off Stores, and from August 1988 to September 1991 he served as
Chairman of the Board. 50 Off Stores was a regional chain of deep discount
stores specializing in ready to wear having 72 locations in five states.
J. HAROLD HELDERMAN, MD is Dean of Admissions and Professor of Medicine,
Microbiology and Immunology at Vanderbilt University, Nashville, Tennessee, and
is the Medical Director of the Vanderbilt Transplant Center. Dr. Helderman
received his MD from the State University of New York, Downstate Medical Center
in 1971, Summa Cum Laude. In addition to book and monograph writings, he has
authored more than 125 publications in his field of transplant medicine. Dr.
Helderman is past President of the American Society of Transplantation.
MANFRED K. KRUGER joined the Company in June 1997 as General Manager of
the Company's German subsidiary. In that capacity, he was responsible for all
scientific research and development, production, and distribution and sales. In
February 1999, he became Chief Operating Officer and a member of the Company's
Board of Directors. On July 1, 1999 he was appointed President of the Company.
Prior to joining the Company, Mr. Kruger was Executive Vice President of
Fresenius Critical Care International, a division of Fresenius Medical Care, AG.
Prior to Fresenius, Mr. Kruger held management positions with Squibb Medical
Systems and American Hospital Supply.
GEORGE LOMBARDI is the Company's Chief Financial Officer, Treasurer and
Secretary. He joined the Company in March 1998. Mr. Lombardi was the Vice
President, Chief Financial Officer of Sheffield Pharmaceuticals, Inc., a
publicly held (AMEX) development stage pharmaceutical/biotech Company. Before
that, he was the CFO and Director of Fidelity Medical, Inc. and a Senior
Financial Executive for the New Jersey and New England Operations of National
Health Laboratories, Inc. Prior to this, Mr. Lombardi held Senior Financial
positions at the Boehringer Ingelheim Pharmaceutical Company and the Revlon
Healthcare Group in New York. Mr. Lombardi is a CPA certified in the state of
New Jersey and has a degree in accounting from Fairleigh Dickinson University.
MR. RICHARD J. MAY has been Vice President of Tax and Tax Counsel of
Zimmer Holdings, Inc. since January 2004. Prior to this, he held both tax and
finance senior executive positions with Centerpulse, which was recently acquired
by Zimmer Holdings, Inc. His most recent position with Centerpulse was Group
Vice President Finance and Tax Counsel, primarily responsible for the
worldwide/global tax function. Mr. May has over eighteen (18) years of
experience in corporate tax, accounting and finance roles. Prior to joining
Centerpulse (previously Sulzer Medica), he worked at Rockwell International and
Arthur Andersen & Co. He holds a bachelor's degree in accounting (summa cum
laude) from Texas A & M University and a Jurist Doctor degree (cum laude) from
the University of Houston Law Center. He is a Certified Public Accountant and a
member of the Texas Bar.
THOMAS W. PAUKEN currently serves as the Trustee for Capital Partners
II, Ltd. Liquidating Trust. He also serves on the Board of TOR Minerals
International, Inc. For six (6) years, Mr. Pauken served as Vice President and
Corporate Counsel of Garvon, Inc., a Dallas-based venture capital company. From
1981 to 1985, Mr. Pauken served as Director of ACTION, an independent federal
agency. He also served on the White House legal Counsel's staff during the
Reagan Administration. Mr. Pauken's military service included a tour of duty in
Vietnam as a Military Intelligence Officer. Mr. Pauken received a B.A. from
Georgetown University and J.D. degree from Southern Methodist University Law
School.
21
CARLTON E. TURNER, PH.D., D.SC. has been the President and Chief
Executive Officer of Carrington Laboratories, Inc. ("Carrington") (NASDAQ: CARN)
since April 1995. Carrington is a research-based pharmaceutical and medical
device company in the field of wound care products. Dr. Turner has also served
as the Chief Operating Officer from November 1994 to April 1995 and as the
Executive Vice President of Scientific Affairs from January 1994 to November
1994 at Carrington. Before that, he was the President, Chief Operating Officer
and Founder of Princeton Diagnostic Laboratories of America from 1987 to 1993.
From 1981 to 1987 he was an Assistant to President Ronald Reagan with Cabinet
Rank and Director of the White House Drug Policy Office. Previously, he was a
Research Professor and Director of the Research Institute of Pharmacological
Science, University of Mississippi.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company believes that the reporting requirements, under Section
16(a) of the Exchange Act, for all its executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company were satisfied.
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. The Compensation Committee is composed of
Messrs. Farone, Pauken and Dr. Helderman and is chaired by Mr. Farone. This
Committee approves, administers and interprets our compensation and benefit
policies, including our executive bonus programs. It reviews and makes
recommendations to our board of directors to ensure that our compensation and
benefit policies are consistent with our compensation philosophy and corporate
governance principles. This Committee is also responsible for establishing our
CEO's compensation.
Audit Committee. The Audit Committee is composed of Messrs. Turner,
Farone and Cleveland and is chaired by Dr. Turner. This Committee has general
responsibility for the oversight and surveillance of our accounting, reporting
and financial control practices. Among other functions, the Committee retains
our independent public accountants. Each member of the Committee is a
non-management director. Dr. Turner is a "financial expert" within the
definition of that term under the regulations of the Securities Act.
Nominating Committee. The Nominating Committee is composed of Messrs
Cleveland, Farone, Helderman, Pauken and Turner. This committee nominates
directors for election by the board or by stockholders and nominates directors
for membership on the committees of the board.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
The Company's outside Directors each receive a $6,000 annual retainer,
$1,500 per in-person attendance at Board and Committee meetings, $500 per
telephonic meetings, plus reimbursement of out-of-pocket expenses.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation awarded to, or paid to
all persons who have served as Chief Executive Officer and other officers or
individuals whose compensation exceeded $100,000 for this period.
22
SUMMARY COMPENSATION TABLE
- -------------------------- ------- ----------------------------------------- ---------------------------------- ---------------
Annual Compensation Long Term Compensation
- -------------------------- ------- ----------------------------------------- ---------------------------------- ---------------
Awards Payouts
- -------------------------- ------- -------------- ----------- -------------- ------------------------ --------- ---------------
Other Restricted Securities
Name And Principal Fiscal Annual Stock Underlying LTP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
($) ($) ($) ($) (#) ($) (1)($)
- -------------------------- ------- -------------- ----------- -------------- ----------- ------------ --------- ---------------
Roy D. Crowninshield 2004 21,000 (2) 0 0 0 100,000 0 0
Chief Executive Officer
Manfred K. Kruger 2004 428,550 0 0 0 0 0 67,600
President and Chief 2003 352,500 179,700 0 0 37,500 0 76,900
Operating Officer 2002 282,500 68,000 0 0 50,000 0 58,600
George Lombardi 2004 166,500 0 0 0 0 0 0
Chief Financial Officer 2003 160,125 67,500 0 0 20,000 0 0
Treasurer and Secretary 2002 152,300 29,000 0 0 0 0 0
Dr. Karl Koschatzky 2004 140,000 0 0 0 0 0 39,100
Vice President of 2003 107,600 32,400 0 0 45,000 0 28,800
R & D Worldwide 2002 91,200 18,750 0 0 15,000 0 17,600
- -------------------------- ------- -------------- ----------- -------------- ----------- ------------ --------- ---------------
(1) Includes pension and automobile leasing and other automobile related
expenses.
