<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): SEPTEMBER 1, 2000
KENSEY NASH CORPORATION
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-27120 36-3316412
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Marsh Creek Corporate Center, 55 East Uwchlan Avenue, Exton Pennsylvania 19341
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (610) 524-0188
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The audited and unaudited interim financial statements of THM
Biomedical, Inc. are included on pages 3 through 13 of this Form 8-K/A.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information of THM Biomedical, Inc. is included
on pages 14 through 17 of this Form 8-K/A.
(c) EXHIBITS.
2.1* Asset Purchase Agreement dated September 1, 2000 by and among the
Registrant, THM Acquisition Sub, Inc., THM Biomedical, Inc. and
the stockholders of THM Biomedical, Inc. (the "Agreement"). The
Registrant agrees to furnish supplementally to the Commission upon
request, copies of any omitted exhibits or schedules to the
Agreement.
23.1 Consent of Esterbrooks, Scott, Signorelli, Peterson, Smithson,
LTD.
* Previously filed.
-2-
<PAGE> 3
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of THM Biomedical, Inc. and Report of
Esterbrooks, Scott, Signorelli, Peterson, Smithson, LTD., Independent Auditors
are included in this report:
Independent Auditors' Report
Balance Sheets as of December 31, 1999 and 1998
Statements of Income for the Years Ended December 31, 1999 and 1998
Statements of Retained Earnings for the Years Ended December 31, 1999 and 1998
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors
THM Biomedical, Inc.
Duluth, Minnesota
We have audited the accompanying balance sheets of THM BIOMEDICAL, INC. as of
December 31, 1999 and 1998, and the related statements of income, stockholders'
equity, and cash flows 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 financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in
all material respects, the financial position of THM Biomedical, Inc. as of
December 31, 1999 and 1998, and the results of its operations and cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
Esterbrooks, Scott, Signorelli, Peterson, Smithson, LTD.
Duluth, Minnesota
January 24, 2000
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<PAGE> 4
THM BIOMEDICAL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 63,315 $ 68,056
Accounts receivable (Net of Allowance
for Doubtful Accounts of $1,000) 6,393 8,485
Grants receivable 14,945 --
Inventory 34,937 54,762
Prepaid expenses 5,073 4,802
----------- -----------
Total current assets 124,663 136,105
----------- -----------
EQUIPMENT:
Office equipment 107,534 107,297
Production equipment 41,313 41,313
Research and development equipment 127,995 111,235
ATP equipment 91,414 --
----------- -----------
Total 368,256 259,845
Less - Accumulated depreciation 226,003 206,931
----------- -----------
Total fixed assets 142,253 52,914
----------- -----------
OTHER ASSETS:
Accounts receivable - Employees 60,000 60,000
Intangibles -- 15,000
Patents and trademarks (Net of amortization of $31,511
in 1999 and $23,531 in 1998) 109,044 108,487
----------- -----------
Total other assets 169,044 183,487
----------- -----------
Total Assets $ 435,960 $ 372,506
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 82,367 $ 46,899
Accounts payable - Schedule I 29,303 29,303
Current portion - Schedule II payable 201,500 201,500
Notes payable - Shareholders 193,950 196,450
Interest payable 101,633 85,952
Accrued payroll and withholdings 569,709 545,025
Prepaid sales 101,276 438,401
----------- -----------
Total current liabilities 1,279,738 1,543,530
----------- -----------
LONG-TERM LIABILITIES:
Notes payable 351,500 351,500
Less: Current portion 201,500 201,500
----------- -----------
Net long-term notes 150,000 150,000
Deferred revenue 100,378 --
----------- -----------
Total long-term liabilities 250,378 150,000
----------- -----------
Total Liabilities 1,530,116 1,693,530
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value Authorized 100,000 shares
Issued and outstanding 1,290 shares 292,499 292,499
Paid-in capital 48,714 48,714
Retained earnings (1,435,369) (1,662,237)
----------- -----------
Total Stockholders' Equity (1,094,156) (1,321,024)
----------- -----------
Total Liabilities and Stockholders' Equity $ 435,960 $ 372,506
=========== ===========
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE> 5
THM BIOMEDICAL, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Sales $ 827,060 $ 369,218
Cost of Goods Sold 266,019 216,405
--------- ---------
Gross profit (loss) 561,041 152,813
Grant income 33,337 --
Interest income 4,612 3,471
Forgiveness of debt -- 95,000
Miscellaneous income 7,446 7,101
--------- ---------
Total income (loss) 606,436 258,385
Selling expenses 70,585 55,110
General & Administrative expenses 308,983 217,214
--------- ---------
Net Income (Loss) $ 226,868 $ (13,939)
========= =========
</TABLE>
See Notes to Financial Statements.
