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: MARCH 31, 2002
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 April 30, 2002, there were outstanding 10,734,360 shares of Common
Stock, par value $.001, of the registrant.
KENSEY NASH CORPORATION
QUARTER ENDED MARCH 31, 2002
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of March 31, 2002 (Unaudited) and June 30, 2001............................ 3
Consolidated Statements of Operations
for the three and nine months ended March 31, 2002
and 2001 (Unaudited).......................................................... 4
Consolidated Statements of Stockholders' Equity as of
March 31, 2002 (Unaudited) and June 30, 2001.................................. 5
Consolidated Statements of Cash Flows
for the nine months ended March 31, 2002 and 2001 (Unaudited)................. 6
Condensed Notes to Consolidated Financial Statements (Unaudited)................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................ 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................... 19
SIGNATURES................................................................................................. 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENSEY NASH CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
MARCH 31,
2002 JUNE 30,
(UNAUDITED) 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,061,416 $ 2,841,963
Investments 26,603,487 24,164,887
Trade receivables, net of allowance for doubtful accounts of $106,422
and $1,000 at March 31, 2002 and June 30, 2001, respectively 2,945,934 4,623,456
Royalties receivable 2,813,445 2,270,091
Officer loans 1,855,312 1,170,276
Other receivables (including approximately $7,000 and $41,000 at
March 31, 2002 and June 30, 2001, respectively, due from employees) 268,245 244,601
Inventory 2,291,007 1,321,511
Deferred tax asset, current portion 646,077 2,318,741
Prepaid expenses and other 1,244,455 512,099
------------ ------------
Total current assets 42,729,378 39,467,625
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Leasehold improvements 6,113,777 5,676,760
Machinery, furniture and equipment 10,653,695 7,853,177
Construction in progress 684,742 1,606,181
------------ ------------
Total property, plant and equipment 17,452,214 15,136,118
Accumulated depreciation (7,490,736) (6,105,575)
------------ ------------
Net property, plant and equipment 9,961,478 9,030,543
------------ ------------
OTHER ASSETS:
Restricted investments 2,113,072 2,231,251
Property under capital leases, net 1,525
Deferred tax asset, non-current portion 2,350,854 2,125,407
Acquired patents, net of accumulated amortization of $1,093,936 and
$896,666 at March 31, 2002 and June 30, 2001, respectively 3,002,430 3,199,700
Goodwill, net of accumulated amortization of $100,037 at March 31, 2002
and June 30, 2001 3,284,303 3,284,303
------------ ------------
Total other assets 10,750,659 10,842,186
------------ ------------
TOTAL $ 63,441,515 $ 59,340,354
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,177,181 $ 1,891,484
Accrued expenses 872,930 544,268
Current portion of debt and capital lease obligations 960,885 910,738
Deferred revenue 327,576 123,352
------------ ------------
Total current liabilities 3,338,572 3,469,842
------------ ------------
LONG TERM PORTION OF DEBT 1,582,070 2,309,385
------------ ------------
Total liabilities 4,920,642 5,779,227
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 100,000 shares authorized,
no shares issued or outstanding at March 31, 2002 and June 30, 2001
Common stock, $.001 par value, 25,000,000 shares authorized,
10,728,978 and 10,509,431 shares issued and outstanding at
March 31, 2002 and June 30, 2001, respectively 10,729 10,509
Capital in excess of par value 66,196,268 63,974,745
Accumulated deficit (7,021,081) (10,196,713)
Accumulated other comprehensive loss (665,043) (227,414)
------------ ------------
Total stockholders' equity 58,520,873 53,561,127
------------ ------------
TOTAL $ 63,441,515 $ 59,340,354
============ ============
See notes to consolidated financial statements
3
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------------------------
2002 2001 2002 2001
REVENUES:
Net sales $ 4,209,622 $ 3,889,453 $ 13,060,499 $ 9,570,418
Research and development 198,120 89,974 478,853 206,817
Royalty income 2,818,180 2,045,582 7,388,280 5,968,037
------------ ------------ ------------ ------------
Total revenues 7,225,922 6,025,009 20,927,632 15,745,272
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of products sold 2,062,734 1,911,058 6,277,640 5,237,813
Research and development 2,813,438 1,790,906 7,877,592 5,006,178
Selling, general and administrative 1,269,627 833,704 3,172,772 2,145,234
In-process research and development charge 7,593,597
------------ ------------ ------------ ------------
Total operating costs and expenses 6,145,799 4,535,668 17,328,004 19,982,822
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 1,080,123 1,489,341 3,599,628 (4,237,550)
------------ ------------ ------------ ------------
OTHER INCOME:
Interest income 472,415 451,986 1,427,485 1,471,048
Interest expense (54,103) (71,575) (174,339) (173,185)
Other 2,000 500 (4,481) 900
------------ ------------ ------------ ------------
Total other income - net 420,312 380,911 1,248,665 1,298,763
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,500,435 1,870,252 4,848,293 (2,938,787)
Income tax expense (517,650) (1,672,661)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 982,785 $ 1,870,252 $ 3,175,632 $ (2,938,787)
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 0.09 $ 0.18 $ 0.30 $ (0.28)
============ ============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.09 $ 0.18 $ 0.28 $ (0.28)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,722,148 10,460,140 10,641,469 10,458,698
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,361,024 10,556,412 11,240,536 10,458,698
============ ============ ============ ============
See notes to consolidated financial statements.