(2) Dr. Crowninshield was appointed Chairman and interim Chief Executive
Officer on July 1, 2004. As CEO of the Company, Dr. Crowninshield
devotes at least one-third of his time on Company affairs for which he
is compensated at the rate of $7,000 per month and was granted options
to purchase 100,000 shares of the Company's common stock.
EMPLOYMENT AGREEMENTS
On December 6, 2004, the Company entered into an employment agreement
with Mr. Guy W. Mayer to serve as Chief Executive Officer (CEO) of the Company,
commencing January 1, 2005. The term of employment is indefinite and terminates
upon written notice by the Company, notice of termination by Mr. Mayer or
termination of employment for cause. Minimum notice of termination by the
Company, except for cause, is one (1) year from the end of any calendar quarter.
Mr. Mayer's employment annual base salary will be $300,000. In addition, the
employment agreement provides for a bonus for the balance of the Company's
fiscal year 2005 in an amount up to 90% of his earned salary for fiscal 2005,
subject to the Company realizing certain performance goals based on revenue and
operating income. In addition, Mr. Mayer will be granted a ten (10) year option,
upon commencement of employment, to purchase 250,000 shares of the Company's
common stock, exercisable at the market price on the date of grant, 25% on the
date of grant and
23
25% on each of the first three (3) anniversaries. At such time that Mr. Mayer
assumes his duties as CEO, Mr. Crowninshield will resign as CEO but continue as
a board member.
The Company has an employment agreement with Manfred Kruger, its
President, Chief Operating Officer and Managing Director, International
Operations. Pursuant to that agreement, the term of Mr. Kruger's employment with
the Company commenced on June 16,1997. The agreement is for an indefinite period
and shall terminate upon written notice by the Company, notice of his election
to terminate, or the Company terminates his employment for cause. Minimum notice
of termination by the Company, except for cause, is one year from the end of a
calendar quarter. Mr. Kruger's annual base salary commencing April 1, 2005 will
be $320,000. In addition, the employment agreement provides for an annual bonus
in an amount up to 35% of his annual base salary, subject to the satisfaction of
reasonable performance goals established by the board. In addition, Mr. Kruger
has a "change of control" agreement whereby he is entitled to 12 months salary
in the event he is terminated as the result of a change of control of the
Company.
The Company has a severance agreement with George Lombardi, its Chief
Financial Officer, Treasurer and Secretary. Pursuant to that agreement, upon
written notice of his termination at least six weeks before a calendar quarter,
the Company will provide six months salary including medical benefits. Mr.
Lombardi's annual base salary is currently $166,500. The Company also provides
an annual bonus in an amount up to 30% of his annual base salary, subject to the
satisfaction of reasonable performance goals established by the board. In
addition, Mr. Lombardi has a "change of control" agreement whereby he is
entitled to 12 months salary including medical benefits in the event he is
terminated as the result of a change of control of the Company.
STOCK OPTION PLANS
The Company has a 1996 Incentive and Non-Statutory Stock Option Plan
(the "1996 Plan") to attract, maintain and develop management by encouraging
ownership of the Company's Common Stock by Directors, Officers and other key
employees. The following is a summary of the provisions of the 1996 Plan. This
summary is qualified in its entirety by reference to the 1996 Plan, a copy of
which may be obtained from the Company.
The 1996 Plan authorizes the granting of both incentive stock options,
as defined under Section 422 of the Internal Revenue Code of 1986 ("ISO"), and
non-statutory stock options ("NSSO") to purchase Common Stock. All employees of
the Company and its affiliates are eligible to participate in the 1996 Plan. The
1996 Plan also authorizes the granting of NSSOs to non-employee Directors and
consultants of the Company. Pursuant to the 1996 Plan, an option to purchase
10,000 shares of Common Stock shall be granted automatically to each outside
Director who is newly elected to the Board. In addition, an option to purchase
10,000 shares of Common Stock shall be granted automatically, on the date of
each annual meeting of shareholders of the Company, to each outside Director who
has served in that capacity for the past six months and continues to serve
following such meeting. Any outside Director may decline to accept any option
granted to him under the 1996 Plan.
The Board of Directors or the Compensation and Stock Option Committee is
responsible for the administration of the 1996 Plan and determines the employees
to which options will be granted, the period during which each option will be
exercisable, the exercise price, the number of shares of the Common Stock
covered by each option, and whether an option will be a non-qualified or an
incentive stock option. The exercise price, however, for the purchase of shares
subject to such an option, cannot be less than 100% of the fair market value of
the Common Stock on the date the option is granted. The Stock Option Committee
has no authority to administer or interpret the provisions of the 1996 Plan
relating to the grant of options to outside Directors. The current members of
the Compensation and Stock Option committee are Robert C. Farone, J. Harold
Helderman and Thomas W. Pauken.
24
No option granted pursuant to the 1996 Plan is transferable otherwise
than by will or the laws of descent and distribution. The term of each option
granted to an employee under the 1996 Plan is determined by the Board of
Directors or the Compensation and Stock Option Committee, but in no event may
such term exceed ten (10) years from the date of grant. Each option granted to
an outside Director under the 1996 Plan shall be exercisable in whole or in part
during the four (4) year period commencing on the date of the grant of such
option. Any option granted to an outside Director should remain effective during
the entire term, regardless of whether such Director continues to serve as a
Director. The purchase price per share of Common Stock under each option granted
to a Director will be the fair market value of such share on the date of grant.
The vesting period for options granted under the 1996 Plan are set forth
in an option agreement entered into with the optionee. Options granted to an
optionee terminate three (3) years after retirement. In the event of death or
disability, all vested options expire one (1) year from the date of death or
termination of employment due to disability. Upon the occurrence of a "change in
control" of the Company, the maturity of all options then outstanding under the
1996 Plan will be accelerated automatically, so that all such options will
become exercisable in full with respect to all shares that have not been
previously exercised or become exercisable. A "change in control" includes
certain mergers, consolidation, and reorganization, sales of assets, or
dissolution of the Company.
The 1996 Plan presently reserves 3,500,000 shares of the Company's
Common Stock for issuance thereunder. As of September 30, 2004, options have
been issued for 3,092,097 shares and 407,903 shares remain available under the
1996 Plan. Unless sooner terminated, the 1996 Plan will expire on February 27,
2006.
OPTIONS GRANTED IN FISCAL YEAR 2004
The following table provides information as to options granted to the
Company's Chief Executive Officer during the fiscal year ended September 30,
2004. All such options were granted under the Company's 1996 Stock Option Plan.
- ----------------------- ------------------- ---------------- ------------- ---------------- --------------------------
Potential Realizable
Value at Assumed
Number of Annualized Rates of
Securities Percent of Stock Price Appreciation
Underlying Total Exercise or for Option Term (1)
Options Granted Options Granted Base Price Expiration 5% 10%
(#) To Employees ($/Sh) Date ----- -----
- ----------------------- ------------------- ---------------- ------------- ---------------- --------------------------
Roy D. Crowninshield 100,000 44.4% $3.75 August 5, 2014 $610,835 $972,653
- ----------------------- ------------------- ---------------- ------------- ---------------- ------------- ------------
(1) Potental realizable value is based on the assumption that the Common
Stock appreciates at the annual rate shown (compounded annually) from
the due date of grant until the expirationof the option term. These
numbers are calculated based on the requirements of the SEC and do not
reflect the Company's estimate of future price growth.
