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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________.
Commission File Number: 0-27120
KENSEY NASH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3316412
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
MARSH CREEK CORPORATE CENTER, 55 EAST UWCHLAN AVENUE, EXTON, PENNSYLVANIA 19341
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (610) 524-0188
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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__
As of October 31, 1999, there were outstanding 7,473,675 shares of Common
Stock, par value $.001, of the registrant.
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KENSEY NASH CORPORATION
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of September 30, 1999 (Unaudited) and June 30, 1999................. 3
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1999 and 1998 (Unaudited)...... 4
Condensed Consolidated Statements of Stockholders' Equity as of
September 30, 1999 (Unaudited) and June 30, 1999........................ 5
Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 1999 and 1998 (Unaudited)...... 6
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................13
SIGNATURES................................................................................14
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENSEY NASH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30,
ASSETS 1999 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 564,594 $ 1,189,083
Short-term investments 8,418,573 8,479,617
Trade receivables 2,278,395 2,247,050
Royalties receivable (Note 2) 1,048,506 742,143
Officer loans 269,198 264,535
Other receivables (including approximately $111,700 and $62,000 at
September 30, 1999 and June 30, 1999, respectively, due from employees) 294,367 170,181
Inventory (Note 3) 552,673 748,698
Prepaid expenses and other 346,978 320,106
------------ ------------
Total current assets 13,773,284 14,161,413
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Leasehold improvements 4,023,373 4,023,373
Machinery, furniture and equipment 5,164,117 4,840,529
Construction in progress 1,484,066 676,836
------------ ------------
Total property, plant and equipment 10,671,556 9,540,738
Accumulated depreciation (4,117,539) (3,801,514)
------------ ------------
Net property, plant and equipment 6,554,017 5,739,224
------------ ------------
OTHER ASSETS:
Restricted investments (Note 4) 3,455,725 4,675,725
Property under capital leases, net 21,459 28,368
Acquired patents, net of accumulated amortization of $445,519 and $381,873
at September 30, 1999 and June 30, 1999, respectively 3,546,890 3,610,536
------------ ------------
Total other assets 7,024,074 8,314,629
------------ ------------
TOTAL $ 27,351,375 $ 28,215,266
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,210,332 $ 1,446,800
Accrued expenses 455,061 863,458
Current portion of line of credit, obligation under patent acquisition agreement
and capital lease obligations 308,584 600,398
Deferred revenue - royalties and other (Note 2) 390,846
------------ ------------
Total current liabilities 1,973,977 3,301,502
DEBT and OBLIGATION UNDER CAPITAL LEASES, long-term portion 5,964,087 6,012,863
------------ ------------
Total liabilities 7,938,064 9,314,365
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4):
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 100,000 shares authorized,
no shares issued or outstanding at September 30, 1999 and June 30, 1999
Common stock, $.001 par value, 25,000,000 shares authorized,
7,471,760 and 7,470,710 shares issued and outstanding at September 30, 1999
and June 30, 1999, respectively 7,472 7,470
Capital in excess of par value 37,705,457 37,697,452
Accumulated deficit (17,919,478) (18,562,619)
Accumulated other comprehensive income (380,140) (241,402)
------------ ------------
Total stockholders' equity 19,413,311 18,900,901
------------ ------------
TOTAL $ 27,351,375 $ 28,215,266
============ ============
</TABLE>
See notes to consolidated financial statements.