4
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CAPITAL ACCUMULATED
COMMON STOCK IN EXCESS OTHER
--------------------------- OF PAR ACCUMULATED COMPREHENSIVE
SHARES AMOUNT VALUE DEFICIT (LOSS)/GAIN
BALANCE, JUNE 30, 2000 10,455,499 $ 10,455 $ 63,690,042 $(13,813,455) $ (482,686)
Secondary Offering costs (212,681)
Exercise of stock options 53,932 54 497,384
Net income 3,616,742
Comprehensive gain 255,272
Comprehensive income
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 2001 10,509,431 10,509 63,974,745 (10,196,713) (227,414)
------------ ------------ ------------ ------------ ------------
Exercise of stock options 219,547 220 2,221,523
Net income 3,175,632
Comprehensive loss (437,629)
Comprehensive income
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 2002 (Unaudited) 10,728,978 $ 10,729 $ 66,196,268 $ (7,021,081) $ (665,043)
============ ============ ============ ============ ============
COMPREHENSIVE
INCOME/
(LOSS) TOTAL
BALANCE, JUNE 30, 2000 $ 49,404,356
Secondary Offering costs (212,681)
Exercise of stock options 497,438
Net income $ 3,616,742 3,616,742
Comprehensive gain 255,272 255,272
------------
Comprehensive income $ 3,872,014
============ ------------
BALANCE, JUNE 30, 2001 53,561,127
------------
Exercise of stock options 2,221,743
Net income $ 3,175,632 3,175,632
Comprehensive loss (437,629) (437,629)
------------
Comprehensive income $ 2,738,003
============ ------------
BALANCE, MARCH 31, 2002 (Unaudited) $ 58,520,873
============
See notes to consolidated financial statements
5
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
NINE MONTHS ENDED
MARCH 31,
-----------------------------
2002 2001
OPERATING ACTIVITIES:
Net income (loss) $ 3,175,632 $ (2,938,787)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 1,583,956 1,414,661
In-process research and development charge 7,593,597
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 425,488 (872,044)
Deferred tax asset 1,447,217
Prepaid expenses and other current assets (732,356) (218,702)
Inventory (969,496) (354,033)
Accounts payable and accrued expenses (385,641) (581,454)
Deferred revenue 204,224 (371,421)
------------ ------------
Net cash provided by operating activities 4,749,024 3,671,817
------------ ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,316,096) (1,958,950)
Acquisition of THM Biomedical, Inc., net of cash acquired (6,781,860)
Purchase of investments (14,953,050) (9,183,865)
Sale of investments 12,195,000 2,650,000
------------ ------------
Net cash used in investing activities (5,074,146) (15,274,675)
------------ ------------
FINANCING ACTIVITIES:
Principal payments under capital leases (1,937) (8,544)
Repayments of debt (675,231) (398,940)
Secondary offering costs (212,681)
Exercise of stock options 2,221,743 42,123
------------ ------------
Net cash provided by (used in) financing activities 1,544,575 (578,042)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,219,453 (12,180,900)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,841,963 24,117,502
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,061,416 $ 11,936,602
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 174,339 $ 173,185
============ ============
Cash paid for income taxes $ 80,000 $ 110,000
============ ============
See notes to consolidated financial statements.
6
KENSEY NASH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 --CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated balance sheet at March 31, 2002, the consolidated
statements of operations for the three and nine months ended March 31, 2002
and 2001 and the consolidated statements of cash flows for the nine months
ended March 31, 2002 and 2001 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 March 31, 2002 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 accounting
principles generally accepted in the United States of America, 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, 2001 consolidated financial statements filed with the
Securities and Exchange Commission on Form 10-K. The results of operations
for the three and nine month periods ended March 31, 2002 are not
necessarily indicative of operating results for the full year.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Kensey Nash
Corporation, Kensey Nash Holding Company and Kensey Nash GmbH. All
intercompany transactions and balances have been eliminated. Kensey Nash
Holding Company, incorporated in Delaware on January 8, 1992, was formed to
hold title to certain Company patents and has no operations. Kensey Nash
GmbH, incorporated in Germany in January 2002, was formed for the purpose of
sales and marketing of the TriActiv(TM) system, which we anticipate
launching in Europe during the fourth fiscal quarter of 2002.