25
The following table sets forth the value of the unexercised options at
September 30, 2004. No options were exercised during this fiscal year. The
market price of the Company's common stock at September 30, 2004 was $2.99.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
- ---------------------------------------- -------------------------------------- --------------------------------------
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Name September 30, 2004 September 30, 2004
- ---------------------------------------- -------------------------------------- --------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------- ------------------ ------------------- ------------------ -------------------
Roy D. Crowninshield 25,000 75,000 - 0 - - 0 -
- ---------------------------------------- ------------------ ------------------- ------------------ -------------------
Manfred K. Kruger 568,750 31,250 $ 692,425 - 0 -
- ---------------------------------------- ------------------ ------------------- ------------------ -------------------
George Lombardi 208,000 10,000 $ 230,015 $ 3,200
- ---------------------------------------- ------------------ ------------------- ------------------ -------------------
Dr. Karl Koschatzky 90,418 36,250 $ 119,619 $ 7,200
- ---------------------------------------- ------------------ ------------------- ------------------ -------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Farone, Pauken and Dr.
Helderman. There are no "interlocks" as defined by the SEC with respect ot any
member of the committee.
COMPENSATION COMMITTEE REPORT
The following Report of the Compensation Committee and the information
under the heading Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference into any filing
under the Securities Act of 1933 or under the Securities Exchange Act of 1934
together, the "Acts"), except to the extent that the Company specifically
incorporates the information by reference, and shall not otherwise be deemed
filed uner the Acts.
The Compensation Committee oversees the Company's compensation program.
The goals of the Company's compensation program are to attract, retain, motivate
and reward highly qualified management personnel and to provide them with
long-term career opportunities. The Company's compensation philosophy is to
provide its executives with a competitive total compensation package which
motivates superior job performance, the achievement of the Company's business
objectives, and the enhancement of shareholder value.
Compensation of the Company's executive officers is reviewed annually by
the Board of Directors and the Compensation Committee. Changes proposed for
these employees are evaluated and approved by the Compensation Committee on an
individual basis. The Company's general approach to compensating executive
officers is to pay cash salaries which generally are competitive within ranges
of salaries paid to executives of other similar companies, although the Company
does not attempt to meet salary levels of such companies. Instead, the Committee
sets overall compensation at a level it believes to be fair, based upon a
subjective analysis of the individual executive's experience and past and
potential contributions to the Company. The Committee also establishes bonus
goals for executive officers so as to compensate them on a performance basis. To
assist in determining appropriate overall compensation, the Compensation
Committee also reviews information regarding the Company's revenues and income.
Stock option grants to employees of the Company, including the Chief
Executive Oficer, are made at the discretion of the Compensation Committee
pursuant to the Company's 1996 Stock Option Plan. Factors and criteria to be
used by the Committee in the award of stock options include individual
26
responsibilities, individual prerformenace and direct and indirect contributions
to the profitability performance and direct and indirect contributions to the
profitability of the Company.
Respectfully submitted,
The Compensation Committee
Robert C. Farone
Thomas W. Pauken
J. Harold Helderman, M.D.
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative five (5) year total
stockholder returns for the Company's Common Stock, with the cumulative return
of the Nasdaq Stock Market - U.S. Index and an industry peer group. The industry
peer group of companies selected by the Company is made up of the Company's
publicly held competitors in the Medical Device industry. The graph assumes the
investment of $100 on August 17, 2000, the date on which trading commenced on
the American Stock Exchange. The comparisons reflect in the table and graph,
however, are not intended to forcast the future performance of the Common Stock
and may not be indicative of such future performance.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TUTOGEN MEDICAL, INC.,
AMEX MARKET INDEX AND PEER GROUP INDEX
[PERFORMANCE GRAPH]
Note: Assumes $100 invested on August 17, 2000 and assumes dividends reinvested.
8/17/00 12/31/00 12/31/01 12/31/02 12/31/03
TUTOGEN MEDICAL 100.00 64.71 47.84 51.76 70.75
PEER GROUP INDEX 100.00 87.66 106.68 86.27 126.91
NASDAQ MARKET INDEX 100.00 90.88 86.69 83.23 113.29
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 30, 2004, by
(i) each person known to the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and executive officer of the Company, and (iii)
all directors and executive officers as a group. As of November 30, 2004, there
were approximately 15,915,960 shares of Common Stock issued and outstanding.
- -----------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE
OF BENEFICIAL OWNER OF BENEFICIAL OWNER (1)(2) OF CLASS (3)
- -----------------------------------------------------------------------------------------------------------------------------
Capital Partners II, Ltd. Liquidating Trust (5) (9) ...................... 2,924,964 18.38%
5646 Milton Street
Suite 628
Dallas, TX 75206
SPV 1996 LP. ............................................................. 1,896,794 11.92%
101 Finsbury Pavement
London, England
EC2A 1EJ
Zimmer CEP (formerly Centerpulse) USA Holding Co. ........................ 5,297,124 33.28%
Subsidiary of Zimmer Holdings, Inc.
345 East Main Street
Warsaw, IN 46580
G. Russell Cleveland (4) ................................................. 107,300 *
Roy D. Crowninshield (11)................................................. 35,000 *
Robert C. Farone (5) ..................................................... 145,814 *
Dr. J. Harold Helderman (7) .............................................. 118,535 *
Dr. Karl Koschatsky (8) .................................................. 87,043 *
Manfred K. Kruger (8) .................................................... 568,750 3.45%
George Lombardi (8) ...................................................... 208,000 1.29%
Richard J. May (6) ....................................................... - 0 -
Thomas W. Pauken (9) ..................................................... 3,263,004 20.35%
Carlton E. Turner (8)..................................................... 60,000 *
All directors and officers as a group (10 persons) (10) .................. 9,890,570 57.59%
* Less than 1%
1 In accordance with Rule 13d-3 promulgated pursuant to the Exchange Act,
a person is deemed to be the beneficial owner of the security for
purposes of the rule if he or she has or shares voting power or
28
dispositive power with respect to such security or has the right to
acquire such ownership within sixty days. As used herein, "voting power"
is the power to vote or direct the voting of shares and "dispositive
power" is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
2 Except as otherwise indicated by footnote, the persons named in the
table have sole voting and investment power with respect to all of the
common stock beneficially owned by them.
3 In calculating the percentage ownership for a given individual or group,
the number of shares of common stock outstanding includes unissued
shares subject to options, warrants, rights or conversion privileges
exercisable within sixty days after November 30, 2004 held by such
individual or group.
