SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(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, 2000
|_| 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 Small Business Issuer in Its Charter)
Florida 59-3100165
(State of Incorporation) (IRS Employer Identification No.)
925 Allwood Road Clifton, New Jersey 07012
(Address of Principal Executive Offices, Zip Code)
(973) 365-2799
(Issuer'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)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. |_|
The issuer's revenues for the fiscal year ended September 30, 2000 were
$16,626,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates (approximately 1,900,000 shares), computed by reference to the
average bid and asked prices of such common equity, was approximately $9,737,500
as of November 30, 2000.
As of November 30, 2000, there were 14,182,739 shares outstanding of the
issuer's Common Stock, par value $.01 per share.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
None.
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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, 1998 (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 1999 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. Description of 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 bio-implants and medical devices for tissue
and bone repair for neuro, orthopedic, reconstructive and general surgical
applications. The Company's core business is processing human donor tissue
("allografts"), utilizing its proprietary Tutoplast(R) process of tissue
preservation and viral inactivation, for distribution to hospitals and surgeons.
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 40 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 Clifton, New Jersey, with
international executive offices and processing and manufacturing facilities in
Neunkirchen, Germany, a manufacturing facility in Alachua, Florida and a sales
office in Toulouse, France.
The Company contracts with independent tissue banks and procurement
organizations to provide donated human tissue for processing under the Company's
proprietary Tutoplast(R) process. The Tutoplast(R) process utilizes solvent
dehydration and chemical inactivation which is applied to two types of preserved
allografts: soft tissue; consisting of dura mater, fascia lata, fascia
temporalis, pericardium, ligaments, tendons and cartilage, and bone tissue;
consisting of various configurations of cancellous and cortical bone material.
Processed dura mater, pericardium, and fascia lata are collagenous tissue used
to repair, replace or line native connective tissue primarily in neurosurgery,
ophthalmology, neurology sling procedures, plastic and reconstructive surgeries,
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 years and require minimal time for
rehydration. The Company processes both bone and soft tissues in Germany, while
in the U.S., only soft tissues are currently processed. The Company anticipates
expanding its bone tissue production in the U.S.
The Tutoplast(R) processed allografts have been used successfully in over
1,000,000 implants performed in the past 25 years.
In contrast to other processors using freeze-drying, deep freezing or
cryopreservation for human tissues, the Tutoplast(R) process utilizes a
technique where tissues are soaked and washed in a series of aqueous solutions
and solvents, removing water and substances that could cause rejection or
allergic reaction. This technique dehydrates the tissue keeping the tissue's
structure intact, which acts after implantation as a scaffold. During
processing, the tissues are treated with agents shown to inactivate
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viruses such as hepatitis and HIV, the virus, which causes 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.
Manufacturing and Processing
All of the Company's allografts are prepared, preserved and processed
utilizing Tutogen's proprietary manufacturing process, the Tutoplast(R)
procedure, which is applied to carefully screened donor tissue that has been
obtained from approved tissue procurement organizations and institutions.
Although several operations are automated, most of the process is manual and
relies on trained, highly skilled personnel. The entire process, including
packaging and sterilization, takes place under controlled conditions. All
incoming, untreated tissue is crosschecked with the appropriate donor protocol
and stored in special cold-storage rooms or refrigerators until released for
processing. To prevent possible cross-contamination and ensure constant tissue
identification, all tissue is marked and strictly maintained in individual
containers during the entire process. Reference samples are taken from each
tissue for test purposes and are retained for 10 years beyond the date of
expiration. Documentation allows reverse traceability of tissue implants to the
donor and the retrieving institution. 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 years.
Quality Assurance - All tissues are accompanied by specific medical and
donor documentation, including blood serum testing results from independent
laboratories. Tutogen's implants and processed tissues are subject to a series
of biological, physical and chemical tests, from incoming raw materials 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 direct 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., Sulzer Spine-Tech and Calcitek, Inc. will perform the
marketing and distribution of the Company's products to the spine and dental
markets.
Approximately 40% 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 risks of doing business abroad. A major effort is
underway to increase penetration in the U.S. market, which accounts for 55% 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, the strategic
decision was made to re-open the U.S. market for tissues obtained from abroad,
because the Company's foreign donor qualification standards have progressed to
the extent of full compliance with standards of the Food and Drug Administration
("FDA").
The Company's U.S. marketing efforts are concentrating on rebuilding the
distributor organization and re-entering the bone markets. Presently, allografts
are provided to hospitals in the U.S. through independent distribution
companies. These distributors employ, in the aggregate, over 80 field
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representatives who call 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.
Plans are being made to re-establish a field organization to support the
distributor network. In addition, the Company has entered into exclusive
distribution agreements with other medical device companies, under the
Tutoplast(R) label, for specialized indications. One such distribution agreement
with IOP, Inc., which has been in effect since 1995, is for Tutoplast(R)
implants for opthalmic use. A second project, for use of Tutoplast(R) fascia
lata in urological and gynecological indications, was concluded in January 1998
with Mentor Corporation ("Mentor"). In July 1999, a third project was concluded
with Mentor for use of Tutoplast(R) Pericardium in urological and gynecological
indications. In Fiscal Year 2000, Mentor has accounted for 36% and 60%,
respectively, of the Company's total and U.S. revenues. In March 2000, a fourth
project was concluded with Sulzer Spine-Tech, a subsidiary of Sulzer Medica for
the world-wide distribution of Tutoplast(R) processed bone tissues for spinal
applications. Marketing of these products began in September 2000. Finally, in
September 2000, the Company entered into a collaboration with Sulzer Calcitek,
Inc. ("Calcitek"), a subsidiary of Sulzer Medica, whereby Calcitek will market
and distribute Tutoplast(R) processed bone tissue for dental applications.
Internationally, the Company has implemented a marketing and sales
restructuring plan, to concentrating on 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., etc. The Company believes that the
recent collaborations with Sulzer Spine-Tech and Calcitek will substantially
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 believes it currently complies with
existing laws and regulations in these countries, including regulations related
to procurement, donor screening, testing, storage and transportation. 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(R) processed allografts will continue to
exceed the current donor tissues available to the Company for processing.
Tissue recoveries, particularly internationally, continue to improve. The
export 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. Domestic and
European tissue recoveries are on track to meet plan for fiscal 2001. The
Company has an arrangement with Regeneration Technologies, Inc. ("RTI") in the
U.S., whereby RTI will supply soft tissue to the Company's domestic operation
and the Company's international division will supply cortical bone shafts to
RTI. 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.
