1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Amendment No. 1 For the Fiscal Year Ended: JUNE 30, 1998 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, SUITE 204, EXTON, PENNSYLVANIA 19341 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (610) 524-0188 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE (TITLE OF CLASS) 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's voting stock (based upon the per share closing price of $7.75 on September 18, 1998 and, in making such calculation, registrant is not making a determination of the affiliate or non-affiliate status of any holders of shares of Common Stock) was approximately $57,809,358. The number of shares outstanding of the registrant's Common Stock, par value $.001, as of September 18, 1998 was 7,459,272. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated by reference into this report: Definitive Proxy Statement in connection with the 1998 Annual Meeting of Stockholders ---------------------------------------------- 1 2 AHP also provided the Company with operating advances which were repaid with the proceeds of the IPO in the year ended June 30, 1996. THE RESEARCH AND DEVELOPMENT AGREEMENT - The Company and its Strategic Alliance Partner have an agreement whereby such partner funds certain ongoing research and development costs incurred by the Company. The Company contributes one-third of such research and development costs while the Strategic Alliance Partner contributes the remaining two-thirds. Prior to the IPO, the Strategic Alliance Partner funded the Company's portion of such costs. Such amounts were repaid with proceeds from the IPO and the Company has taken no further advances from such partner. THE COLLAGEN SUPPLY AGREEMENT - Pursuant to an agreement with the Strategic Alliance Partner, the Company manufactures collagen to be used in the Angio-Seal. The agreement contains a minimum purchase requirement from the Company for five years beginning May 31, 1995. 3. RELATED PARTY TRANSACTIONS The Company earned interest income of $9,322 for the fiscal year ended June 30, 1996 on certain notes receivable from a former officer of the Company which was repaid at the date of the IPO. Such amount had been classified as a component of stockholders' equity as it was collateralized primarily by common stock and common stock equivalents. For the fiscal year ended June 30, 1996, the Company incurred $785,524 (of which $496,580 was offset against proceeds of the IPO) in legal fees with a law firm which serves as the Company's general counsel for all corporate legal affairs. Certain current and former partners of such firm had interests in an investment partnership that owned 50,000 shares of the outstanding Common Stock of the Company. The shares were sold during the fiscal year ended June 30, 1997. See Note 13 for a discussion of related party transactions with certain former officers and transactions related to employee stock rights issued to current and former officers and an outside director. 4. LEASES At June 30, 1998, future minimum annual rental commitments under non-cancelable lease obligations are as follows: CAPITAL OPERATING LEASES LEASES ---------------------------- YEAR ENDING JUNE 30: 1999 $ 45,262 $ 329,838 2000 25,078 356,244 2001 11,055 360,844 2002 1,950 367,285 2003 154,953 --------- ---------- Total minimum lease payments 83,345 $1,569,164 ========== Amount representing interest (at rates ranging from 7.25% to 10.25%) (10,722) --------- Present value of net minimum lease payments 72,623 Current portion (37,814) --------- Long-term portion $ 34,809 ========= 33 3 THE CREDIT AGREEMENT - The Company had a $5 million Credit Agreement with its Strategic Alliance Partner. The outstanding balance of $6,517,348, including interest of $1,517,348, was repaid in October 1996 following receipt of FDA approval on September 30, 1996. Amounts outstanding under the Company's Revolver and Patent Acquisition Agreement are shown in the following table. JUNE 30, ------------------------ 1998 1997 Patent Acquisition Agreement $ 879,228 Revolver 2,000,000 $500,000 ---------- -------- Total 2,879,228 500,000 Current portion (540,077) ---------- -------- Long-term $2,339,151 $500,000 ========== ======== The annual debt maturities are approximately $540,077, $536,234, $353,750, $400,000 and $400,000 for the years 1999 through 2003, respectively. 7. RETIREMENT PLAN The Company has a 401(k) Salary Reduction Plan and Trust (the "401(k) Plan") in which all employees that are at least 21 years of age are eligible to participate. Contributions to the 401(k) Plan are made by employees through an employee salary reduction election. Company contributions are discretionary. The Company has not made any contributions to the 401(k) Plan to date. 8. INCOME TAXES The Company accounts for income taxes under SFAS No. 109, which generally provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss ("NOL") carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled are reflected in the financial statements in the period of enactment. For 1998 the Company has not provided for current income taxes due to the utilization of NOLs for tax purposes The difference between the Company's income tax expense (benefit) and the income tax expense (benefit) computed using the U.S. federal income tax rate were as