THM BIOMEDICAL, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
RETAINED EARNINGS
Balance - Beginning of Year $(1,662,237) $(1,648,298)
Net Income (Loss) 226,868 (13,939)
----------- -----------
Balance - End of Year $(1,435,369) $(1,662,237)
=========== ===========
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE> 6
THM BIOMEDICAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Sources of Cash -
Payments from customers $ 492,027 $ 406,384
Grant income 118,770 --
Miscellaneous income 7,446 7,101
Interest income 4,612 3,471
Uses of Cash -
Cash paid to suppliers & employees (508,148) (402,763)
Interest paid -- --
--------- ---------
Net cash provided from (used by)
operating activities 114,707 14,193
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Uses of Cash -
Purchase of fixed assets (108,411) (11,938)
Development & purchase
of patents and trademarks (8,537) (16,885)
--------- ---------
Cash used by investing activities (116,948) (28,823)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Sources of Cash -
Proceeds from debt -- 15,348
Uses of Cash -
Payments on debt (2,500) --
--------- ---------
Net cash provided from (used by)
financing activities (2,500) 15,348
--------- ---------
Net increase (decrease) in cash (4,741) 718
Cash - Beginning of year 68,056 67,338
--------- ---------
Cash - End of year $ 63,315 $ 68,056
========= =========
Reconciliation of net income (loss) to net cash flows
from operating activities:
Net income (loss) $ 226,868 $ (13,939)
Noncash items included in net loss:
Depreciation and amortization 42,052 25,406
Forgiveness of debt -- (95,000)
Net change in receivables, inventory
and prepaid expenses 6,701 (2,290)
Net change in accrued expenses and
prepaid sales (261,292) 100,016
Net change in deferred revenue 100,378 --
--------- ---------
Net cash provided from (used by)
operating activities $ 114,707 $ 14,193
========= =========
</TABLE>
See Notes to Financial Statements
-6-
<PAGE> 7
THM BIOMEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization -
THM Biomedical, Inc. (THM) was organized in Minnesota to acquire
and develop certain medical technologies. During 1998 the company
was considered to be in the development stages with these
technologies.
b. Inventory -
Inventories are comprised of materials needed in the manufacture
of the company's products as well as finished goods and
work-in-process. The inventories are valued at the lower of cost
(FIFO) or market. December 31, 1999 and 1998 inventories consist
of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Finished goods $ 1,765 $ 10,114
Work-in-process 6,713 24,605
Raw materials 3,825 1,300
Product packaging 22,634 18,743
---------- ---------
$ 34,937 $ 54,762
========== =========
</TABLE>
c. Equipment -
Depreciation of the company's equipment is provided using the
straight-line and accelerated methods over five to seven year
lives. Depreciation expense for the years ended December 31, 1999
and 1998 was $19,072 and $18,136 respectively.
d. Income Taxes -
The company has elected to be taxed under Subchapter S of the
Internal Revenue Code. The financial statements do not contain a
provision for income taxes because under this election, all items
of income or loss are passed through and reported on the returns
of the owners.
e. Patents and Trademarks -
The company has developed certain patents and trademarks in the
development of medical technologies. The company is amortizing
these over a 17-year period. Amortization expense related to
these items for the years ended December 31, 1999 and 1998 was
$7,980 and $7,270, respectively.
f. Prepaid Sales -
Prepaid sales consist of money THM received from customers (see
Note 4c) for future purchases of its products.
g. Deferred Revenue -
During the year ended December 31, 1999, the company obtained an
Advanced Technology Program (ATP) grant from the National
Institute of Standards and Technology (NIST). The grant is to be
used for the purchase of fixed assets and other research expenses
as more fully described in the grant request. Equipment purchased
with grant proceeds is technically subject to redeployment by
NIST at the conclusion of the research project. The company has
recorded as deferred revenue grant proceeds available to purchase
equipment. The deferral account is being amortized into income as
depreciation is recorded on the equipment. The company believes
this treatment appropriately matches revenues and expenses. As of
December 31, 1999 the deferred revenue account includes the book
value of the assets purchased with grant proceeds plus grant
proceeds intended for the purchase of fixed assets that have not
yet been expended.