4 Includes 50,000 shares of common stock issuable upon exercise of options
exercisable within sixty (60) days. Mr. Cleveland is the President and
majority shareholder of Renaissance Capital Group, Inc. His business
address is 8080 N. Central Expressway, Suite 210-LB 59, Dallas, TX
75206.
5 Includes 50,000 shares of common stock issuable upon exercise of options
exercisable within sixty (60) days. Mr. Farone is a Supervisory Trustee
of Capital Partners II, Ltd. Liquidating Trust.
6 Mr. May serves on the board as representative of Zimmer Holdings, Inc.
Mr. May disclaims beneficial ownership of the shares owned by Zimmer CEP
USA Holding Co., a subsidiary of Zimmer Holdings, Inc.
7 Includes 90,000 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days.
8 All of the shares of common stock beneficially owned by Messrs.
Koschatzky, Kruger, Lombardi, and Turner are derivative securities
issuable upon exercise of options exercisable within sixty (60) days.
9 Includes all of the shares of common stock beneficially owned by Capital
Partners II, Ltd Liquidating Trust. Mr. Pauken is the Trustee of Capital
Partners II, Ltd. Liquidating Trust and has voting rights to all of the
shares owned by the Trust. Mr. Pauken separately has beneficial
ownership in 338,040 shares of common stock. It also includes 120,000
shares of common stock issuable upon exercise of options and warrants
exercisable within sixty (60) days.
10 Includes shares owned by Zimmer CEP USA Holding Co., a subsidiary of
Zimmer Holdings, Inc.
11 Includes 25,000 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has an exclusive license and distribution agreement with
Spine, a wholly owned subsidiary of Zimmer Holdings, Inc., whereby Spine has
been granted the right to act as the Company's exclusive distributor of bone
tissue for spinal applications in the United States. For the year ended
September 30, 2004, Spine revenues were $4.8 million.
The Company has also engaged Dental, a wholly owned subsidiary of
Zimmer, to act as an exclusive distributor for the Company's bone tissue for
dental applications in the United States and certain international markets. For
the year ended September 30, 2004, Dental was paid commissions aggregating
approximately $3.2 million on revenues of $6.9 million.
Centerpulse, a wholly owned subsidiary of Zimmer Holdings, Inc. is the
owner of approximately 33.3% of the Company's outstanding shares of Common Stock
and has representation on the Company's board of directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table represents the aggregate fees billed for
professional audit services rendered to the Company by Deloitte & Touche, LLP
for the audit of the Company's annual financial statements for the
29
years ended September 30, 2004 and 2003, and all fees billed for other services
by Deloitte & Touche LLP during those periods:
------------------------------------- -- ---------- -- -----------
Year Ended September 30, 2004 2003
------------------------------------- -- ---------- -- -----------
------------------------------------- -- ---------- -- -----------
Audit fees (1) $105,500 $126,873
------------------------------------- -- ---------- -- -----------
Audit-related fees (2) 27,864
------------------------------------- -- ---------- -- -----------
Tax fees (3) 11,462 4,134
------------------------------------- -- ---------- -- -----------
All other fees (4) 16,212
------------------------------------- -- ---------- -- -----------
Total Accounting Fees and Services $144,826 $143,085
------------------------------------- -- ---------- -- -----------
(1) AUDIT FEES. These are fees for professional services for the
audit of the Company's annual financial statements, and for the
review of the financial statements included in the Company's
filings on Form 10Q and for services that are normally provided
in connection with statutory and regulatory filings or
engagements.
(2) AUDIT-RELATED FEES. These are fees for the assurance and related
services reasonably related to the performance of the audit or
the review of the Company's financial statements.
(3) TAX FEES. These are fees for professional services with respect
to tax compliance, tax advice, and tax planning.
(4) ALL OTHER FEES. These are fees for permissible work that does
not fall within any of the other fee categories, i.e., Audit
Fees, Audit-Related Fees, or Tax Fees.
PRE-APPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES
The Company's Audit Committee has responsibility for the approval of all
audit and non-audit services before the Company engages an accountant. All of
the services rendered to the Company by Deloitte & Touche for the fiscal years
ended September 30, 2004 and 2003 were pre-approved by the Audit Committee
before the engagement of the auditors for such services.
The Company and the Audit Committee are working with the Company's legal
counsel to establish formal pre-approval policies and procedures for all future
engagements of the Company's accountants. In accordance with the rules and
regulations of the U.S. Securities and Exchange Commission relating to the
independence of auditors, the Company's new pre-approval policies and procedures
will be detailed as to particular services, will require that the Audit
Committee be informed of each service, and will prohibit the delegation of any
pre-approval responsibilities to the Company's management.
The Company's pre-approval policy will expressly provide for the annual
pre-approval of all audit, audit-related and all non-audit services proposed to
be rendered by the independent auditor for the fiscal year, as specifically
described in the auditor's engagement letter, such annual pre-approval to be
performed by the Audit Committee. The new policy will also provide that all
additional engagements of the auditor that were not approved in the annual
pre-approval process, and all engagements that are anticipated to exceed
previously approved thresholds, shall be presented by the President or Chief
Financial Officer of the Company to the Audit Committee for pre-approval, on a
case-by-case basis, before management engages the auditors for any such
purposes. The Audit Committee may be authorized to delegate, to one or more of
its members, the authority to pre-approve certain permitted services, provided
that the estimated fee for any such service does not exceed a specified dollar
amount.
30
All pre-approvals shall be contingent on a finding, by the Audit
Committee, or delegates thereof, as the case may be, that the provision of the
proposed services by the Company's auditor is compatible with the maintenance of
the auditor's independence in the conduct of its auditing functions. In no event
shall any non-audit related service be approved that would result in the
independent auditor no longer being considered independent under the applicable
rules and regulations of the Securities and Exchange Commission.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) INDEX TO EXHIBITS
3.2 Articles of Incorporation of Registrant.**
3.3 Articles of Amendment to Articles of Incorporation Establishing Series A
Preferred Stock.*
3.4 Articles of Amendment to Articles of Incorporation Establishing Series B
Preferred Stock.*
3.5 Articles of Amendment to Articles of Incorporation Establishing Series C
Preferred Stock.*
3.6 Articles of Amendment to Articles of Incorporation Increasing the Number
of Authorized Shares.*
3.7 Articles of Amendment to Articles of Incorporation Amending the Terms of
the Series C Preferred Stock.*
3.8 Articles of Amendment to Articles of Incorporation Effecting Reverse
Stock Split*
10.7 Employment Agreement between the Registrant and Manfred Kruger dated
June 9, 1997. *
10.8 Employment Agreement between Biodynamics International, Inc., and George
Lombardi, dated March 30, 1998.*
10.9 Employment Agreement between the Registrant and Mr. Guy Mayer dated
December 6, 2004.***
14 Code of Ethics***
21 Subsidiaries of Registrant.*
* Document incorporated by reference from previous Form 10-KSB filings.
** Document incorporated by reference from Exhibit 2 of Registration
Statement, on Form 20-F, of American Biodynamics, Inc., effective
October 2, 1987.
*** Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not required or are not
applicable or because the information required to be set forth therein either is
not material or is included in the financial statements or notes thereto.