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Back Order
While Tutogen worldwide has back orders on certain allograft 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,
which 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. At September 30, 2000, the Company's back order was
approximately $100,000. 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(R) process of tissue
preservation and viral inactivation. In the U.S., most allograft processing is
lyophilization/freeze-drying, and to a lesser extent, cryopreservation. The
Tutoplast(R) process, however, is based upon solvent dehydration, which
preserves the tissue's integrity, and the implants are remodeled in the course
of normal healing. The Tutoplast(R) process has an outstanding safety record,
including viral inactivation and is shown to be effective against the organism
responsible for CJD. Since its introduction more than 25 years ago, more than
1,000,000 procedures have been performed using Tutoplast(R) processed tissues,
with no known complications from disease transmission or tissue rejection
attributable to the implants. Tutoplast(R) processed implants have been
described in more than 100 published scientific papers. Tutoplast(R) implants
meet FDA requirements for marketing in the U.S. and they are recognized for
their outstanding safety.
The majority of the medical procedures suitable for allografts are
currently being performed with autografts. Autografts are tissues derived from
the patient requiring the surgical procedure. The advantages of autografts
include the absence of the possibility of tissue rejection and disease
transmission. The disadvantages are the dual surgical procedures, pain,
increased recovery time and very limited supply. Allograft advantages include
the elimination of a second surgical site resulting in lower infection rates,
the elimination of recovery times and lower costs, while its disadvantages
include availability, possible rejection and disease transmission. Availability
and safety are the primary factors in the ability of 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., RTI and CryoLife, Inc., companies
that are 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
considered competitors for certain applications and in certain markets.
Management believes that it's Tutoplast(R) 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, which are being
developed by other companies.
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Growth Strategy
The Company estimates the worldwide market for its present products to be
about $3 billion. The Company's existing tissue supply network, established
processing facilities and proven Tutoplast(R) technology will provide the
foundation for continuation of current growth into fiscal 2001 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 U.S. Food and
Drug Administration ("FDA"), the German Health Authority ("BfArM") and other
European 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 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 network of tissues.
Tutogen operates two processing facilities, one in Neunkirchen, Germany
and a second in Alachua, Florida. The German facility is registered as a
pharmaceutical and medical device manufacturer and has ISO 9001 certification.
The Alachua facility is registered with the FDA and is an accredited member of
The American Association of Tissue Banks ("AATB"). The recent expansion of the
Alachua facility and a major expansion and modernization now underway at the
Neunkirchen facility should enable the Company to keep pace with growing demands
for the next several years.
Xenografts
The world-wide demand for allografts, tissue derived from human sources,
are anticipated to represent a significant challenge. Faced with this
constraint, the Company embarked on a program in 1998 to develop xenografts,
tissue derived from animals, as an allograft substitute. Xenografts processed
using the Company's proprietary Tutoplast(R) process, have their biomechanical
properties and remodeling capacity preserved with complete removal of
antigenicity and infection risk. Studies have shown, that Tutoplast(R) processed
xenografts are equivalent to allografts. To date, the Company has received
CE-Marks, the European equivalent to an FDA medical device approval, for bovine
pericardium, bovine cancellous bone and bovine compact (cortical) bone which
permits distribution, throughout Europe, of products derived from such tissues.
Introduction of xenograft Tutipatch(R) products into the U.S. market is expected
to take place during 2001. The first of the FDA 510(k) clearances was received
in October 2000, allowing the Company to market a new product, Tutopatch(R), for
indications of general and plastic surgery. Tutopatch(R) is the first xenograft
tissue that will be offered by the Company in the U.S. The product is produced
from bovine pericardium harvested from U.S. cattle free of Bovine Spongiform
Encephalopathy ("BSE") and inspected/cleared by the United States Department of
Agriculture (USDA).
The superior biomechanical properties of these bovine tissues combined
with the absence of those supply constraints associated with allografts, permits
the use of such tissues, and products derived therefrom, in areas that cannot be
optimally addressed with human tissue.
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New Applications and Products
A major component to Tutogen's growth strategy will continue to focus on
the introduction of new products and applications for Tutoplast(R) processed
tissues. In November, 1999 the Company introduced its Tutofix(R) pins produced
from bovine compact bone processed using the Company's proprietary Tutoplast(R)
process. The Company estimates the worldwide market for bone fracture fixation
implants to be $1.3 billion. Compact bone is extremely strong, able to withstand
high compression and shear forces and can be machined with precision. The
Company believes that Tutofix(R) pins will be a desirable alternative to metal
pins. Pins are typically used for the fixation of bone, forearm fractures and
small fractures of the hand and foot. Unlike metal pins which generally subject
a patient to a second surgery for pin removal, or synthetic absorbable pins that
resorb independently of the fracture healing process, Tutofix(R) pins are
osteoconductive and are absorbed and replaced by new bone in the normal course
of healing. Tutofix(R) pins have been used successfully in a number of cases for
treatment of Collee's fracture, the most common type of forearm fracture.
The high and predictable stability of bovine bone permits the manufacture
of devices that can be substituted for metallic or synthetic implants. Examples
are spinal implants for cervical and lumbar interbody fusion and other bone
fixation devices like screws and plates.
Several patents and trademarks have been submitted in 2000 in order to
assist and accomplish the goals for expansion and growth.
Expansion into New Markets
Tutoplast(R) processed tissues and products have application in numerous
surgical indications making it very difficult, if not impossible, to fully serve
all market niches. The Company continues to enjoy high degrees of success in two
such niches, opthamology and urological/gynocological with its strategic
partners IOP and Mentor Corporation respectively and has established similar
relationships to address additional markets. One such relationship was
established in March 2000 with Sulzer Spine-Tech, a subsidiary of Sulzer Medica,
for the world-wide distribution of Tutoplast(R) processed bone tissues for
spinal applications. Marketing of these products began in September 2000. Also,
in September 2000, the Company entered into a collaboration with Sulzer
Calcitek, Inc., a subsidiary of Sulzer Medica, whereby Calcitek will market and
distribute Tutoplast(R) processed bone tissue for dental applications.
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 Sulzer collaboration.
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(R) 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, bone substitutes
and tissue-engineered grafts. Clinical studies, evaluation and follow-up (as
necessary) are conducted on these activities. The Company's research efforts are
subsidized by its
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collaboration with non-profit research institutions. These activities will be
expanded substantially pending the availability of the necessary financial
resources.