-7-
<PAGE> 8
h. 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.
i. Advertising Costs -
The organization recognizes advertising costs as expenses when
these costs are incurred. Advertising expense for the years ended
December 31, 1999 and 1998 was $15,159 and $14,281, respectively.
j. Cash and Cash Equivalents -
For purposes of the statement of cash flows, the organization
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
2. ACCOUNTS PAYABLE - SCHEDULE II:
At the time of the acquisition, the company agreed to assume certain
liabilities of the seller. Certain of the liabilities (Schedule I) were
to be paid in the ordinary course of business. The liabilities (Schedule
II) technically remained the responsibility of the seller and were
payable from royalties to be paid by the company as specified in the
purchase agreement. Subsequent to the acquisition, however, the seller
did not organize a royalty-receiving entity or specify a protocol for
the receipt of any royalties. Therefore, the company has contacted the
individuals comprising Schedule II and is making direct payments to
those Schedule II individuals with money available through the ordinary
course of business. The company has retired $82,500 of the $284,000
Schedule II payables leaving $201,500 remaining.
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
a. Schedule II Payables -
As discussed in Note 2 above, the company is obligated to pay
certain assumed liabilities from royalties payable under the
acquisition agreement. The payment of royalties is discussed in
Note 4 below. $ 201,500 $ 201,500
b. Note Payable Danek -
Under the terms of two separate agreements, the Danek Group has
loaned the company certain amounts on an interest-free basis.
Repayment is to be made exclusively from royalties earned under
the licensing agreement described in
Note 4 below. 150,000 150,000
----------- -----------
351,500 351,500
Less - Current maturities 201,500 201,500
----------- -----------
$ 150,000 $ 150,000
=========== ===========
</TABLE>
-8-
<PAGE> 9
Because the repayment terms of the above loans are contingent
upon the sales of products and the annual sales of these products
cannot reasonably be estimated, a schedule of current maturities
has not been prepared.
4. COMMITMENTS AND CONTINGENCIES:
a. Royalties -
Under the terms of the original investment agreement, the company
is obligated to pay royalties on sales under the following
schedule:
1. Five percent of sales to a cumulative royalty of $284,000
for retirement of Schedule II payables (see Note 2). Once
this is reached;
2. Five percent of sales over $50,000 per month until a total
of $5,000,000 in royalties has been paid.
During 1999 earned royalties of $11,353 were accrued.
b. License Agreements -
Under an agreement with Danek Group, Inc., now Sofamor Danek
Group, Inc. (SDG), the company has agreed to license certain
patent rights to SDG. The licensed rights are described in detail
in the agreement. The company received an initial fee of $500,000.
Royalties of 3.5 percent of the sale of licensed product will be
offset against one-half of the initial fee. In connection with the
above agreement the company also entered into development and
manufacturing agreements with SDG.
In September of 1995, THM informed SDG of several administrative
breaches of the agreements caused by SDG and requested relief as
provided by provisions of the agreements. SDG did not respond,
cure or remedy the breaches as required causing the company to
terminate the agreements. Following termination, SDG denied
committing breaches of the agreements and objected to the
termination of the agreements.
On June 18, 1999, the company filed a Demand for Arbitration
against SDG and its parent Medtronic, Inc. with the American
Arbitration Association (AAA). The demand claims
misrepresentations, breeches, interference and other improper
actions caused by SDG. The company has requested an award in an
amount to be determined at the arbitration. The AAA has set a
date of June 6-14, 2000 for the Arbitration Hearing.
Effective January 2, 1997, the company entered into a five-year
license agreement with Oculo-Plastik, Inc. (OP) relative to a
technology known as OPLA. Under the terms of the agreement OP and
THM are committed to research and development of specified uses
of the OPLA technology.
OP will pay a royalty of 10 percent of net sales of licensed
products. In addition, THM will supply OP its full requirements
of licensed product at a cost to OP of 40 percent of the net
selling price of the products. The agreement is renewable for
successive five-year periods by mutual agreement of the parties.
THM has the right to terminate the agreement upon sixty days'
notice to OP for certain causes as specified in the agreement.
-9-
<PAGE> 10
c. Distribution Agreement -
During 1997 the company entered into an agreement with Core-Vent
Corporation, a Nevada Corporation doing business as Paragon
Implant Company (Paragon). This five-year agreement grants
Paragon an exclusive right to distribute Epi-Guide, a
bioresorbable periodontal matrix barrier developed by THM.