(c) REPORTS ON 8-K
Reference is made to the Company's Form 8-K reports, dated November 3,
2003, December 16, 2003 and December 29, 2003, responding to Item 13.
31
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
Date December 23, 2004
TUTOGEN MEDICAL, INC.
/s/ Roy D. Crowninshield
------------------------
Roy D. Crowninshield
Chief Executive Officer
/s/ Manfred K. Kruger
---------------------
Manfred K. Kruger
President and Chief Operating Officer
/s/ George Lombardi
-------------------
George Lombardi
Chief Financial Officer, Treasurer and
Secretary
In accordance with the Exchange Act of 1934, this report has been signed
by the following persons on behalf of the registrant and in the capacities and
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ G. Russell Cleveland Director December 23, 2004
- -------------------------------
G. Russell Cleveland
/s/ Roy D. Crowninshield Director December 23, 2004
- -------------------------------
Roy D. Crowninshield
/s/ Robert C. Farone Director December 23, 2004
- -------------------------------
Robert C. Farone
/s/ J. Harold Helderman Director December 23, 2004
- -------------------------------
Dr. J. Harold Helderman
/s/ Manfred K. Kruger Director December 23, 2004
- -------------------------------
Manfred K. Kruger
/s/ Richard J. May Director December 23, 2004
- -------------------------------
Richard J. May
32
/s/ Thomas W. Pauken Director December 23, 2004
- -------------------------------
Thomas W. Pauken
/s/ Carlton E. Turner Director December 23, 2004
- -------------------------------
Carlton E. Turner
33
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2004, 2003 and 2002
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Tutogen Medical, Inc. and Subsidiaries
West Paterson, New Jersey
We have audited the accompanying consolidated balance sheets of Tutogen Medical,
Inc. and subsidiaries (the "Company") as of September 30, 2004 and 2003, and the
related consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 2004, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
November 19, 2004
New York, New York
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
(In Thousands)
- ------------------------------------------------------------------------------------------------------
2004 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,063 $ 5,049
Accounts receivable, net of allowance for doubtful
accounts of $192 in 2004 and $429 in 2003 4,922 5,526
Inventories - net 15,072 11,992
Deferred income taxes 425 404
Other current assets 1,409 1,098
-------- --------
Total current assets 26,891 24,069
PROPERTY, PLANT AND EQUIPMENT - Net 6,138 4,842
DEFERRED INCOME TAXES 1,318 1,492
-------- --------
TOTAL ASSETS $ 34,347 $ 30,403
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses $ 6,521 $ 7,438
Accrued commissions 1,521 445
Current portion of deferred distribution fees 642 617
Current portion of long-term debt 173 91
-------- --------
Total current liabilities 8,857 8,591
OTHER LIABILITIES:
Deferred distribution fees 2,580 3,038
Long-term debt 827 728
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 22,083 18,046
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,347 $ 30,403
======== ========
See notes to consolidated financial statements.
F-2
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
(In Thousands, Except for Share Data)
- ----------------------------------------------------------------------------------------------------------
2004 2003 2002
REVENUE $ 29,330 $ 30,260 $ 20,747
COST OF REVENUE 11,836 11,640 8,434
------------ ------------ ------------
Gross profit 17,494 18,620 12,313
------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 4,203 4,482 3,337
Distribution and marketing 8,737 8,835 6,361
Research and development 1,432 826 903
Litigation contingency (406) 657 46
------------ ------------ ------------
Total operating expenses 13,966 14,800 10,647
------------ ------------ ------------
OPERATING INCOME 3,528 3,820 1,666
OTHER (EXPENSE) INCOME (601) (368) 75
INTEREST EXPENSE (118) (53) (62)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,809 3,399 1,679
PROVISION FOR INCOME TAXES 1,306 1,137 778
------------ ------------ ------------
NET INCOME 1,503 2,262 901
COMPREHENSIVE INCOME:
Foreign currency translation adjustments 2,167 1,006 253
------------ ------------ ------------
COMPREHENSIVE INCOME $ 3,670 $ 3,268 $ 1,154
============ ============ ============
AVERAGE SHARES OUTSTANDING FOR BASIC
EARNINGS PER SHARE 15,734,470 15,495,148 15,114,412
============ ============ ============
BASIC EARNINGS PER SHARE: $ 0.10 $ 0.15 $ 0.06
============ ============ ============
AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE 16,469,443 16,095,448 15,959,975
============ ============ ============
DILUTED EARNINGS PER SHARE: $ 0.09 $ 0.14 $ 0.06
============ ============ ============
See notes to consolidated financial statements.
F-3
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2004, 2003 and 2002
(In Thousands)
- ----------------------------------------------------------------------------------------------------------------
2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,503 $ 2,262 $ 901
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 760 611 414
Deferred distribution fees revenue (640) (579) 646
Reserve for bad debts (245) 250 15
Reserve for obsolescence (953) 1,185 740
Deferred income taxes 869 1,152 135
Changes in assets and liabilities:
Accounts receivable 969 (2,388) (1,601)
Inventories (1,824) (2,545) (4,941)
Other current assets (241) (637) 935
Accounts payable and other accrued expenses (894) 2,750 1,128
Accrued commissions 1,076 (945) 951
--------- --------- --------
Net cash provided by (used in) operating activities 380 1,116 (677)
--------- --------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (1,759) (690) (354)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 367 850 317
Proceeds from revolving credit arrangements - 343 39
Repayment of revolving credit arrangements - (343) (628)
Proceeds from long-term borrowings 224 - -
Repayment of long-term debt (95) (81) (67)
--------- --------- --------
Net cash provided by (used in) financing activities 496 769 (339)
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 897 771 101
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14 1,966 (1,269)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,049 3,083 4,352
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,063 $ 5,049 $ 3,083
========= ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURE -
Interest paid $ 118 $ 53 $ 62
========= ========= ========
Income taxes paid $ 251 $ - $ -
========= ========= ========
See notes to consolidated financial statements.
F-4
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002 (In Thousands, Except for Share Data)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED COMMON
COMMON ADDITIONAL OTHER SHARES
SHARES PAID-IN COMPREHENSIVE ACCUMULATED ISSUED AND
($.01 PAR) CAPITAL INCOME (LOSS) (1) DEFICIT TOTAL OUTSTANDING
BALANCE, OCTOBER 1, 2001 $ 150 $ 34,820 $ (1,178) $ (21,335) $ 12,457 14,931,360
Stock issued on exercise of options 2 315 - - 317 226,750
Net income - - - 901 901 -
Foreign currency translation adjustment - - 253 - 253 -
----- --------- ------- --------- -------- ------------
BALANCE, SEPTEMBER 30, 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 2 365 - - 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
===== ========= ======= ========= ======== ============
(1) Represents foreign currency translation adjustments.
F-5
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
(IN THOUSANDS, EXCEPT FOR 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
Significant accounting policies of the Company are presented below.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All intercompany transactions and balances are eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION - The functional currency of the Company's
German subsidiary is the Euro. 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 resulting translation adjustments, representing
unrealized, noncash 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 and are included in Other Expense
(Income) in the Consolidated Statements of Income and Comprehensive
Income. The Company recognized currency losses of $700, $350 and $51 in
2004, 2003 and in 2002, respectively. The exchange rates at September
30, 2004, 2003 and 2002 were Euro 0.83/U.S. Dollar and Euro 0.86/U.S.