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KENSEY NASH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
<S> <C> <C>
REVENUES (Notes 1 and 2):
Net sales $ 2,363,620 $ 1,376,978
Research and development 34,398 769,108
Royalty income 1,421,102 1,405,411
----------- -----------
Total revenues 3,819,120 3,551,497
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of products sold 1,428,108 1,278,373
Research and development 1,324,867 1,397,771
Selling, general and administrative 531,320 573,529
----------- -----------
Total operating costs and expenses 3,284,295 3,249,673
----------- -----------
INCOME FROM OPERATIONS 534,825 301,824
----------- -----------
OTHER INCOME:
Interest income 222,969 134,713
Interest expense (114,653) (65,959)
Other 1
----------- -----------
Total other income - net 108,316 68,755
----------- -----------
INCOME BEFORE INCOME TAXES 643,141 370,579
Provision for Income Taxes (Note 5)
----------- -----------
NET INCOME $ 643,141 $ 370,579
=========== ===========
BASIC and DILUTED EARNINGS PER
SHARE (Note 1) $ 0.09 $ 0.05
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 1) 7,521,419 7,465,754
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
COMMON STOCK IN EXCESS OTHER COMPREHENSIVE
------------------------ OF PAR ACCUMULATED COMPREHENSIVE INCOME /
SHARES AMOUNT VALUE DEFICIT LOSS (LOSS) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 7,156,493 $ 7,156 $ 33,815,216 $(21,821,583) $ 12,000,789
Exercise of stock options 41,758 42 388,591 388,633
Net loss (262,476) $ (262,476) (262,476)
--------- --------- ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 7,198,251 7,198 34,203,807 (22,084,059) 12,126,946
Exercise of stock options 61,021 61 556,174 556,235
Shares issued under Patent
Acquisition Agreement 200,000 200 2,837,400 2,837,600
Net income 342,682 342,682 342,682
--------- --------- ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1998 7,459,272 7,459 37,597,381 (21,741,377) 15,863,463
--------- --------- ------------ ------------ ------------
Exercise of stock options 11,438 11 100,071 100,082
Net income 3,178,758 3,178,758 3,178,758
Comprehensive loss (Note 1) (241,402) (241,402) (241,402)
------------ ------------
Comprehensive income 2,937,356
--------- --------- ------------ ------------ ---------- ============
BALANCE, JUNE 30, 1999 7,470,710 $ 7,470 $ 37,697,452 $(18,562,619) $ (241,402) $ 18,900,901
--------- --------- ------------ ------------ ---------- ------------
Exercise of stock options 1,050 2 8,005 8,007
Net income 643,141 643,141 643,141
Comprehensive loss (Note 1) (138,738) (138,738) (138,738)
------------ ------------
Comprehensive income $ 504,403
--------- --------- ------------ ------------ ----------- ------------
BALANCE, SEPTEMBER 30, 1999 7,471,760 $ 7,472 $ 37,705,457 $(17,919,478) $ (380,140) $ 19,413,311
========= ========= ============ ============ =========== ============
</TABLE>
See notes to the consolidated financial statements.
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KENSEY NASH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 643,141 $ 370,579
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 386,580 316,568
Changes in assets and liabilities which (used) provided cash:
Accounts receivable (466,557) (856,662)
Prepaid expenses and other current assets (26,872) (113,376)
Inventory 196,025 182,963
Accounts payable and accrued expenses (644,865) 152,567
Deferred revenue (390,846) (707,126)
----------- -----------
Net cash used in operating activities (303,394) (654,487)
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,130,818) (262,822)
Sale of restricted investments 1,220,000
Purchase of investments (77,693)
Sale of investments 162,480
----------- -----------
Net cash provided by (used in) investing activities 11,489 (100,342)
----------- -----------
FINANCING ACTIVITIES:
Principal payments under capital leases (8,495) (9,483)
Repayments of patent acquisition obligation (332,095) (106,317)
Exercise of stock options 8,006
----------- -----------
Net cash used in by financing activities (332,584) (115,800)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (624,489) (870,629)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,189,083 1,407,684
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 564,594 $ 537,055
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 107,529 $ 65,959
=========== ===========
Cash paid for income taxes $ $
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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KENSEY NASH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated balance sheet at September 30, 1999, the consolidated
statements of operations for the three months ended September 30, 1999
and 1998 and the consolidated statements of cash flows for the three
months ended September 30, 1999 and 1998 have been prepared by Kensey
Nash Corporation (the "Company") and have not been audited by the
Company's Independent Auditors. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1999 and for all periods
presented have been made.
Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's June 30, 1999 consolidated financial statements filed
with the Securities and Exchange Commission on Form 10-K. The results
of operations for the period ended September 30, 1999 are not
necessarily indicative of operating results for the full year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and short-term
investments having an original maturity of less than three months.
EXPORT SALES
Export sales from the Company's U.S. operations to unaffiliated
customers in Europe totaled $119,292 and $29,910 for the three months
ended September 30, 1999 and 1998, respectively.
EARNINGS PER SHARE
Basic and diluted EPS are computed using the weighted average number
of shares of common stock outstanding, with common equivalent shares
from options included in the diluted computation when their effect is
dilutive.
COMPREHENSIVE INCOME
Accumulated other comprehensive loss, shown in the consolidated
statements of shareholders' equity at September 30, 1999 and June 30,
1999, 1998 and 1997, is solely comprised of unrealized losses on the
Company's available-for-sale securities. There were no unrealized
gains or losses in the years ended June 30, 1998 and 1997. The tax
effect of other comprehensive income on fiscal years 2000 and 1999 was
not significant.
NOTE 2 -- DEFERRED REVENUE - ROYALTIES
Upon receipt of pre-market approval for the 8 French ("F") size
Angio-Seal device (the "Angio-Seal") from the Food and Drug
Administration (the "FDA") on September 30, 1996, the Company received
a $3 million advance on future royalties under the Company's licensing
agreement (the "Licensing Agreement") with its Strategic Alliance
Partner, St. Jude Medical, Inc. ("St. Jude"). Such advance was
recorded as deferred revenue. The Licensing Agreement provides for
certain minimum royalty payments ("Minimum Royalty") during the first
five years after receiving FDA approval (each royalty year begins on
October 1 and ends on September 30). As stipulated in the Licensing
Agreement, the $3 million advance was reduced in each period by 50% of
royalties earned in excess of the Minimum Royalty in any royalty year.
The remainder of
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royalties earned was received as cash proceeds by the Company. At
September 30, 1999 the entire $3 million liability had been repaid by
the Company via these royalty payment reductions.
NOTE 3 -- INVENTORY
Inventory is stated at the lower of cost (determined by the average
cost method which approximates first-in, first-out) or market.
Inventory primarily includes the cost of material utilized in the
processing of the Company's products and is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ -------------
<S> <C> <C>
Raw materials $ 504,658 $ 666,271
Work in process $ 48,015 82,427
---------- ----------
Total $ 552,673 $ 748,698
========== ==========
</TABLE>
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
The Company has pledged $1,949,386 in investments as collateral to
secure certain bank loans to employees which were used by such
employees for the payment of taxes incurred by such employees as the
result of the receipt of Common Stock in settlement of the employee
stock rights. In exchange for the Company pledging collateral for such
loans, each affected employee has pledged their Common Stock as
collateral to the Company. The balance outstanding on such employee
loans was $1,908,783 at September 30, 1999.
In addition, under the terms of the Company's Financing Agreement, the
Company has placed the remaining proceeds of such agreement into a
certificate of deposit ("CD"). The CD is restricted for capital
expenditure purposes only. The balance of the CD at September 30, 1999
is $1,506,339 and is included in restricted investments due to the
capital expenditure restriction placed on its use.
NOTE 5 -- INCOME TAXES
As of June 30, 1999, the Company had net operating loss carryforwards
for federal and state tax purposes totaling $14.8 and $3 million,
respectively. As such, no provision has been made for income taxes for
the three months ended September 30, 1999. A portion of the NOL may be
subject to various statutory limitations as to its usage.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Kensey Nash Corporation (the "Company") designs, develops and manufactures, both
individually and in conjunction with third parties, medical devices for use
primarily in the cardiovascular and orthopedic markets.
The Company is a leader in the cardiac catheterization puncture closure market
with its Angio-Seal device. The Angio-Seal is an absorbable medical device for
the sealing of arterial punctures created during cardiovascular procedures such
as angiography, angioplasty, atherectomy and the placement of stents. The
Company participates in the puncture closure market primarily through its
relationship with its Strategic Alliance Partner, St. Jude Medical, Inc. ("St.