Paragon has agreed to annual minimum purchase guarantees for five
years beginning in 1998. As of December 31, 1999, Paragon has
made prepayments of $100,000 for product purchases to be made
during the year 2000. If minimums are not attained, THM shall
have the right to terminate this agreement upon sixty days
notice. The future minimum purchases under the agreement are as
follows:
2000 $ 480,000
2001 900,000
2002 1,000,000
This agreement shall automatically be renewed for additional
successive terms of one year each provided that Paragon's
purchases of Epi-Guide exceeds three million dollars annually
during the fifth year of the initial term and each subsequent
year.
d. The company rents its office and manufacturing space on a
month-to-month basis. Therefore, a schedule of future minimum
rental payments is not provided. Rent expense for the years ended
December 31, 1999 and 1998 was $29,389 and $23,784 respectively.
5. RELATED PARTY TRANSACTION:
As of December 31, 1999, shareholders have loaned the company a total of
$193,950. Simple interest of 8 percent is being accrued on these notes.
As of December 31, 1999 interest owed to shareholders totaled $101,633.
As of December 31, 1999 the company owes employee/shareholders $569,709
in accrued wages.
As of December 31, 1999, the company also has a receivable in the amount
of $60,000 due from an employee/shareholder.
6. CONCENTRATIONS:
During the year ended December 31, 1999, 85% of sales were to Paragon as
described in Note 4c. During the year ended December 31, 1998, Paragon
accounted for 68% of total sales.
-10-
<PAGE> 11
The following unaudited interim condensed financial statements of THM
Biomedical, Inc. are included in this report:
Balance Sheet as of June 30, 2000
Statement of Income for the Six Months Ended June 30, 2000
Statement of Cash Flows for the Six Months Ended June 30, 2000
Notes to Condensed Financial Statements
THM BIOMEDICAL, INC.
BALANCE SHEET
JUNE 30, 2000
ASSETS June 30, 2000 (Unaudited)
------ -------------------------
CURRENT ASSETS:
Cash $ 7,080
Accounts receivable (Net of Allowance
for Doubtful Accounts of $1,000) 9,385
Inventory 38,578
-----------
Total current assets 55,043
-----------
EQUIPMENT:
Office equipment 107,722
Production equipment 41,313
Research and development equipment 127,994
ATP equipment 157,819
-----------
Total 434,848
Less - Accumulated depreciation 247,796
-----------
Total fixed assets 187,052
-----------
OTHER ASSETS:
Accounts receivable - Employees 60,000
Intangibles --
Patents and trademarks (Net of amortization of $35,232) 105,323
-----------
Total other assets 165,323
-----------
Total Assets $ 407,418
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 101,675
Accounts payable - Schedule I 29,303
Current portion - Schedule II payable 201,500
Notes payable - Shareholders 193,950
Interest payable 109,390
Accrued payroll and withholdings 586,071
Prepaid sales 291,046
-----------
Total current liabilities 1,512,935
-----------
LONG-TERM LIABILITIES:
Notes payable 351,500
Less: Current portion 201,500
-----------
Net long-term notes 150,000
Deferred revenue 142,000
-----------
Total long-term liabilities 292,000
-----------
Total Liabilities 1,804,935
-----------
STOCKHOLDERS' EQUITY:
Common stock, no par value Authorized 100,000 shares
-11-
<PAGE> 12
Issued and outstanding 1,290 shares 292,499
Paid-in capital 48,714
Retained earnings (1,738,730)
-----------
Total Stockholders' Equity (1,397,517)
-----------
Total Liabilities and Stockholders' Equity $ 407,418
===========
See Notes to Unaudited Financial Statements.
THM BIOMEDICAL, INC.
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
June 30, 2000 (Unaudited)
-------------------------
Sales $ 72,116
Cost of Goods Sold 156,225
-----------
Gross loss (84,109)
Grant income 104,704
Interest income 528
Miscellaneous income 79
-----------
Total income 21,202
Selling expenses 33,934
General & Administrative expenses 290,628
-----------
Net Loss $ (303,360)
===========
See Notes to Unaudited Financial Statements.
THM BIOMEDICAL, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
June 30, 2000 (Unaudited)
-------------------------
RETAINED EARNINGS
Balance - Beginning of Period $(1,435,369)
Net Loss (303,360)
------------
Balance - End of Period $(1,738,729)
===========
See Notes to Unaudited Financial Statements.