Customers
Mentor Corporation represented a principal customer to the Company,
accounting for approximately 36% of the Company's net sales for the year ended
September 30, 2000. All other customers individually accounted for less than 10%
of the Company's net sales for the fiscal year 2000. The Company has Exclusive
Distribution Agreements with Mentor granting a license to exclusively distribute
the Tutoplast(R) Processed Fascia Lata and Pericardium 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 11 patents pending and has registered trademarks covering 14
countries worldwide. In the United States, the Company has three FDA accepted
510(k) applications for its various products or processes. The Company believes
that it has established itself through the Tutoplast(R) trademark identity and a
record of safety and quality assurance, which will survive 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 Germany, allografts are classified as drugs and the German government
regulates Tutogen's tissue processing and distribution within Germany under a
pharmaceutical license. The European Commission has proposed to regulate
allografts uniformly within the European Community. At present, Tutogen's German
facility is licensed and in compliance with German law.
In the United States, the FDA has determined that dura mater and all
xenograft tissues are subject to all provisions of the Food, Drug and Cosmetic
Act and are regulated as a medical device. For distribution in the United
States, dura mater is required to be processed in accordance with FDA Quality
Standards. The FDA Title 21, code of Federal Regulations, Part 1270 Human Tissue
Intended for Transplantation, regulates all other 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 Part 1270 and its own country/state regulatory requirements.
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 citizenry. 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.
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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 uses chemicals in its processing of allografts. The Company
must comply with country-specific, federal, state and local regulations
pertaining to the storage and discharge of hazardous waste involved in the
Tutoplast(R) process. Since 1995, the Company has used outside third parties to
perform all biohazard us waste disposal.
The Company contracts with a third party to perform all gamma-terminal
sterilization of all its allografts. In view of the engagement of a third party
to perform irradiation services, the requirements for compliance with
environmental regulations does not apply, and therefore the Company does not
anticipate having any material adverse effect upon its capital expenditures,
results of operations or financial condition. 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 Deutsche Marks. Fluctuations in the
U.S. Dollar/Deutsche Mark 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.
Conversion of Debt
On June 28, 2000, Renaissance Capital Partners II, Ltd. converted its
Convertible Debenture (approximately $490,000) into 363,000 shares of the
Company's common stock.
Employees
As of September 30, 2000, the Company employed a total of 123 full-time
and 16 part-time employees, of whom 28 were employed in the United States and
the remainder in Germany. Management believes its relations with its employees
are good.
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Item 2. Description of Property.
United States. The Company's domestic facilities are located in New Jersey
and Florida. In Clifton, New Jersey, the Company leases approximately 3,100
square feet of office space in which its administrative and sales functions are
performed. The lease expires in April 2004 and has a base rent of approximately
$4,650 per month. The Company's processing plant in Alachua, Florida has
expanded from approximately 6,200 square feet to 8,400 square feet of leased
space. The Florida lease expires in 2002 and rents for approximately $14,750 per
month. The Company believes it is adequate in space and condition for its
current needs and has made provisions for expansion if necessary.
Germany. In April 2000, the Company consolidated the administrative and
sales functions into the Company's processing plant in Neunkirchen, 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.
There were no material legal proceedings as of September 30, 2000.
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 Common Equity and Related Stockholder Matters.
Market Information
Effective August 17, 2000, the Company's Common Stock is being traded on
the American Stock Exchange under the symbol "TTG". Previous, the Company's
Common Stock was traded on the OTC Bulletin Board under the symbol "TTGN". The
following table sets forth the range of high and low bid information for the
Company's Common Stock for each quarter within the last two fiscal years.
Fiscal 1999 High Low
----------- ---- ---
First Quarter $ 1.94 $ 0.94
Second Quarter 3.81 1.13
Third Quarter 1.43 1.00
Fourth Quarter 1.50 0.88
Fiscal 2000
-----------
First Quarter $ 3.25 $ 0.94
Second Quarter 8.06 2.63
Third Quarter 5.88 3.13
Fourth Quarter 6.38 3.69
Such market quotations reflect inter-dealer prices, without retail
mark-ups, markdowns or commissions and may not necessarily represent actual
transactions.
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Holders
As of November 30, 2000, 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.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Revenue and Cost of Revenue
Revenue for the year ended September 30, 2000 increased 41% to $16.6 million
from $11.8 million in 1999. The US operation revenues were $9.1 million or 75%
higher than 1999. This achievement was a direct result of its strategic
alliances with the Mentor Corporation and IOP, Inc. The International operation
had revenues of $7.5 million or an increase of 15% from 1999. The increase in
revenues was primarily due to $1.4 million of distribution fees earned from
strategic partnership agreements signed with Sulzer Spine-Tech, Inc. and
Calcitek, Inc., both subsidiaries of Sulzer Medica.
Gross margins for the year ended September 30, 2000 increased to 51% from 49% in
1999. The increase was primarily due to an increase in distribution fees from
$0.3 million to $1.4 million this year, partially offset by an unfavorable mix
of products sold at both the US and International operations.
General and Administrative
General and Administrative expenses increased 22% in 2000 to $2.7 million from
$2.2 million in 1999. The increase is due primarily to expenses associated with
the move of the German offices to the Company's manufacturing site and an
increase in consulting expenses. As a percentage of revenues, General and
Administrative expenses decreased from 19% in 1999 to 16% in 2000.
Distribution and Marketing
Distribution and Marketing expenses increased 16% in 2000 to $2.4 million from
$2.1 million in 1999. The increase was primarily associated with the expansion
of the sales and marketing effort in the International markets. As a percentage
of revenues, Distribution and Marketing expenses decreased from 18% in 1999 to
15% in 2000.
Research and Development
Research and Development expenses decreased 33% in 2000 to $0.3 million from
$0.4 million in 1999. The decrease was due to the timing and completion of
certain R & D projects. As a percentage of revenues, Research and Development
expenses decreased from 3.6% in 1999 to 1.7% in 2000.
Depreciation and Amortization
Depreciation and Amortization decreased 53% in 2000 to $0.2 million from $0.5
million in 1999. The reduction in depreciation and amortization was attributed
to an increase in fully depreciated property, plant and equipment.
11
<PAGE>
Other Income/Expense
Other income for 2000 increased 57% to $0.2 million and is the result of
favorable foreign exchange transactions and interest income.
Interest Expense
Interest expenses in 2000 were essentially in line with 1999.
Net Income
As a result of the above, net income for the year ended September 30, 2000
totaled $2,801,000 or $0.24 basic earnings per share and $0.20 diluted earnings
per share as compared to a net income of $414,000 or $0.04 basic and $0.04
diluted earnings per share for 1999.
Liquidity and Capital Resources
At September 30, 2000 and 1999 the Company had working capital of $9.5 million
and $5.2 million, respectively, an increase of 83%. The Company maintains
current working capital credit lines totaling DM 2.9 million (approximately $1.3
million) with several German banks and a $1.0 million credit line with a U.S.
bank. At September 30, 2000 the Company had borrowed $0.3 million against these
lines.