Jude"), from which it generates royalty income, research and development funding
and sales revenue through the manufacture of Angio-Seal devices and components
for the Angio-Seal.
In February 1999, the Company announced European Community ("CE") Mark Approval
had been granted for the new 6F Angio-Seal puncture closure device. CE Mark
approval allows the sale of the device throughout the European Union. This
smaller version of the Company's 8F Angio-Seal, currently marketed in both the
US and Europe, is designed to seal arterial punctures 6F and smaller and
addresses the largest segment of the puncture closure market.
The Company's succeeding product in the cardiovascular market is a
revascularization device, the Aegis Vortex System ("AVS"). The AVS is a device
designed to open occluded saphenous vein bypass grafts ("SVGs") while minimizing
the risk of embolization, a common problem with current treatment alternatives.
The Company is developing the AVS utilizing its intellectual property and
in-house expertise. The Company announced the initiation of clinical trials for
the AVS in July 1999.
In addition, the Company has leading technology in the area of absorbable
biomaterials and continues to expand its capabilities. The Company is currently
manufacturing absorbable collagen and polymer products for third parties for use
in orthopedic, cardiovascular, tissue regeneration, bone growth protein and drug
delivery applications, among others.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the notes thereto contained elsewhere in
this report.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues for these periods consisted of net sales, research and development
revenue and royalty income. Revenues increased 8% to $3,819,000 in the three
months ended September 30, 1999 from $3,551,000 in the three months ended
September 30, 1998. Net sales of products increased 72% to $2,364,000 from
$1,377,000 for the three months ended September 30, 1999 and 1998, respectively.
Research and development revenues decreased 96% to $34,000 from $769,000 for the
three months ended September 30, 1999 and 1998, respectively. The increase in
net sales was attributable to an increase in both 8F Angio-Seal components, the
addition of 6F Angio-Seal commercial devices and increased sales of commercial
bioabsorbable OEM polymer and collagen products. The increases in sales of
Angio-Seal components and devices, sold to St. Jude, come as a result of
slightly increased demand for the 8F product in the US and European markets, as
well as the European launch of the 6F Angio-Seal device by St. Jude. The Company
is currently providing St. Jude with 6F Angio-Seal devices for the European
market. The Company expects St. Jude to take over such manufacturing activities
by the end of its fiscal year 2000. St. Jude has recently informed the Company
that it would be performing all ongoing research and
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development in-house. As such, research and development revenue has
significantly declined from the three month period a year ago. The Company does
not expect research and development revenue to be a significant revenue
component in the future.
Royalty income increased 1% to $1,421,000 from $1,405,000 in the three months
ended September 30, 1999 and 1998, respectively. Approximately 81,000 Angio-Seal
units were sold to end-users in the quarter ending September 30, 1999 compared
to 75,000 units sold in the quarter ending September 30, 1998. The increase in
royalty income reflected slight increases in demand in both the U.S. and
European markets versus the same quarter a year earlier. As St. Jude continues
to increase production and enhance marketing efforts for the Angio-Seal Product
Line in the United States and in Europe, the Company expects royalty income to
become an increasingly significant source of revenue. Royalty rates are based on
volume of units sold (rates decline as certain cumulative unit sales levels are
reached) and are equivalent in both the domestic and foreign licensing
agreements with St. Jude.
Cost of products sold increased 12% to $1,428,000 in the three months ended
September 30, 1999 from $1,278,000 in the three months ended September 30, 1998.
This increase reflects greater net sales of products offset by favorable product
mix. In addition, the significant increase in net sales brings the Company
closer to full utilization of its capacity and absorbption of overhead,
resulting in a favorable gross margin trend.