THM BIOMEDICAL, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
June 30, 2000 (Unaudited)
-------------------------
OPERATING ACTIVITIES:
Net loss $ (303,360)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 25,890
Changes in assets and liabilities which
provided (used) cash:
Accounts receivable 11,953
Inventory (3,642)
Prepaid expenses 5,073
Accounts payable and accrued expenses 43,427
Deferred revenue and prepaid sales 231,391
------------
Net cash provided by operating activities 10,732
------------
INVESTING ACTIVITIES:
-12-
<PAGE> 13
Purchase of fixed assets (66,592)
Development & purchase of patents and trademarks (375)
------------
Cash used in investing activities (66,967)
------------
Net decrease in cash (56,235)
Cash - Beginning of year 63,315
------------
Cash - End of year $ 7,080
============
See Notes to Unaudited Financial Statements
THM BIOMEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Inventory -
Inventories are comprised of materials needed in the manufacture
of the company's products as well as finished goods and
work-in-process. The inventories are valued at the lower of cost
(FIFO) or market. December 31, 1999 and 1998 inventories consist
of the following:
June 30, 2000
-------------
Finished goods $ 7,235
Work-in-process 9,265
Raw materials 2,805
Product packaging 19,274
--------------
$ 38,578
==============
b. Income Taxes -
The company has elected to be taxed under Subchapter S of the
Internal Revenue Code. The financial statements do not contain a
provision for income taxes because under this election, all items
of income or loss are passed through and reported on the returns
of the owners.
c. 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.
d. Cash and Cash Equivalents -
For purposes of the statement of cash flows, the organization
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
2. COMMITMENTS AND CONTINGENCIES:
a. Royalties -
Under the terms of the original investment agreement, the company
is obligated to pay royalties on sales under the following
schedule:
1. Five percent of sales to a cumulative royalty of $284,000
for retirement of Schedule II payables. Once this is
reached;
2. Five percent of sales over $50,000 per month until a total
of $5,000,000 in royalties has been paid.
c. License Agreements -
Under an agreement with Danek Group, Inc., now Sofamor Danek
Group, Inc. (SDG), the company has agreed to license certain
patent rights to SDG. The licensed rights are described in detail
in the agreement. The company received an initial fee of
$500,000. Royalties of 3.5 percent of the sale of licensed
product will be offset against one-half of the initial fee. In
connection with the above agreement the company also entered into
development and manufacturing agreements with SDG.
In September of 1995, THM informed SDG of several administrative
breaches of the agreements caused by
-13-
<PAGE> 14
SDG and requested relief as provided by provisions of the
agreements. SDG did not respond, cure or remedy the breaches as
required causing the company to terminate the agreements.
Following termination, SDG denied committing breaches of the
agreements and objected to the termination of the agreements.
On June 18, 1999, the company filed a Demand for Arbitration
against SDG and its parent Medtronic, Inc. with the American
Arbitration Association (AAA). The demand claimed
misrepresentations, breeches, interference and other improper
actions caused by SDG. The agreement with Paragon was terminated
on July 12, 2000.
Effective January 2, 1997, the company entered into a five-year
license agreement with Oculo-Plastik, Inc. (OP) relative to a
technology known as OPLA. Under the terms of the agreement OP and
THM are committed to research and development of specified uses
of the OPLA technology.
OP will pay a royalty of 10 percent of net sales of licensed
products. In addition, THM will supply OP its full requirements
of licensed product at a cost to OP of 40 percent of the net
selling price of the products. The agreement is renewable for
successive five-year periods by mutual agreement of the parties.
THM has the right to terminate the agreement upon sixty days'
notice to OP for certain causes as specified in the agreement.
e. Distribution Agreement -
During 1997 the company entered into an agreement with Core-Vent
Corporation, a Nevada Corporation doing business as Paragon
Implant Company (Paragon). This five-year agreement grants
Paragon an exclusive right to distribute Epi-Guide, a
bioresorbable periodontal matrix barrier developed by THM.
Paragon has agreed to annual minimum purchase guarantees for five
years beginning in 1998. The case was settled effective July 3,
2000. Under the settlement agreement, the Company retains all
patent rights.
e The company rents its office and manufacturing space on a
month-to-month basis. Therefore, a schedule of future minimum
rental payments is not provided. Rent expense for the six months
ended June 30, 2000 was $16,571.