Dollar and Euro 1.01/U.S. Dollar, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of all current
assets and current liabilities approximates fair value because of their
short-term nature. The estimated fair value of all other amounts has
been determined by using available market information and appropriate
valuation methodologies.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with a remaining maturity of three months or less
to be cash equivalents. For cash and cash equivalents, the carrying
amount approximates fair value due to the short maturity of those
instruments.
INVENTORIES - Inventories are valued at the lower of cost (weighted
average basis) or market. Work in process and finished goods includes
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.
F-6
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. Depreciation is computed by using the straight-line method over
the following estimated useful lives of the assets:
Building and improvements 40 years
Machinery, equipment, furniture and fixtures 3-10 years
LONG-TERM DEBT - The carrying value of long-term debt approximates fair
value.
REVENUE AND COST OF REVENUE - Revenue includes amounts from surgical
products and related services and distribution fees. Cost of revenue
includes depreciation of $311, $404 and $280 for the years ended
September 30, 2004, 2003 and 2002, respectively. Revenue from surgical
products and related services is recognized upon the shipment of the
processed tissues and when services are performed. The Company's terms
of sale are FOB shipping point. 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 on
a straight line basis over the contract period.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to operations as incurred.
EARNINGS PER SHARE - Basic earnings per share are computed by dividing
net income by the weighted-average number of common shares outstanding.
Diluted earnings per share are computed by dividing net income by the
sum of the weighted-average number of common shares outstanding plus the
dilutive effect of shares issuable through deferred stock units and the
exercise of stock options and warrants.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
TOTAL COMPREHENSIVE INCOME - The Company follows Statement of Financial
Accounting Standard ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME
(LOSS). Comprehensive income is defined as the total change in
shareholders' equity during the period other than from transactions with
shareholders, and for the Company, includes net income and cumulative
translation adjustments.
INCOME TAXES - Deferred taxes are provided for the expected future
income tax consequences of events that have been recognized in the
Company's financial statements. Deferred tax assets and liabilities are
determined based on the temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the temporary
differences are expected to reverse.
STOCK-BASED COMPENSATION - SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), requires expanded disclosure of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Corporations are permitted, however, to
continue to apply Accounting Principles Board ("APB") Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company has continued to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and
has disclosed the required pro forma effect on net income.
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
F-7
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.
2004 2003 2002
---- ---- ----
Net Income, as reported: $1,503 $2,262 $901
Pro-forma expense as if stock options were
charged against net income 159 104 244
---- --- ---
Pro-forma net income using the fair value method $1,344 $2,158 $657
====== ====== ====
Basic EPS:
As reported $0.10 $0.15 $0.06
Pro forma using the fair value method $0.09 $0.14 $0.04
Diluted EPS:
As reported $0.09 $0.14 $0.06
Pro forma using the fair value method $0.08 $0.13 $0.04
NEW ACCOUNTING PRONOUNCEMENTS - In April 2003, the Financial Accounting
Standards Board ("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 process and is effective for contracts
entered into or modified after June 30, 2003. The Company did not have
derivative instruments or hedging activities at September 30, 2004.
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. The adoption of SFAS No. 150 did not have an
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, 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 September 30, 2004.
EMPLOYEE SAVINGS PLAN - The Company maintains the Tutogen Medical, Inc.
401(k) Plan (the "Plan") for which all of the United States Employees
are eligible. The Plan requires the attainment of the age of 21 and a
minimum of six months of employment to become a participant.
Participants may contribute up to the maximum dollar limit set by the
Internal Revenue Service. The expenses incurred for the Plan were $73,
$55 and $26 in 2004, 2003 and 2002, respectively.
F-8
RECLASSIFICATION - Certain reclassifications have been made to the prior
financial statements to conform to the current presentation.
3. CONCENTRATION OF CREDIT RISK
The exposure to risk related to foreign currency exchange rate changes
is limited primarily to intercompany transactions. The Company currently
does not utilize forward exchange contracts or any other type of hedging
instruments.
The Company's principal concentration of credit risk consists of trade
receivables. Distribution of products and revenues is provided through a
broad base of independent distributors. Two customers accounted for 13%
and 9%, respectively, of consolidated revenue in 2004, two customers
accounted for 17% and 13%, respectively of consolidated revenue in 2003
and one customer accounted for 22% of consolidated revenue for 2002. The
13% and 9% customers had accounts receivable balances at September 30,
2004 of $719 and $8, respectively. There are no other customers
accounting for greater than 10% of consolidated revenue in 2004, 2003
and 2002. The Company does not believe that this concentration of sales
and credit risks represents a material risk of loss with respect to the
results of operations or financial position.
4. INVENTORIES
Major classes of inventory at September 30, 2004 and 2003 were as
follows:
2004 2003
Raw materials $ 2,171 $ 2,439
Work in process 6,560 3,316
Finished goods 8,791 9,335
-------- --------
17,522 15,090
Less reserves for obsolescence 2,450 3,098
-------- --------
$ 15,072 $ 11,992
======== ========
F-9
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2004 and 2003 consisted
of the following:
2004 2003
Land $ 512 $ 480
Buildings and improvements 4,348 3,306
Machinery and equipment 2,201 1,583
Office furniture and equipment 2,570 2,446
------- -------
9,631 7,815
Less accumulated depreciation and amortization (3,493) (2,973)
------- -------
$ 6,138 $ 4,842
======= =======
The depreciation expense for the years ended September 30, 2004, 2003
and 2002 was approximately $760, $611 and $414, respectively.
6. REVOLVING CREDIT ARRANGEMENTS
Under the terms of revolving credit facilities with three German banks,
all of which have no expiration, the Company may borrow up to Euros 1.5
million or approximately $1.9 million for working capital needs. These
renewable credit lines allow the Company to borrow at interest rates
ranging from 9.15% to 10.5%. At September 30, 2004, and 2003 the Company
had no borrowings under the revolving credit agreements.
The Company has a revolving credit facility in the U.S. for up to $1.0
million, expiring on January 1, 2005. At September 2004 and 2003, the
Company had no borrowings under this credit facility. The U.S. accounts
receivable and inventory assets secure the borrowing under the revolving
credit facility.
7. LONG-TERM DEBT
Long-term debt at September 30, 2004 and 2003 consisted of the
following:
Senior debt, 5.75% interest until March 30, 2008 when terms are
renegotiable, due 2008 $ 776 $ 819
Equipment lease debt, 6.50% interest until September 1, 2007 224 -
------ ------
1,000 819
Less current portion (173) (91)
------ ------
$ 827 $ 728
====== ======
Aggregate maturities of long-term debt are $173 in 2005; $182 in 2006;
$195 in 2007; $60 in 2008; and the balance $390 due in 2009.
F-10
The Senior debt and one of the revolving credit facilities are with a
German bank and are secured by a mortgage on the Company's German
facility. The Senior debt is repayable in monthly installments through
2008. The debt has been incurred by the Company's German subsidiary but
is guaranteed by the parent company. There are no financial covenants
under this debt.