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires management to make estimates and assumptions. These
estimates and assumptions, which may differ from actual results, will affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, as well as
the reported amounts of revenue and expense during the period.
CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents represent cash in banks and short-term investments
having an original maturity of less than six months. Our investment
portfolio consists primarily of high quality U.S. government or corporate
securities and certificates of deposit with an average maturity of eight
years. The portfolio includes only available for sale marketable securities
with active secondary or resale markets to ensure portfolio liquidity. See
Comprehensive Income below for the treatment of unrealized holding gains and
losses.
EXPORT SALES
There were $68,390 and $332,302 in export sales from the Company's U.S.
operations to unaffiliated customers in Europe in the three and nine months
ended March 31, 2002, respectively. There were no export sales in the three
and nine months ended March 31, 2001.
REVENUE RECOGNITION
The Company recognizes revenue under the provisions of Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements (SAB
101). Accordingly, sales revenue is recognized when the related product is
shipped. Revenue under research and development contracts is recognized as
the related costs are incurred. Advance payments received for products or
services are recorded as deferred revenue and are recognized when the
product is shipped or services are performed.
The Company receives a royalty on every Angio-Seal(TM) unit sold by St. Jude
Medical, our licensee. This royalty was historically 12% and became 9% in
October 2000 when a cumulative 1,000,000 units had been sold. We
7
recognize the royalty revenue, in accordance with the Licensing Agreement
between the Company and St. Jude Medical, at the end of each month when St.
Jude Medical advises us of their total Angio-Seal sales dollars for the
month. Royalty payments are received within 45 days of the end of each
calendar quarter.
EARNINGS PER SHARE
Earnings per share are calculated in accordance with SFAS No. 128, Earnings
per Share, which requires the Company to report both basic and diluted
earnings per share (EPS). 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
The Company accounts for comprehensive income under the provisions of SFAS
No. 130, Reporting Comprehensive Income (SFAS 130). Accordingly, accumulated
other comprehensive loss is shown in the consolidated statements of
shareholders' equity at March 31, 2002, June 30, 2001 and 2000, and is
solely comprised of unrealized gains and losses on the Company's
available-for-sale securities. The tax effect of other comprehensive income
for the nine months ended March 31, 2002 and for the fiscal years ended June
30, 2001 and 2000 was $343,000, $117,000 and $0, respectively.
RECENT PRONOUNCEMENTS
In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations (SFAS 141), and SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), which were effective July 1, 2001 for the
Company, as the Company early adopted SFAS 142. SFAS 141 requires that the
purchase method of accounting be used for all business combinations
subsequent to June 30, 2001 and specifies criteria for recognizing
intangible assets acquired in a business combination. SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized upon adoption of this standard, but instead be tested for
impairment at least annually. Intangible assets with definite useful lives
will continue to be amortized over their respective useful lives. The
Company recorded $100,036 in goodwill amortization expense for the year
ended June 30, 2001. Goodwill amortization expense for the year ending June
30, 2002 would have been $205,111 if the Company had decided not to early
adopt SFAS 142. The early adoption of SFAS 142 did not result in the
reclassification of any intangible assets, changes in the amortization
periods for those intangible assets with definite lives or in the impairment
of any intangible assets. In accordance with the provisions of SFAS 142, the
Company has done its annual evaluation of goodwill for impairment and
determined that no impairment has occurred as of July 1, 2001. Through March
31, 2002, there have been no changes to the significant assumptions used
during the July 1, 2001 annual evaluation. Estimated amortization of
acquired patents for the five fiscal years subsequent to June 30, 2001 is
approximately $263,000 per year.
The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations
(SFAS 143) and SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), which will both be effective for the Company's
fiscal year beginning July 1, 2002. The Company is currently evaluating all
of the provisions of SFAS 143 and SFAS 144 and is, therefore, not presently
able to quantify the impact, if any, of adoption.