-14-
<PAGE> 15
ITEM 7 (B) PRO FORMA FINANCIAL INFORMATION
The following pro forma financial statements are included in this report:
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended June 30, 2000
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements
The following unaudited pro forma financial information has been prepared to
reflect the adjustments to Kensey Nash Corporation's historical results of
operations and financial position and give effect to the acquisition of THM
Biomedical, Inc. ("THM") using the purchase methodology of accounting. The
unaudited pro forma financial information reflects $10.7 million as the
aggregate purchase price, including related fees and expenses. The transaction
was financed with $6.6 million of the Company's cash and a note payable to the
shareholders of THM in the amount of $4.5 million (the "THM Obligation"). The
THM Obligation is due in equal quarterly installments of $281,250 beginning on
December 31, 2000 and ending on September 30, 2004
The unaudited pro forma condensed consolidated statement of operations for the
year ended June 30, 2000 is based on the combined historical results of
operations adjusted to give effect to the transaction as if it had occurred on
July 1, 1999. The unaudited pro forma condensed consolidated statement of
operations excludes any benefits from synergies that may result from the THM
acquisition.
The unaudited pro forma condensed consolidated balance sheet gives effect to the
transaction as if it had occurred on June 30, 2000 and reflects $10.7 million as
the aggregate purchase price, including related fees and expenses. The unaudited
pro forma condensed consolidated balance sheet includes the adjustments
necessary to reflect the allocation of the acquisition cost to the fair values
of the assets acquired and liabilities assumed. The final aggregate purchase
price allocation is subject to final valuation of the in-process technology
acquired.
The unaudited pro forma financial information is not necessarily indicative of
Kensey Nash Corporation's results of operations or financial position had the
THM acquisition reflected therein actually been consummated at its assumed date,
nor is it necessarily indicative of Kensey Nash Corporation's results of
operations or financial position for any future period. The unaudited pro forma
financial information should be read in conjunction with Kensey Nash
Corporation's consolidated financial statements and notes thereto.
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<PAGE> 16
UNAUDITED COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
JUNE 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
KENSEY NASH THM
CORPORATION BIOMEDICAL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 13,143,813 $ 411,487 $ 13,555,300
Research and development 59,857 134,291 194,148
Royalty income 6,611,685 6,611,685
---------- ------------
Total revenues 19,815,355 545,778 20,361,133
----------- --------- ------------
OPERATING COSTS AND EXPENSES:
Cost of products sold 7,614,068 273,224 (157,572)(1) 7,729,720
Research and development 5,340,021 281,533 (1) 5,621,554
Selling, general and administrative 2,634,358 445,563 520,219 (1)(7) 3,600,140
Royalty expense 11,353 (1) 11,353
--------- ------------
Total operating costs and expenses 15,588,447 718,787 655,533 16,962,767
----------- --------- --------- ------------
INCOME FROM OPERATIONS 4,226,908 (173,009) (655,533) 4,053,899
---------- ---------- --------- ------------
OTHER INCOME (EXPENSE) 522,256 9,539 (429,000)(2) 102,795
-------- ------- --------- ------------
NET INCOME $ 4,749,164 $ (163,470) $1,084,533 $ 3,501,161
============ =========== ============ ============
BASIC EARNINGS PER SHARE $ 0.61 $ 0.45
======= ======
DILUTED EARNINGS PER SHARE $ 0.60 $ 0.44
======= ======
WEIGHTED AVERAGE COMMON SHARES 7,766,184 7,766,184
OUTSTANDING ========== ============
DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,975,439 7,975,439
========== ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 17
KENSEY NASH CORPORATION
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Following is a description of pro forma adjustments reflected in the unaudited
pro forma combined statements of operations and balance sheet:
(1) Entries are made to conform presentation of THM Biomedical, Inc.
income statement components to that used by Kensey Nash Corporation.
(2) Represents one year's interest income on the $6.6 million cash paid
upon completion of the acquisition as if the transaction had occurred
on July 1, 1999.
(3) Adjustment to record fair valuation of assets and liabilities acquired
as a result of the acquisition.
(4) Represents the goodwill resulting from the acquisition as if the
transaction had occurred as of June 30, 2000.
(5) Represents adjustment for cash paid at acquisition of $6.6 million as
if acquisition had occurred on June 30, 2000.
(6) Represents adjustment for obligation incurred at acquisition; short
term portion $859,539 and long term portion $2,997,277 as if
acquisition had occurred at June 30, 2000.
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<PAGE> 18
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 hereunto duly authorized.
KENSEY NASH CORPORATION
By: /s/ Wendy F. DiCicco
-----------------------------
Wendy F. DiCicco, CPA
Chief Financial Officer
Dated: November 20, 2000
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<PAGE> 19
Exhibit Index
Sequential
Page
Exhibit # Item Number
---------- ------------------------------------- ---------
23.1 Consent of Esterbrooks, Scott, 19
Signorelli, Peterson, Smithson, LTD.
-19-