Research and development expense, including regulatory and clinical expense,
decreased 5% to $1,325,000 in the three months ended September 30, 1999 from
$1,398,000 in the three months ended September 30, 1998. This decrease in
expense is mainly attributable to the ongoing shift of development for the
Angio-Seal to St. Jude as well as the commercialization of the 6F product. This
decrease is offset by the Company's continued development efforts in
revascularization technology (the AVS), including clinical trials which it is
currently conducting for the AVS. The Company also continues to expand its
development efforts on its biomaterials products, including absorbable polymers
and collagen. The Company expects research and development expense to increase
as it investigates and develops new products, conducts clinical trials and seeks
regulatory approval for its proprietary products.
Selling, general and administrative expense decreased 7% to $531,000 in the
three months ended September 30, 1999 from $574,000 in the three months ended
September 30, 1998. This decrease was primarily a result of lower litigation
costs related to the Company's ongoing patent infringement suit.
Interest expense increased 74% to $115,000 in the three months ended September
30, 1999 from $66,000 in the three months ended September 30, 1998. This
increase was due to an increase in the Company's outstanding debt from
$2,000,000 at September 30, 1998 to $6,075,000 at September 30, 1999. Interest
income increased 66% to $223,000 in the three months ended September 30, 1999
from $135,000 in the three months ended September 30, 1998 as a result of an
increase in average total cash and investment balances.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in the Company's operating activities was $303,000 and $654,000
during the three months ended September 30, 1999 and 1998, respectively. In the
three months ending September 30, 1999, changes in asset and liability balances
resulted in a net $1,333,000 use of cash, which was offset by a net income of
$643,000 and non-cash depreciation and amortization of $387,000. Changes in
asset and liability balances resulted in a net $1,342,000 use of cash offset by
net income of $371,000 and non-cash depreciation and amortization of $317,000 in
the three months ending September 30, 1998.
The Company's cash, cash equivalents and short-term investments were $8,983,000
at September 30, 1999. In addition, the Company has $3,457,000 in restricted
investment accounts (not included in the $8,983,000). The Company has pledged
$1,949,000 in investments as collateral to secure bank loans made to employees
for the payment of taxes incurred by such employees as a result of their receipt
of
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Common Stock at the time of the IPO. In exchange for the Company pledging
this collateral, the employees have pledged their Common Stock as collateral to
the Company. The Company also has $1,508,000 in investments restricted for
capital spending through June 30, 2000 under the terms of a Financing Agreement
which provided a total of $5 million. Related to this funding, the Company has a
capital spending plan for fiscal year 2000 of which, for the three months ended
September 30, 1999, $1.1 million was expended primarily on machinery, equipment
and leasehold improvements. These expenditures were related to the continued
expansion of the Company's manufacturing capabilities, principally its collagen
and polymer product lines.
The Company received a $3.0 million royalty advance under the Licensing
Agreement upon receipt of FDA approval of the Angio-Seal in fiscal year 1997.
This royalty advance has been reduced in each period by 50% of the excess of
royalty income over minimum royalties stipulated within the Licensing
Agreements. During the three months ended September 30, 1999, the liability was
reduced to $0.
In November 1997, the Company acquired patents under a Patent Acquisition
Agreement in exchange for 200,000 shares of common stock and a series of eight
quarterly cash payments, which began on March 31, 1998, totaling $1.2 million.
The patents were recorded on the balance sheet at the value of the shares on the
date of the agreement plus the present value of the $1.2 million cash and any
legal and other related costs incurred to acquire such patents. The present
value of the cash payments ($1.1 million) was recorded on the balance sheet with
a remaining balance at September 30, 1999 of $171,000.
The Company plans to continue to expend substantial resources to fund clinical
trials to gain regulatory approvals and to continue to expand research and
development activities, particularly for its revascularization technology and
biomaterials products.
The Company believes cash generated from operations as well as funds available
under financing arrangements with its bank will be sufficient to meet the
Company's operating and capital requirements for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest income and expense are most sensitive to changes in the
general level of interest rates. In this regard, changes in interest rates
affect the interest earned on the Company's cash, cash equivalents and
investments as well as interest paid on its debt.