The improvement in the working capital position from 1999 to 2000 was due to the
41% increase in revenues, the distribution fee income from partnership
arrangements, infusion of additional capital into the Company by investors and
the exercise of options and warrants. In the past, the Company has relied upon
its available working capital lines and institutional investors to fund
operational cash flow, when needed.
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.
Item 7. Financial Statements
The information required by this Item is found immediately following the
signature page of this Report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
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 year, until his successor is duly elected and
qualified.
12
<PAGE>
TABLE OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Name Age Positions/Offices Period Served in Office/Position
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
G. Russell Cleveland 61 Director 1997 - present
------------------------------------------------------------------------------------------------------------
Charles C. Dragone 63 Interim Chief Executive Officer July 1999 - November 1999
Chairman of the Board 1996 - April 2000
Director 1992 - present
Chief Executive Officer April 1995 - March 1996
Chief Financial Officer October 1992 - September 1994
------------------------------------------------------------------------------------------------------------
Robert C. Farone 58 Director May 1999 - present
------------------------------------------------------------------------------------------------------------
J. Harold Helderman, MD 55 Director 1997 - present
------------------------------------------------------------------------------------------------------------
Manfred K. Kruger 54 Chief Executive Officer December 1999 - present
President July 1999 - present
Chief Operating Officer January 1999 - present
Vice President, Managing 1998 - present
Director, International
Operations
------------------------------------------------------------------------------------------------------------
George Lombardi 57 Chief Financial Officer, 1998 - present
Treasurer and Secretary
------------------------------------------------------------------------------------------------------------
Thomas W. Pauken 56 Chairman of the Board April 2000 - present
Director January 1999 - present
------------------------------------------------------------------------------------------------------------
Elroy G. Roelke 70 Director 1995 - present
Acting Secretary January 1998 - March 1998
------------------------------------------------------------------------------------------------------------
Carlton E. Turner 60 Director 2000 - present
------------------------------------------------------------------------------------------------------------
</TABLE>
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 years.
Officers and Directors
G. Russell Cleveland is the principal founder and the majority shareholder
of Renaissance Capital Group, Inc. ("Renaissance"). Renaissance specializes in
providing capital to growing emerging publicly owned companies. He is a
Chartered Financial Analyst with over 40 years experience in financial planning
and analysis. He has served as President of the Dallas Association of Investment
Analysts. For over 10 years he was a contributing editor of Texas Business
Magazine. Mr. Cleveland currently serves as the Managing General Partner of
Renaissance Capital Partners, Ltd., President and
13
<PAGE>
Director of Renaissance Capital Growth & Income Fund III, Inc. (NASDAQ), and
Director of Renaissance U.S. Growth & Income Trust PLC, which is traded on the
London exchange. Mr. Cleveland also currently serves as director of Danzer Corp.
(formerly Global Environmental Corp.), and Bentley Pharmaceuticals, Inc.
Charles C. Dragone has served at various times during the past seven years
as the Company's Chairman of the Board, Chief Executive Officer and as its Chief
Financial Officer. Mr. Dragone is a consultant specializing in corporate
finance. He was formerly a director of KiMed Corporation, a medical products and
services company (1992 to 1997). He also was a Partner of Financial Associates,
a Sarasota, Florida, consulting firm specializing in corporate finance (1986 to
1992), a private consultant in corporate finance matters (1982 to 1986) and a
Vice President, Chief Financial Officer and director of K-Tron International,
Inc. (NASDAQ:KTII), a manufacturer of process control equipment used by the
chemical, pharmaceutical, plastics and food industries (1965 - 1981).
Robert C. Farone has been the President of Bag'n Baggage, Ltd. since June
1985. 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. since June 1985. 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 were a regional chain of deep discount stores specializing in ready to
wear having 72 locations in five states.
J. Harold Helderman, MD is a 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 the immediate
past President of the American Society of Transplant Physicians.
Manfred K. Kruger joined the Company in June 1997, serving as Chief
Operating Officer and Managing Director for International Operations. On July 1,
1999 he became the Company's President and on December 1, 1999, he became Chief
Executive Officer. 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.
Thomas W. Pauken is the current Chairman of the Board. Mr. Pauken is an
attorney and mediator. He currently serves as the Trustee for Capital Partners
II, Ltd. Liquidating Trust. He also serves as Chairman of the Board of TOR
Minerals, International, Inc. For six 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.
Elroy G. Roelke is a practicing attorney and for more than 40 years, has
specialized in corporate finance and business law. In addition, he is Chairman
and Founder of American Homesites, LLC, a developer of manufactured housing
communities. In March 1989, Mr. Roelke joined Renaissance Capital Group, Inc.
and served as Vice President, General Counsel and director until he retired in
December
14
<PAGE>
1996. Mr. Roelke serves as a director of several privately held companies that
retain his service for corporate legal services and as a director of EarthCare
Company (NASDAQ: ECCO). Mr. Roelke received B.A. and J.D. degrees from
Valparaiso University.
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.
Item 10. 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. The Chairman
of the Board receives $1,000 per month for his services as Chairman.
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
2,500 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
15
<PAGE>
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 Carlton E. Turner.
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 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 year period commencing on the date of the grant of such option. Any option
granted to an outside Director should remain effective during its 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 years after retirement. In the event of death or
disability, all vested options expire one 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 2,500,000 shares of the Company's Common
Stock for issuance thereunder. As of September 30, 2000, options have been
issued for 2,363,372 shares and 136,628 shares remain available under the 1996
Plan. Unless sooner terminated, the 1996 Plan will expire on February 27, 2006.
1996 Management Compensation Plan
On November 1, 1999, the Company's Board of Directors terminated the 1996
Management Compensation Plan.
Employment Agreements
The Company has an employment agreement with Manfred Kruger, its
President, Chief Executive Officer, 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 is
currently $230,000. In addition, the employment agreement provides for an annual
bonus in an amount equal to 30% of his annual base salary, subject to the
satisfaction of reasonable performance goals.
The Company has an employment agreement with George Lombardi, its Chief
Financial Officer, Treasurer and Secretary. Pursuant to that agreement, the term
of Mr. Lombardi's employment with the
16
<PAGE>
company commenced on March 30, 1998 and shall terminate on March 30, 2000,
subject to automatic extensions for additional one-year periods, unless the
Company or Mr. Lombardi delivers a written notice of his or its election to
terminate, or the Company terminates his employment for cause. Mr. Lombardi's
annual base salary is currently $150,000. In addition, the employment agreement
provides for an annual bonus in an amount equal to 25% of his annual base
salary, subject to the satisfaction of reasonable performance goals.