The Equipment lease debt is secured by a specific piece of equipment, a
walk-in freezer, located at the Company's Florida manufacturing
facility. The lease is payable in twelve quarterly installments of $21.
There are no financial covenants under this lease.
8. SHAREHOLDERS' EQUITY
STOCK - The authorized stock of the Company consists of 30,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock.
PREFERRED SHARE PURCHASE RIGHT - On July 17, 2002, the Board of
Directors of the Company declared a dividend distribution of one
Preferred Share Purchase Right for each outstanding share of its common
stock of record on July 31, 2002. The rights, which expire on July 30,
2012, are designed to assure that all of the Company's shareholders
receive fair and equal treatment in the event of any proposed takeover
of the Company. Each right will entitle its holder to purchase, at the
right's then current exercise price, a number of the Company's common
shares having a market value of twice such price.
STOCK OPTIONS - The Company maintains a 1996 Stock Option Plan (the
"Plan") (3,500,000 shares authorized) under which incentive and
nonqualified options have been granted to employees, directors and
certain key affiliates. Under the Plan, options may be granted at not
less than the fair market value on the date of grant. Options may be
subject to a vesting schedule and expire four, five or ten years from
grant.
Changes in outstanding options for the Plan were as follows:
Outstanding October 1, 2001 2,247,068 $ 2.18
----------
Granted 349,000 3.67
----------
Canceled (151,650) 2.82
----------
Exercised (226,750) 1.40
----------
Outstanding September 30, 2002 2,217,668 2.44
Granted 452,500 2.91
Canceled (204,800) 3.33
Exercised (209,000) 1.81
----------
Outstanding September 30, 2003 2,256,368 2.52
Granted 225,000 3.98
Canceled (93,750) 4.45
Exercised (248,850) 1.47
---------- ------
Outstanding September 30, 2004 2,138,768 $ 2.72
========== ======
The following table provides information about stock options outstanding
at September 30, 2004:
F-11
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED-
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AS OF 9/30/04 (IN YEARS) PRICE AS OF 9/30/04 PRICE
--------------
$0.94 to $1.25 306,600 4.9 $ 0.95 306,600 $ 0.95
$1.56 to $2.22 572,568 3.5 1.71 572,568 1.71
$2.40 to $3.62 806,500 6.5 2.98 493,250 2.97
$3.75 to $11.00 453,100 4.5 4.67 374,350 4.72
---------- ---- ------ ---------- ------
$0.94 to $11.00 2,138,768 4.9 $ 2.72 1,746,768 $ 2.58
========== ==== ====== ========== ======
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions: expected volatility of 47%, a risk-free
interest rate range of 2.26% to 3.12% and an expected life of four
years. A dividend yield of zero has been assumed. The weighted average
fair value of options granted during the years ended September 30, 2004,
2003 and 2002 was $3.98, $2.91 and $3.67, respectively.
9. 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 the operating
income. 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.
A summary of the operations and assets by segment as of and for the
years ended September 30, 2004, 2003 and 2002 are as follows:
F-12
2004 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 22,830 $ 17,126 $ 39,956
Less - intercompany (10,626) - (10,626)
-------- -------- --------
Total revenue - third party $ 12,204 $ 17,126 $ 29,330
======== ======== ========
Depreciation and amortization $ 506 $ 254 $ 760
======== ======== ========
Operating income $ 4,549 $ (1,021) $ 3,528
======== ======== ========
Interest expense $ 79 $ 39 $ 118
======== ======== ========
Net income $ 2,659 $ (1,156) $ 1,503
======== ======== ========
Capital expenditures $ 1,244 $ 515 $ 1,759
======== ======== ========
Identifiable assets $ 18,166 $ 16,181 $ 34,347
======== ======== ========
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 18,079 $ 21,168 $ 39,247
Less - intercompany (8,987) - (8,987)
-------- -------- --------
Total revenue - third party $ 9,092 $ 21,168 $ 30,260
======== ======== ========
Depreciation and amortization $ 376 $ 235 $ 611
======== ======== ========
Operating income $ 4,005 $ (185) $ 3,820
======== ======== ========
Interest expense $ 47 $ 6 $ 53
======== ======== ========
Net income $ 2,144 $ 118 $ 2,262
======== ======== ========
Capital expenditures $ 470 $ 220 $ 690
======== ======== ========
Identifiable assets $ 10,983 $ 19,420 $ 30,403
======== ======== ========
F-13
2003 INTERNATIONAL UNITED STATES CONSOLIDATED
Gross revenue $ 13,122 $ 13,716 $ 26,838
Less - intercompany (6,091) - (6,091)
-------- -------- --------
Total revenue - third party $ 7,031 $ 13,716 $ 20,747
======== ======== ========
Depreciation and amortization $ 182 $ 232 $ 414
======== ======== ========
Operating income $ 1,837 $ (171) $ 1,666
======== ======== ========
Interest expense $ 57 $ 5 $ 62
======== ======== ========
Net income $ 1,102 $ (201) $ 901
======== ======== ========
Capital expenditures $ 148 $ 206 $ 354
======== ======== ========
Identifiable assets $ 14,485 $ 9,263 $ 23,748
======== ======== ========
Total International long-lived assets of $5,282, $4,247 and $3,508 for
the years ended September 30, 2004, 2003 and 2002, respectively are
located in Germany.
10. INCOME TAXES
The provision for income taxes for the years ended September 30, 2004,
2003 and 2002 are summarized as follows:
2004 2003 2002
Current:
Federal $ - $ (15) $ -
State - - -
Foreign 1,153 - 643
-------- -------- --------
1,153 (15) 643
-------- -------- --------
Deferred:
Federal 607 171 (93)
State 133 36 (14)
Foreign 153 1,152 778
-------- -------- --------
893 1,359 671
-------- -------- --------
Valuation allowance (740) (207) (536)
-------- -------- --------
Provision for income taxes $ 1,306 $ 1,137 $ 778
======== ======== ========
The differences between the U.S. statutory rates and those in the
consolidated financial statements of operations and comprehensive income
are primarily due to the foreign entity being taxed at a lower rate and
certain nondeductible items, as follows.
F-14
2004 2003 2002
Income tax at federal statutory rate (35%) $ 983 $ 1,190 $ 592
State tax (133) (29) (14)
Valuation allowance 740 207 64
Foreign tax differential (292) (221) 120
Other 8 (10) 16
-------- -------- --------
Total $ 1,306 $ 1,137 $ 778
======== ======== ========
The tax effect of the temporary differences that give rise to the
Company's net deferred taxes as of September 30, 2004, and 2003 are as
follows:
2004 2003
Assets
Deferred tax assets:
Current:
Bad debt reserve $ 35 $ 121
Inventory reserve 390 283
-------- --------
Subtotal 425 404
-------- --------
Noncurrent:
Net operating loss & credits 5,745 5,025
-------- --------
Net deferred tax asset 6,170 5,429
-------- --------
Liability
Deferred tax liability:
Noncurrent:
Fixed assets (166) (166)
Deferred revenue (84) (59)
-------- --------
Subtotal (250) (225)
Valuation allowance (4,177) (3,308)
-------- --------
Net deferred tax asset $ 1,743 $ 1,896
======== ========
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized due to the
expiration of net operating losses and tax credit carryovers. The net
increase in the valuation allowance is comprised primarily of increases
in federal and state net operating losses and credit carryovers, which
may not be realized, offset by the utilization of foreign net operating
loss carryovers not previously benefited.