NOTE 2 -- 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:
MARCH 31, JUNE 30,
2002 2001
------------ -------------
Raw materials $2,055,120 $1,062,626
Work in process 235,887 240,451
Finished Goods 18,434
---------- ----------
Total $2,291,007 $1,321,511
========== ==========
8
NOTE 3 -- COMMITMENTS AND CONTINGENCIES
As of March 31, 2002, the Company has pledged $2,113,072 in investments as
collateral to secure certain bank loans to officers which were used by such
officers for the payment of taxes incurred as the result of the receipt of
Common Stock at the Company's initial public offering in December 1995. In
exchange for the Company pledging collateral for such loans, each affected
officer has pledged their Common Stock as collateral to the Company. The
loans are repayable at the sooner of the sale of the officer's stock or
December 2002. The balance outstanding on such officer loans was $2,054,645
at March 31, 2002.
NOTE 4 -- INCOME TAXES
As of June 30, 2001, the Company had net operating loss (NOL) carryforwards
for federal and state tax purposes totaling $5.4 and $20.0 million,
respectively. A portion of the NOL may be subject to various statutory
limitations as to its usage.
The Company recognized income tax expense for the first time in the quarter
ended September 30, 2001. We recognized a tax benefit in fiscal year 2001
related to the realization of certain deferred tax assets which had
previously been offset by a valuation allowance.
NOTE 5 -- THM ACQUISITION
On September 1, 2000 the Company acquired THM Biomedical, Inc. (THM), a
developer of porous, biodegradable, tissue-engineering products for the
repair and replacement of musculoskeletal tissues, for approximately $10.5
million plus acquisition costs of approximately $239,000. 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 Acquisition
Obligation). The Acquisition Obligation is due in equal quarterly
installments of $281,000 beginning on December 31, 2000 and ending on
September 30, 2004. Accordingly, the present value of the cash payments
(discounted based upon the Company's available borrowing rate of 7.5%) of
$3.8 million at the date of acquisition was recorded as a liability on the
Company's financial statements, with a remaining balance of $2.5 million at
March 31, 2002.
The acquisition has been accounted for under the purchase method of
accounting and THM's results of operations are included in those of the
Company since the date of acquisition. The purchase price has been allocated
to the assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. The allocation has resulted in goodwill
of approximately $3.4 million, which was originally being amortized, on a
straight-line basis over 17 years. The following is a summary of the
allocation (in thousands):
Assets $ 400
Accrued expenses and other liabilities (702)
In-process research and development 7,594
Excess of cost over net assets acquired (goodwill) 3,384
--------
$ 10,676
========
A significant portion of the purchase price was identified as acquired
in-process research and development (IPR&D). The valuation of IPR&D was
performed in an independent appraisal using proven valuation procedures and
techniques and represents the estimated fair market value based on
risk-adjusted cash flows related to the IPR&D programs. The IPR&D consists
of four primary research and development programs that are expected to reach
completion between late 2002 and 2005. At the date of acquisition, the
development of these programs had not yet reached technological feasibility
and the IPR&D had no alternative future uses. Accordingly, these costs were
immediately expensed in the consolidated statement of operations on the
acquisition date.
9
The following unaudited pro-forma financial information assumes that the
acquisition had occurred as of the beginning of the earliest period
presented:
NINE MONTHS
ENDED
03/31/01
--------------
Total revenue $ 17,012,167
============
IPR&D Charge $ (7,593,597)
============
Net income $ (1,964,178)
============
Basic earnings per share $ (0.19)
============
Diluted earnings per share $ (0.19)
============
These pro forma results are based on certain assumptions and estimates. The
pro forma results do not necessarily represent results that would have
occurred if the acquisition had taken place at the beginning of the
specified periods, nor are they indicative of the results of future combined
operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements and the related notes included in this report.
OVERVIEW
We were founded in 1984 and our common stock became publicly traded in December
1995. We have been profitable in our last seventeen fiscal quarters (excluding
the IPR&D charge taken in our second quarter of fiscal year 2001).
Revenues. Our revenues consist of three components: net sales, research and
development revenue and royalty income.
Net Sales. Net sales is comprised of absorbable biomaterials products and
Angio-Seal(TM)devices we manufactured and sold to St. Jude Medical.
Biomaterials. The biomaterials component of net sales represents the sale of
our biomaterials products to customers for use in the following markets:
orthopedics, cardiology, drug/biologics delivery, dental and wound care. In
1997, our biomaterials sales were comprised almost 100% of the absorbable
collagen and polymer components of the Angio-Seal supplied to our licensee.
Since that time we have broadened our product offerings, expanded our
customer base, entered new markets, assisted our customers in the
development of new product offerings and expanded our marketing activities.
We believe this growth will continue because of greater acceptance by the
medical community of biomaterials and technological advances which have
expanded the applications for our biomaterials products. In the three and
nine months ended March 31, 2002, the Angio-Seal components represent 52%
and 42% of our total biomaterial sales, respectively.