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 $100,000 for this period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
---------------------------------------------------------------------------------------------------------------------------
Awards Payouts
---------------------------------------------------------------------------------------------------------------------------
Securities
Underlying
Other Restricted Options/
Name And Principal Fiscal Annual Stock SARs LTIP All Other
Position Year Salary Bonus Compensation Award(s) (#) Payouts Compensation
($) ($) ($) ($) (1) ($) ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Dragone 2000 12,000 0 0 0 0 0 0
Interim Chief 1999 18,000 0 0 0 0 0 0
Executive Officer
Manfred K. Kruger 2000 174,200 70,000 0 0 210,000 0 22,000
President, Chief 1999 150,000 23,400 0 0 42,500 0 10,900
Executive Officer & 1998 134,691 21,894 0 0 25,000 0 24,900
Chief Operating
Officer
George Lombardi 2000 143,500 38,000 0 0 50,000 0 0
Chief Financial 1999 132,500 16,600 0 0 33,000 0 0
Officer, Treasurer 1998 63,462 6,400 0 0 100,000 0 0
and Secretary
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Dragone was appointed as Interim Chief Executive Officer and he served
in this capacity from July 1, 1999 to November 30, 1999. On December 1,
1999, Mr. Kruger was appointed Chief Executive Officer.
17
<PAGE>
OPTION/SAR GRANTS IN FISCAL YEAR 2000
(Individual Grants)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Percent of Total
Options/SARs Options/SARs Exercise or
Granted Granted To Base Price Expiration
Name (#) Employees ($/Sh) Date
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles C. Dragone 10,000 1.5% $5.00 April 27, 2005
-------------------------------------------------------------------------------------------------------------
Manfred K. Kruger 160,000 23.3% $0.94 October 1, 2009
50,000 7.3% $5.00 April 27, 2010
-------------------------------------------------------------------------------------------------------------
George Lombardi 50,000 7.3% $0.94 October 1, 2009
-------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the value of the unexercised options
at September 30, 2000. No options were exercised during this fiscal year. The
market price of the Company's common stock at September 30, 2000 was $5.875.
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Name September 30, 2000 September 30, 2000
--------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles C. Dragone 158,289 -0- $ 655,400 $ -0-
--------------------------------------------------------------------------------------------------------
Manfred K. Kruger 246,250 231,250 $1,031,825 $940,075
--------------------------------------------------------------------------------------------------------
George Lombardi 105,500 77,500 $ 414,041 $341,644
--------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 30, 2000, 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, 2000, there
were approximately 14,182,739 shares of Common Stock issued and outstanding.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Name and Address Amount and Nature Percentage
of Beneficial Owner of Beneficial Owner (1)(2) of Class (3)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Partners II, Ltd. Liquidating Trust (4) (9) (12) ................ 7,905,908 53.12%
5646 Milton Street
Suite 900
Dallas, TX 75206
NatWest Ventures (Investments) Ltd. (5) ................................. 1,918,409 13.51%
Fenchurch Exchange
8 Fenchurch Place
London, England
EC3M4TE
Sulzer Medica USA Holding Co. ........................................... 1,344,670 8.66%
3 East Greenway Plaza, Suite 1600
Houston, Texas 77046
Karl H. Meister (6) ..................................................... 877,796 5.93%
G. Russell Cleveland (7) ................................................ 67,300 *
Charles Dragone (8) ..................................................... 193,187 1.35%
Robert C. Farone (9) .................................................... 105,814 *
Dr. J. Harold Helderman (10) ............................................ 84,488 *
Manfred K. Kruger (11) .................................................. 345,000 2.37%
George Lombardi (11) .................................................... 125,500 *
Thomas W. Pauken (12) ................................................... 8,160,690 54.37%
Elroy G. Roelke (13) .................................................... 267,901 1.88%
Carlton E. Turner (11) .................................................. 20,000 *
All directors and officers as a group (9 persons) ....................... 9,369,880 39.78%
</TABLE>
----------
* Less than 1%
19
<PAGE>
(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 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, 2000 held by such individual or
group.
(4) Includes 703,500 shares of common stock, which Capital Partners II, Ltd.
Liquidating Trust has the right to acquire within sixty (60) days (See
Note 9 and 12).
(5) Includes 21,615 shares of common stock issuable upon exercise of warrants
exercisable within sixty (60) days.
(6) Includes 609,000 shares of common stock issuable upon exercise of warrants
exercisable within sixty (60) days.
(7) Includes 58,650 shares of common stock issuable upon exercise of options
and warrants 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. See notes 4 and 12.
(8) Includes 172,809 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days and 20,378 shares for
which Mr. Dragone shares voting and investment power with his spouse.
(9) Includes 50,000 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days. Mr.Farone is a
Supervisory Trustee of Capital Partners II, Ltd. Liquidating Trust (see
Notes 4 and 12).
(10) Includes 78,494 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days.
(11) All of the shares of common stock beneficially owned by Messrs. Kruger,
Lombardi and Turner, are derivative securities issuable upon exercise of
options exercisable within sixty (60) days.
(12) Includes all of the shares of common stock beneficially owned by Capital
Partners II, Ltd Liquidating Trust (see Notes 4, 7 and 9). Mr. Pauken is
the Trustee of Capital Partners II, Ltd. Liquidating Trust. Mr. Pauken
separately has beneficial ownership in 254,782 shares of common stock. It
also includes 127,000 shares of common stock issuable upon exercise of
options and warrants exercisable within sixty (60) days.
(13) Includes 83,591 shares of common stock issuable upon exercise of options
and warrants exercisable within sixty (60) days.
Item 12. Certain Relationships and Related Transactions.
On January 28, 1999, Renaissance converted a Convertible Debenture and
accrued interest and expenses (approximately $2,162,000) into 4,600,507 shares
of the Company's common stock. In consideration of the agreement to convert, the
Company issued to the investor 149,334 common shares as prepayment for one
year's interest on the Debenture and agreed to amend its outstanding Stock
Purchase Warrants, totaling 1,353,957, by reducing the exercise price from $2.50
per share to $1.25 per share if such warrants are exercised by June 30, 2000,
after which date such warrants shall revert to their initial terms. A loss of
$187,000 on the conversion of the debenture has been recognized in net income in
1999.
On January 29, 1999, Renaissance purchased 300,000 Units at $1.00 per
Unit, each Unit consisting of one common share of the Company and one Common
Stock Purchase Warrant, expiring December 31, 2000, at an exercise price of
$1.50 per share.
