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 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- 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 -3- 4 THM BIOMEDICAL, INC. BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS 1999 1998 ----------- ----------- 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 =========== =========== See Notes to Financial Statements. -4- 5 THM BIOMEDICAL, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 --------- --------- 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) ========= ========= See Notes to Financial Statements. THM BIOMEDICAL, INC. STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 ----------- ----------- 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) =========== =========== See Notes to Financial Statements. -5- 6 THM BIOMEDICAL, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 --------- ----------- 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 ========= ========= See Notes to Financial Statements -6- 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: 1999 1998 ---------- --------- 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 ========== ========= 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- 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: 1999 1998 ------------ ----------- 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 =========== =========== -8- 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- 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- 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- 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- 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- 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- 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. -15- 16 UNAUDITED COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS JUNE 30, 2000 - ---------------------------------------------------------------------------------------------------------------------- KENSEY NASH THM CORPORATION BIOMEDICAL PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED --------------------------------------------------------------------- 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 ========== ============ See notes to consolidated financial statements. -16- 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. -17- 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 -18- 19 Exhibit Index Sequential Page Exhibit # Item Number - ---------- ------------------------------------- --------- 23.1 Consent of Esterbrooks, Scott, 19 Signorelli, Peterson, Smithson, LTD. -19-