The Company's investment portfolio consists primarily of high quality US
government securities and certificates of deposit with an average maturity of
one year or less. The Company mitigates default risk by investing in what it
believes are the safest and highest credit quality securities and by monitoring
the credit rating of investment issuers. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio liquidity
and there are limitations regarding duration of investments. These
available-for-sale securities are subject to interest rate risk and decrease in
market value if interest rates increase. At September 30, 1999, the Company's
total portfolio consisted of approximately $12.5 million of investments, all of
which had maturities within one year. Additionally, the Company generally holds
securities until maturity. Therefore, the Company does not expect its results of
operations or cash flows to be materially impacted due to a sudden change in
interest rates.
The Company has $1,075,000 in fixed rate debt, for which the risk would be an
inability to refinance if rates decreased. The remaining $5 million of the
Company's debt fluctuates with the US treasury rate and is therefore subject to
increases in US interest rates. The estimated potential reduction in earnings
from a one-point increase in the Five Year US treasury rate for the three months
ended September 30, 1999 would have been approximately $4,200.
YEAR 2000 COMPLIANCE
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The Company is aware of computer program issues associated with existing
computer systems as the year 2000 approaches. The year 2000 problem is pervasive
and complex, as virtually every computer operation will be affected in some way
by the rollover of the two-digit year value from 99 to 00. The issue is whether
computer systems and embedded controls will properly recognize date sensitive
information when the year changes to 2000 ("Year 2000 Compliance Issue").
Systems that do not properly recognize such information could result in system
failures or miscalculations causing disruptions to operations and normal
business activities.
The Company has completed its assessment of potential year 2000 issues and the
associated potential risks. The Company has assessed the impact of the year 2000
issues and believes that its business products and services will not be
significantly impacted. The Company has identified all financial, informational
and operational systems and found that all critical processes incorporating
these systems are 2000 compliant. The Company is verifying the readiness of its
significant customers and suppliers, including St. Jude, through the
distribution of a questionnaire. This process was substantially completed as of
September 30, 1999. The Company does not warrant, however, that these companies'
year 2000 compliance activities will be completely successful. The Company
continues to monitor the situation and refine its contingency plans as
appropriate.
The Company began work on the computer Year 2000 Compliance Issue in fiscal year
1998. Software applications, hardware and related information and
non-information technologies have been upgraded or replaced to ensure that all
systems are Year 2000 compliant. Replacing hardware or software in this fashion
is considered a normal cost of doing business and is being expensed or
capitalized as appropriate. Management does not anticipate that the costs of
year 2000 compliance will have a material effect on the Company's results of
operations, cash flows or financial position. The Company does not presently
expect that its operations will be materially affected by problems with its
computer systems or those of third parties with whom it deals.
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
that a number of important factors could cause the Company's actual results for
fiscal year 2000 and beyond to differ materially from those in any
forward-looking statements made by, or on behalf of, the Company. These
important factors include, without limitation, the time, effort and priority
level that the Company's Strategic Alliance Partner attaches to the Angio-Seal
and the Strategic Alliance Partner's ability to successfully manufacture, market
and distribute the Angio-Seal, the Company's ability to manufacture Angio-Seal
components, the results of ongoing clinical trials for the AVS and other
products and timing of additional regulatory approvals in the United States and
in countries outside of Europe including Japan, announcements of technological
innovations or the introduction of new products by the Company, its customers or
its competitors, competition of puncture closure and occluded SVG devices in
general, general business conditions in the healthcare industry and general
economic conditions. Results of operations in any past period should not be
considered indicative of the results to be expected for future periods.
Fluctuations in operating results may also result in fluctuations in the price
of the common stock.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
None
B. Reports on Form 8-K.
None
C. Financial Data Schedule
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENSEY NASH CORPORATION
Date: November 15, 1999 By: /s/ Wendy F. DiCicco
------------------------------
Wendy F. DiCicco
Chief Financial Officer
14
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