20
<PAGE>
On February 1, 1999, Mr. Roelke, Director of the Company purchased 100,000
Units at $1.00 per Unit, each Unit consisting of one common share of the Company
and one Common Stock Purchase Warrant, expiring December 31, 2000, at an
exercise price of $1.50 per share.
On October 26 and November 12, 1999, Mr. Pauken, Director of the Company
purchased 40,000 and 35,000 Units, respectively, at $1.00 per Unit, each Unit
consisting of one common share of the Company and one Common Stock Purchase
Warrant, expiring December 31, 2000, at an exercise price of $1.50 per share. In
addition, during the year, Mr. Pauken exercised various options and warrants
totaling 35,091 common shares of the Company at exercise prices ranging from
$1.18 to $1.50 per share.
On June 28, 2000, Renaissance converted its Convertible Debenture
(approximately $490,000) into 363,000 shares of the Company's common stock.
On June 28, 2000, Renaissance exercised Warrants to purchase 1,103,957 of
the Company's Common Stock at an exercise price of $1.25 per share.
On September 18, 2000, Mr. Roelke, Director of the Company, through a
cashless exercise, exercised 100,000 warrants of the common shares of the
Company at an exercise price of $1.50 per share.
Item 13. Exhibits 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 the Reverse Stock Split.*
10.1 Convertible Debenture Loan Agreement, dated November 11, 1997,
By and between Biodynamics International, Inc., and its Wholly-Owned
Subsidiaries, and Renaissance Capital Partners II, Ltd.*
10.2 Nine Percent (9%) Convertible Debenture of Biodynamics International,
Inc.,
21
<PAGE>
Issued to Renaissance Capital Partners II, Ltd., dated November 11,
1997.*
10.3 Second Amendment to Security Agreement, dated December 31, 1997, By
Biodynamics International, Inc., for the benefit of Renaissance
Capital Partners II, Ltd.*
10.4 Second Amendment to Security Agreement (Stock Pledge Agreement),
dated December 1, 1997, by Biodynamics International, Inc. for the
benefit of Renaissance Capital Partners II, Ltd.*
10.7 Employment Agreement between Biodynamics International, Inc.
and Manfred Kruger, dated June 9, 1997.*
10.8 Employment Agreement between Biodynamics International, Inc.
and George Lombardi, dated March 30, 1998.*
21 Subsidiaries of Registrant.*
27 Financial Data Schedule.
* 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.
(b) Reports on 8-K
None
22
<PAGE>
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on behalf by the undersigned,
thereunto duly authorized.
Date December 13, 2000
TUTOGEN MEDICAL, INC.
/s/ Manfred K. Kruger
----------------------------------------
Manfred K. Kruger
President, Chief Executive Officer and
Chief Operating Officer
/s/ George Lombardi
----------------------------------------
George Lombardi
Chief Financial Officer, Treasurer and
Secretary
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ G. Russell Cleveland Director December 13, 2000
------------------------------
G. Russell Cleveland
/s/ Charles C. Dragone Director December 13, 2000
------------------------------
Charles C. Dragone
/s/ Robert C. Farone Director December 13, 2000
------------------------------
Robert C. Farone
/s/ J. Harold Helderman Director December 13, 2000
------------------------------
Dr. J. Harold Helderman
/s/ Manfred K. Kruger Director December 13, 2000
------------------------------
Manfred K. Kruger
<PAGE>
/s/ Thomas W. Pauken Director December 13, 2000
------------------------------
Thomas W. Pauken
/s/ Elroy G. Roelke Director December 13, 2000
------------------------------
Elroy G. Roelke
/s/ Carlton E. Turner Director December 13, 2000
------------------------------
Carlton E. Turner
<PAGE>
Tutogen Medical, Inc. and Subsidiaries
Independent Auditors' Report
Consolidated Financial Statements
Years Ended September 30, 2000 and 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Tutogen Medical, Inc. and Subsidiaries
Clifton, New Jersey
We have audited the accompanying consolidated balance sheets of Tutogen Medical,
Inc. and Subsidiaries (the "Company") as of September 30, 2000 and 1999, and the
related consolidated statements of operations, cash flows and shareholders'
equity for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 at September 30, 2000
and 1999, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
November 28, 2000
F-1
<PAGE>
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND 1999
(In Thousands)
--------------------------------------------------------------------------------
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,835 $ 376
Accounts receivable, net of allowance for doubtful
accounts of $163 in 2000 and $82 in 1999 1,559 2,020
Inventories - net 5,652 5,354
Deferred tax asset 135 147
Other current assets 585 385
------- -------
Total current assets 11,766 8,282
PROPERTY, PLANT AND EQUIPMENT - Net 3,072 2,655
INTANGIBLE ASSETS - Net 2 182
------- -------
TOTAL ASSETS $14,840 $11,119
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,966 $ 1,816
Revolving credit arrangements 333 1,149
Current portion of long-term debt 58 136
------- -------
Total current liabilities 2,357 3,101
LONG-TERM DEBT 745 1,404
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY 11,738 6,614
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,840 $11,119
======= =======
See notes to consolidated financial statements.
F-2
<PAGE>
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands, Except for Share Data)
--------------------------------------------------------------------------------
2000 1999
REVENUE:
Surgical products and related services $ 15,226 $ 11,464
Distribution fees 1,400 300
------------ -----------
Total revenue 16,626 11,764
COST OF REVENUE 8,154 6,008
------------ -----------
Gross margin 8,472 5,756
------------ -----------
OPERATING EXPENSES:
General and administrative 2,689 2,210
Distribution and marketing 2,443 2,114
Research and development 281 418
Depreciation and amortization 222 473
------------ -----------
Total operating expenses 5,635 5,215
------------ -----------
OPERATING INCOME 2,837 541
OTHER INCOME 243 154
LOSS ON CONVERSION OF DEBT -- (187)
INTEREST EXPENSE (259) (241)
------------ -----------
INCOME BEFORE INCOME TAXES 2,821 267
INCOME TAX (EXPENSE) BENEFIT (20) 147
------------ -----------
NET INCOME 2,801 414
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustments (810) (338)
------------ -----------
COMPREHENSIVE INCOME $ 1,991 $ 76
============ ===========
AVERAGE SHARES OUTSTANDING FOR BASIC EARNINGS
PER SHARE 11,900,375 9,418,384
============ ===========
BASIC EARNINGS PER SHARE $ 0.24 $ 0.04
============ ===========
AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE 14,012,492 9,508,607
============ ===========
DILUTED EARNINGS PER SHARE $ 0.20 $ 0.04
============ ===========
See notes to consolidated financial statements.