The Company has approximately $8,800 of federal net operating loss
carryforwards expiring beginning in 2008, a $15 AMT credit carryforward,
and a $21 credit on research and development that will expire in 2013 if
unused. The Company also has state net operating loss carryforwards of
approximately $11,500 that will begin to expire in 2005.
The Company has a corporate net operating loss carryforward for German
income tax purposes of approximately $3,015 (2,425 Euros), and a trade
net operation loss carryforward for German income tax
F-15
purposes of approximately $515 (414 Euros), which can be carried forward
indefinitely. 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 30,
2002, the Company eliminated the full valuation allowance on its
International operations based upon future taxable income projections.
As of September 30, 2004, the Company continues to record the existing
valuation allowance on its U.S. operations.
The Company has not recorded deferred income taxes on the undistributed
earnings of its foreign subsidiaries because it is management's intent
to indefinitely reinvest such earnings. Upon distribution of these
earnings, the Company may be subject to U.S. income taxes and/or foreign
withholding taxes.
11. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the years
ended September 30, 2004, 2003 and 2002:
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNT DATA )
NET PER SHARE
INCOME SHARES AMOUNT
2004
Basic earnings per share $ 1,503 15,734,470 $ 0.10
Effect of dilutive secured:
Stock options - 734,973 (0.01)
-------- ----------- -------
Diluted earnings
per share $ 1,503 16,469,443 $ 0.09
======== =========== =======
2003
Basic earnings per share $ 2,262 15,495,148 $ 0.15
Effect of dilutive secured:
Stock options - 600,300 (0.01)
-------- ----------- -------
Diluted earnings
per share $ 2,262 16,095,448 $ 0.14
======== =========== =======
2002
Basic earnings per share $ 901 15,114,412 $ 0.06
Effect of dilutive secured:
Stock options - 845,563 -
-------- ----------- -------
Diluted earnings
per share $ 901 15,959,975 $ 0.06
======== =========== =======
F-16
12. COMMITMENTS AND CONTINGENCIES
The Company currently has operating leases for its corporate offices in
the U.S. and Germany, as well as several leases related to office
equipment and automobiles. Total rental expense was $1,103, $759 and
$610 per year for the years ended September 30, 2004, 2003 and 2002,
respectively. Future minimum rental payments required under these leases
that have initial or remaining noncancelable lease terms in excess of
one year as of September 30, 2004 are as follows:
2005 $ 1,146
2006 521
2007 214
2008 64
Balance 20
----------
$ 1,965
==========
The Company is party to various claims, legal actions, complaints and
administrative proceedings arising in the ordinary course of business.
In management's opinion, the ultimate disposition of these matters will
not have a material adverse effect on its financial condition, cash
flows or results of operations.
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 $406. At September 30, 2004 and 2003,
the Company accrued $476 and $836, respectively 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.
F-17
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2004 QUARTER ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 7,485 $ 7,089 $ 6,823 $ 7,933
Gross profit 4,496 5,091 4,536 3,371
Operating expenses 3,638 3,899 3,466 2,963
Operating income 858 1,192 1,070 408
Net income (loss) 582 653 635 (367)
Earnings per share
Basic $ 0.04 $ 0.04 $ 0.04 $ (0.02)
Diluted $ 0.04 $ 0.03 $ 0.04 $ (0.02)
2003 QUARTER ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 6,574 $ 6,743 $ 8,933 $ 8,010
Gross profit 3,728 4,223 5,312 5,357
Operating expenses 3,560 3,893 3,882 3,465
Operating income 168 330 1,430 1,892
Net income 131 135 818 1,178
Earnings per share
Basic $ 0.01 $ 0.01 $ 0.05 $ 0.08
Diluted $ 0.01 $ 0.01 $ 0.05 $ 0.07
2002 QUARTER ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 5,012 $ 5,332 $ 5,400 $ 5,003
Gross profit 2,210 2,893 3,218 3,992
Operating expenses 2,059 2,597 2,881 3,064
Operating income 151 296 337 928
Net income 125 230 212 334
Earnings per share
Basic $ 0.01 $ 0.02 $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.01 $ 0.01 $ 0.02
******
F-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 Annual Report on Form 10K of Tutogen Medical,
Inc. (the "Company") for the year ended September 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
operation of the Company.
Date: December 23, 2004
TUTOGEN MEDICAL, INC.
/s/ George Lombardi
-------------------
George Lombardi
Chief Financial Officer
CERTIFICATION OF THE PRESIDENT AND CHIEF OPERATING 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 Annual Report on Form 10K of Tutogen Medical,
Inc. (the "Company") for the year ended September 30, 2004 as filed with the
Securities and Exchange commission on the date hereof (the "Report"), I Manfred
K. Kruger, 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:
(2) 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
operation of the Company.
Date: December 23, 2004
TUTOGEN MEDICAL, INC.
/s/ Manfred Kruger
------------------
Manfred Kruger
President and
Chief Operating 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 Annual Report on Form 10K of Tutogen Medical,
Inc. (the "Company") for the year ended September 30, 2004 as filed with the
Securities and Exchange commission on the date hereof (the "Report"), I Roy D.
Crowninshield, 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:
(3) 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
operation of the Company.
Date: December 23, 2004
TUTOGEN MEDICAL, INC.
/s/ Roy D. Crowninshield
------------------------
Roy D. Crowninshield
Chief Executive Officer
CERTIFICATION
I, George Lombardi certify that:
1. I have reviewed this Annual Report on Form 10-K of Tutogen Medical, Inc.
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements and other financial
information included in the Annual 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 Annual
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 Annual 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 Annual Report (the "Evaluation Date"); and
c) Presented in this Annual 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.
6. The registrant's other certifying officers and I have indicated in this
Annual 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: December 23, 2004
BY:
Name: /s/ George Lombardi
Title: Chief Financial Officer
CERTIFICATION
I, Manfred K. Kruger certify that:
1. I have reviewed this Annual Report on Form 10-K of Tutogen Medical, Inc.
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements and other financial
information included in the Annual 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 Annual
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 Annual 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 Annual Report (the "Evaluation Date"); and
c) Presented in this Annual 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.
6. The registrant's other certifying officers and I have indicated in this
Annual 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: December 23, 2004
BY:
Name: /s/ Manfred K. Kruger
Title: President and Chief Operating Officer
CERTIFICATION
I, Roy D. Crowninshield certify that:
1. I have reviewed this Annual Report on Form 10-K of Tutogen Medical, Inc.
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements and other financial
information included in the Annual 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 Annual
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 Annual 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 Annual Report (the "Evaluation Date"); and
c) Presented in this Annual 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.
6. The registrant's other certifying officers and I have indicated in this
Annual 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: December 23, 2004
BY:
Name: /s/ Roy D. Crowninshield
Title: Chief Executive Officer