follows: June 30, -------------------------------------------- 1998 1997 1996 Net income (loss) before income taxes $ 342,682 $ (262,476) $ (5,915,573) ============================================ Tax provision at U.S. statutory rate $ 123,121 $ (94,491) $ (2,129,606) State income tax provision, net of federal benefit 17,066 (13,098) (295,187) Reconciliation to actual tax rate: Non-deductible meals and entertainment 13,328 9,158 4,587 Phantom stock plan (1,295,739) Timing differences (80,880) 2,696 (165,950) Utilization of net operating loss carryforwards (72,635) Creation of net operating loss carryforwards 95,735 3,881,895 -------------------------------------------- $ $ $ ============================================ Significant component of the Company's deferred taxes are as follows: JUNE 30, --------------------------- 1998 1997 Accrual for: Vacation $ 102,958 $ 120,403 Bonuses 75,000 Basis difference - patents 381,627 479,264 Basis difference - fixed assets (50,520) 99,741 Prepaid insurance (46,884) (97,009) Inventory 170,870 Other 7,491 10,000 ---------- ---------- 565,542 687,399 Effective tax rate 40.59% 40.59% ---------- ---------- Deferred tax asset 229,553 279,015 NOL carryforwards (expiring between 1998 and 2012) 6,322,911 6,315,906 ---------- ---------- 6,552,464 6,594,921 (6,552,464) (6,594,921) ---------- ---------- Less valuation allowance $ 0 $ 0 ========== ========== 35 4 awards, consistent with the provisions of SFAS No. 123, the Company's net loss and earnings per share would have been reduced to the proforma amounts below: JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 ---------------------------- --------------------------- --------------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- ----------- --------- Net income (loss) $342,682 ($664,398) ($262,476) ($818,363) ($5,915,573) ($5,972,087) Income (loss) per share $0.05 ($0.09) ($0.04) ($0.11) ($1.00) ($1.01) Subsequent to year end, the Company granted 128,500 stock options under the Employee Plan at an option price equal to the fair market value of the Company's stock on the date of grant (August 28, 1998) of $7.63 per share. 16. EARNINGS PER SHARE The following table shows the reconciliation between the numerators and denominators for the basic and diluted EPS calculations, where income is the numerator and the weighted average number of shares is the denominator. The reconciliation is not shown for the years ended June 30, 1997 and 1996 as any common share equivalents are antidilutive. YEAR ENDED JUNE 30, 1998 ------------------------------------------------ PER SHARE INCOME SHARES AMOUNT ------------------------------------------------ BASIC EPS Income available to common shareholders $ 342,682 7,342,683 $ 0.05 EFFECT OF DILUTIVE SECURITIES ======== Options - 208,913 DILUTED EPS -------------- --------- Income available to common shareholders including assumed conversions $ 342,682 7,551,596 $ 0.05 ============== ========= ======== 17. QUARTERLY FINANCIAL DATA (UNAUDITED) The summarized quarterly results of operations of the Company for the years ended June 30, 1998 and June 30, 1997 are presented below: YEAR ENDED JUNE 30, 1998 ------------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------------- ----------- -------------- ------------ Operating revenues $ 1,565,290 $ 2,762,081 $ 3,606,955 $ 3,384,406 Operating costs and expenses $ 2,365,692 $ 2,878,737 $ 2,902,788 $ 3,222,838 Net (loss) income $ (679,680) $ 492 $ 809,722 $ 212,148 (Loss) income per share $ (0.09) $ - $ 0.11 $ 0.03 YEAR ENDED JUNE 30, 1997 ------------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------------- ----------- -------------- ------------ Operating revenues $ 2,328,109 $ 1,712,382 $ 2,027,082 $ 1,839,422 Operating costs and expenses $ 2,114,459 $ 2,339,353 $ 2,529,710 $ 2,597,457 Net income (loss) $ 220,713 $ 497,229 $ (374,444) $ (605,974) Income (loss) per share $ 0.03 $ 0.07 $ (0.05) $ (0.08) Quarterly and total year earnings per share are calculated independently based on the weighted average number of shares outstanding during each period. 40 5 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day of September, 1998. KENSEY NASH CORPORATION By: /s/ JOSEPH W. KAUFMANN ----------------------- Joseph W. Kaufmann Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 29th day of September, 1998. SIGNATURE TITLES /s/ JOSEPH W. KAUFMANN Chief Executive Officer (Principal Executive - ------------------------------ Officer), President, Chief Financial Officer Joseph W. Kaufmann (Principal Financial and Accounting Officer), Secretary and Director /s/ JOHN E. NASH, P.E. Vice Chairman of the Board and Executive - ------------------------------ Vice President John E. Nash, P.E. /s/ KENNETH R. KENSEY, M.D. Chairman of the Board of Directors - ------------------------------ Kenneth R. Kensey, M.D. /s/ DOUGLAS G. EVANS, P.E. Chief Operating Officer, Assistant Secretary - ------------------------------ and Director Douglas G. Evans, P.E. /s/ WENDY F. DICICCO, CPA Chief Financial Officer - ------------------------------ Wendy F. DiCicco, CPA /s/ ROBERT J. BOBB Director - ------------------------------ Robert J. Bobb /s/ HAROLD N. CHEFITZ Director - ------------------------------ Harold N. Chefitz /s/ WALTER R. MAUPAY, JR. Director - ------------------------------ Walter R. Maupay, Jr. 43