F-3
<PAGE>
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,801 $ 414
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 426 725
Loss on conversion of debt -- 187
Changes in assets and liabilities:
Accounts receivable 256 (427)
Inventories (767) (1,148)
Deferred tax asset 12 (147)
Other current assets (262) (228)
Accounts payable and accrued expenses 366 (242)
------- -------
Net cash provided by (used in) operating activities 2,832 (866)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property, plant and equipment (1,197) (258)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,643 575
Proceeds from (repayment of) revolving credit arrangements - net (670) 254
Repayment of long-term debt (55) (173)
Capital lease payments (4) (20)
------- -------
Net cash provided by financing activities 1,914 636
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (90) 507
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,459 19
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 376 357
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,835 $ 376
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES -
Interest paid $ 259 $ 430
======= =======
SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for convertible long-term debt and
accrued interest $ 490 $ 2,349
Issuance of common stock for interest -- 189
Issuance of common stock for services 9 171
------- -------
$ 499 $ 2,709
======= =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands, Except for Share Data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated Common
Common Additional Other Shares
Stock Paid-in Treasury Comprehensive Accumulated Issued and
($.01 par) Capital stock Loss Deficit Total Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1998 $ 54 $27,235 $ -- $ (40) $(23,878) $ 3,371 5,363,960
Conversion of convertible debentures 47 2,302 -- -- -- 2,349 4,749,841
Stock issued for private placement 5 453 -- -- -- 458 457,500
Stock issued for interest on debentures 2 187 -- -- -- 189 144,550
Stock issued for services 1 170 -- -- -- 171 145,385
Net income -- -- -- -- 414 414 --
Foreign currency translation adjustment -- -- -- (338) -- (338) --
---- ------- ------- ------- -------- -------- ----------
BALANCE, SEPTEMBER 30, 1999 109 30,347 -- (378) (23,464) 6,614 10,861,236
Conversion of convertible debentures 4 486 -- -- -- 490 363,000
Stock issued for private placement 4 352 -- -- -- 356 355,000
Stock issued on exercise of options 17 2,261 -- -- -- 2,278 1,745,228
Stock issued for services -- 9 -- -- -- 9 7,589
Net income -- -- -- -- 2,801 2,801 --
Treasury stock 7 1,675 (1,682) -- -- -- 733,035
Foreign currency translation adjustment -- -- -- (810) -- (810) --
---- ------- ------- ------- -------- -------- ----------
BALANCE, SEPTEMBER 30, 2000 $141 $35,130 $(1,682) $(1,188) $(20,663) $ 11,738 14,065,088
==== ======= ======= ======= ======== ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
(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 40
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 Deutsche Mark ("DM"). 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 gains of $95 in 2000
and $10 in 1999. The exchange rates at September 30, 2000 and 1999 were DM
2.22/U.S. Dollar and DM 1.83/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 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.
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
F-6
<PAGE>
Intangible Assets - Intangible assets consist of patents and trademarks,
which are stated at acquired cost less accumulated amortization. Patents
are amortized on a straight-line basis over a weighted average of the
remaining patent protection periods of all existing worldwide patents and
do not exceed thirteen years. Trademarks are amortized straight-line over
the expected benefit period of five years. The Company reviews the
carrying values of intangible assets to assess recoverability and other
than temporary impairments.
Revenue and Cost of Revenue - Revenue includes amounts from surgical
products and related services and distribution fees from strategic
partnerships, net of cash discounts and shipping. Cost of revenue includes
depreciation of $204 and $252 for the years ended September 30, 2000 and
1999, respectively. Revenue from surgical products and related services is
recognized upon the shipment of the processed tissues. Revenue from
distribution fees is recognized as earned.
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 - During 1999, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive
Income. 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 adjustment.
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 - Statement of Financial Accounting Standards 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.
New Accounting Pronouncements - During 2000, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards
("SFAS") No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, and SFAS No. 139, Rescission of FASB Statement
No. 53
F-7
<PAGE>
and Amendments to FASB Statements No. 63 and 121. The Company does not
expect adoption of these new accounting pronouncements to have a material
effect, if any, on its financial condition or results of operations.
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 15% of their annual compensation to the Plan on a pre-tax
basis, subject to the maximum dollar limit set by the Internal Revenue
Service. The expenses incurred for this plan were $24 in 2000 and $21 in
1999.
Reclassification - Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 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. One customer accounted for 36% and
18% of consolidated revenue in 2000 and 1999, respectively. 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, 2000.
4. INVENTORIES
Major classes of inventory at September 30, 2000 and 1999 were as follows:
2000 1999
Raw materials $ 820 $1,519
Work in process 2,564 2,983
Finished goods 3,018 1,375
------ ------
6,402 5,877
Less reserves for obsolescence 750 523
------ ------
$5,652 $5,354
====== ======
F-8
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2000 and 1999 consisted of
the following:
2000 1999
Land $ 363 $ 440
Buildings and improvements 2,402 2,222
Machinery and equipment 548 674
Office furniture and equipment 1,152 1,072
------- -------
4,465 4,408
Less accumulated depreciation (1,393) (1,753)
------- -------
$ 3,072 $ 2,655
======= =======
The Company's property held under capital leases of approximately $-0- and
$58 is included in machinery and office equipment at September 30, 2000
and 1999, respectively. The depreciation expense for the years ended
September 30, 2000 and 1999 was approximately $264 and $354, respectively.
6. INTANGIBLE ASSETS
Intangible assets at September 30, 2000 and 1999 consisted of the
following:
2000 1999
Patents $ 4,951 $ 6,003
Trademarks 966 1,171
------- -------
5,917 7,174
Less accumulated amortization (5,915) (6,992)
------- -------
$ 2 $ 182
======= =======
At September 30, 2000 and 1999, the Company has assessed the carrying
values of all intangible assets in accordance with SFAS No. 121,
Accounting for Impairment of Long-lived Assets and for Long-lived Assets
to Be Disposed of. The amortization expense for the years ended September
30, 2000 and 1999 was approximately $162 and $371, respectively.
7. REVOLVING CREDIT ARRANGEMENTS
Under the terms of revolving credit facilities with four German banks, all
of which expire within the next 12 months, the Company may borrow up to DM
2.9 million or approximately $1,300 for working capital needs. These
renewable credit lines allow the Company to borrow at interest rates
ranging from 7.75% to 8.5%. The borrowings under the revolving credit
agreements are unsecured.
F-9
<PAGE>
The Company entered into a revolving credit facility in the U.S. for up to
$1.0 million, expiring on December 31, 2001. The U.S. accounts receivable
and inventory assets secure the borrowing under the revolving credit
facility.
8. LONG-TERM DEBT
Long-term debt at September 30, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Senior debt, 5.75% interest until March 30, 2008 when terms are
renegotiable, due 2008 $ 803 $ 1,040
Convertible debenture, 9% interest due 2002 -- 500
------- -------
803 1,540
Less current portion (58) (136)
------- -------
$ 745 $ 1,404
======= =======
</TABLE>
Aggregate maturities of long-term debt are $58 in 2001; $61 in 2002; $65
in 2003; $69 in 2004; $73 in 2005.
On January 28, 1999, one of the Company's institutional investors
converted its convertible debenture and accrued interest and expenses,
totaling $2,162, into 4,600,507 shares of the Company's common stock. In
consideration of the agreement to convert, the Company issued to the
investor 149,334 common shares as prepayment for one year's interest on
the debenture and agreed to amend its outstanding Stock Purchase Warrants,
totaling 1,353,957, by reducing the exercise price from $2.50 per share to
$1.25 per share if such warrants are exercised prior to June 30, 2000,
after which date such warrants shall revert to their initial terms. A loss
on the conversion of $187 has been recognized in 1999.
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, and the credit facility is repayable as working capital dictates.
The debt has been incurred by the Company's German subsidiary but is
guaranteed by the parent company.
9. SHAREHOLDERS' EQUITY
Common Stock - The authorized common stock of the Company consists of
30,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
Stock Options - The Company maintains a 1996 Stock Option Plan (2,500,000
shares authorized) under which incentive and non-qualified 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.
F-10
<PAGE>
Changes in outstanding options for the Plan were as follows:
Weighted
Number of Average
Common Price
Shares Per Share
Outstanding October 1, 1998 994,500 $2.08
Granted 912,922 $1.35
Canceled (202,250) $1.22
----------
Outstanding September 30, 1999 1,705,172 $1.79
Granted 855,200 $2.46
Canceled (197,000) $1.74
Exercised (78,830) $1.28
---------- -----
Outstanding September 30, 2000 2,284,542 $1.91
========== =====
Of the outstanding options, a total of 1,329,592 are exercisable as of
September 30, 2000, at a weighted average exercise price of $1.91
Under SFAS No. 123, Accounting for Stock-based Compensation, the pro forma
amounts if stock options and warrants were reported under the fair value
method are as follows:
2000 1999
Pro forma net income $2,562 $ 235
Pro forma basic earnings per share 0.22 0.02
Pro forma diluted earnings per share 0.18 0.02
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 10%, a risk-free interest rate of
4.69% and an expected life of three years. A dividend yield of zero has
been assumed.
10. SEGMENT DATA
The Company operates principally in one industry providing specialty
surgical products and tissue processing services. These operations include
in 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 profit or loss from operations
before income taxes not including non-recurring and foreign exchange gains
or losses. The Company accounts for intersegment sales and transfers at
contractually agreed-upon prices.
The Company's reportable segments are strategic business units that offer
products and services to different geographic markets. They are managed
separately because of the differences in these markets as well as their
physical location.
F-11
<PAGE>
A summary of the operations and assets by segment as of and for the years
ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 International United States Consolidated
<S> <C> <C> <C>
Gross revenue $ 11,304 $ 9,076 $ 20,380
Less - intercompany (3,754) -- (3,754)
-------- -------- --------
Total revenue - third party $ 7,550 $ 9,076 $ 16,626
======== ======== ========
Depreciation and amortization $ 365 $ 61 $ 426
Interest expense $ 221 $ 38 $ 259
Net income $ 1,997 $ 804 $ 2,801
Capital expenditures $ 1,097 $ 100 $ 1,197
Total assets $ 7,441 $ 25,914 $ 33,355
Less intercompany advances -- (18,515) (18,515)
-------- -------- --------
$ 7,441 $ 7,399 $ 14,840
======== ======== ========
<CAPTION>
1999 International United States Consolidated
<S> <C> <C> <C>
Gross revenue $ 7,882 $ 5,175 $ 13,057
Less - intercompany (1,293) -- (1,293)
-------- -------- --------
Total revenue - third party $ 6,589 $ 5,175 $ 11,764
======== ======== ========
Depreciation and amortization $ 647 $ 78 $ 725
Interest expense $ 129 $ 112 $ 241
Net income $ (298) $ 712 $ 414
Capital expenditures $ 238 $ 20 $ 258
Total assets $ 6,987 $ 22,551 $ 29,538
Less intercompany advances -- (18,419) $(18,419)
-------- -------- --------
$ 6,987 $ 4,132 $ 11,119
======== ======== ========
</TABLE>
11. INCOME TAXES
The provision for income taxes for the years ended September 30, 2000 and
1999 consists of a current, federal income tax (expense)/benefit of $(20)
and $147, respectively.
The Company has recognized a deferred tax asset of $2,693 and $2,932, and
a corresponding valuation allowance of $2,558 and $2,785, at September 30,
2000 and 1999, respectively. The principal components of the deferred tax
asset for 2000 and 1999 relate to net operating loss carry forwards.
F-12
<PAGE>
The Company has a corporate net operating loss carry forward ("NOL") for
German income tax purposes of approximately $6,311 (DM 14,000,000), and
trade net operation loss carry forward ("NOL") for German income tax
purposes of approximately $4,508 (DM 10,000,000), which can be carried
forward indefinitely. A valuation allowance has been provided for the full
amount of these NOLs in the accompanying statements.
The difference between the statutory Federal income tax rate of 20% and
the effective tax rate of 2% is attributable to:
2000 1999
Statutory Federal income tax rate 20% 20%
AMT Net Operating Loss (12) --
Elimination of valuation allowance -- (18)
Other - net (6) --
---- ----
Effective tax rate 2% 2%
==== ====
12. 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, 2000 and 1999:
(In thousands, except share and per share amount data)
<TABLE>
<CAPTION>
2000 1999
--------------------------------- -------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $2,801 11,900,375 $0.24 $414 9,418,384 $0.04
Effect of dilutive secured:
Stock options -- 2,112,117 -- -- 90,223 --
------ ---------- ----- ---- --------- -----
Diluted earnings per share $2,801 14,012,492 $0.20 $414 9,508,607 $0.04
====== ========== ===== ==== ========= =====
</TABLE>
13. 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 $298 and $417 per year
for the years ended September 30, 2000 and 1999, respectively.
F-13
<PAGE>
Future minimum rental payments required under these leases that have
initial or remaining non-cancelable lease terms in excess of one year as
of September 30, 2000 are as follows:
2001 $ 389
2002 387
2003 214
2004 57
------
$ 1,047
======
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 or results of
operations.
******
F-14