Angio-Seal. In August 2000, St. Jude Medical transitioned the manufacturing
of 6F Angio-Seal devices from Kensey Nash to their facility. We do not
expect any revenue from the manufacture of completed Angio-Seal devices in
the future. The manufacture of the 6F Angio-Seal represented $358,000, or
4%, of our total net sales for the nine months ended March 31, 2001. For the
nine months ended March 31, 2002, we experienced 36% growth in our overall
net sales despite the loss of the 6F Angio-Seal device sales.
Research and Development Revenue. Research and development revenue in the three
and nine months ended March 31, 2002 was derived from two National Institute of
Standards & Technology (NIST) grants. Under the first grant, we are researching
cartilage regeneration utilizing our porous tissue matrix (PTM) technology. This
grant, which was acquired in conjunction with our acquisition of THM in
September 2000, will continue through early fiscal year 2003. In addition, in
October 2001 we received a second NIST grant, under which we are researching a
synthetic vascular graft also utilizing our porous tissue matrix (PTM)
technology. This project will continue through early fiscal year 2005.
Royalty Income. We receive a royalty on every Angio-Seal unit sold worldwide. We
anticipate sales of the Angio-Seal will continue to grow as St. Jude Medical
continues to expand its sales and marketing efforts and releases future
generations of the Angio-Seal and as market adoption of vascular closure devices
increases. As a result, royalty income will continue to be a significant source
of revenue. The unit growth for the nine months ended March 31, 2002 over the
nine months ended March 31, 2001 was partially offset by the reduction in our
royalty rate, from 12% to 9%, in accordance with our licensing agreements. This
rate reduction occurred during the quarter ended December 31, 2000, when a
cumulative one million Angio-Seal units had been sold. There will be one further
decrease in the royalty rate, to 6%, upon reaching four million cumulative units
sold. Based on current Angio-Seal sales as well as current and anticipated
market growth trends, we anticipate this next reduction will not occur until our
fiscal year 2005.
Cost of Products Sold. We have experienced an overall increase in gross margin
during the nine months ended March 31, 2002, reflecting the higher volume of our
biomaterials products and the elimination of lower margin Angio-Seal device
sales. This increase in sales volume allows us to spread our fixed costs of
manufacturing over a greater number of
11
units. We anticipate our gross margin will continue to improve as our
biomaterials sales levels increase and our product mix becomes more favorable.
Research and Development Expense. Research and development expense consists of
expenses incurred for the development of our proprietary technologies such as
the TriActiv(TM) system, absorbable biomaterials products and technologies and
other development programs, including expenses under the NIST programs. While we
no longer perform research and development on the Angio-Seal, the progression of
the TriActiv system in the clinical trial phase and our continued development of
proprietary biomaterials products and technologies has more than offset this
decrease. In December 2001, we began our TriActiv U.S. pivotal clinical study, a
planned 500-800 patient randomized trial at up to 50 sites around the U.S. We
anticipate trial enrollment will continue through the end of fiscal year 2003.
We anticipate research and development expense will continue to increase as we
pursue commercialization of the TriActiv system in the United States as well as
explore opportunities for our other technologies including the continued
development of proprietary biomaterials technologies.
Selling, General and Administrative Expense. Selling, general and administrative
expenses include general and administrative costs as well as costs related to
the sales and marketing of our products. During the three and nine months ended
March 31, 2002 and 2001, the costs of our patent litigation case, in which we
filed a patent infringement claim against a competitor, are also included within
selling, general and administrative expenses. The marketing component of
selling, general and administrative expenses has increased as we move toward
commercialization of the TriActiv system in both Europe and the United States.
In January 2002, we received CE Mark approval from the European regulatory
authority for the TriActiv system, which allows commercial sale of the product
in the European Union. Effective January 2002, we established a subsidiary in
Germany, Kensey Nash GmbH, and hired a Vice President of European sales. We have
continued to add personnel to our European sales and marketing team as we will
be selling the TriActiv system direct to the market in Germany. We intend to use
distributors to market the product throughout the rest of Europe and are in the
process of identifying those distributors. We anticipate sales and marketing
expenses will continue to increase as we will launch TriActiv in Europe in our
fourth fiscal quarter of 2002. We also continue to evaluate opportunities for
commercialization of the TriActiv system in the United States and expand the
marketing efforts for our biomaterials business.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition. We recognize revenue under the provisions of Staff
Accounting Bulletion (SAB) No. 101, Revenue Recognition in Financial Statements
(SAB 101). Accordingly, sales revenue is recognized when the related product is
shipped. Revenue under research and development contracts is recognized as the
related costs are incurred. Royalty revenue is recognized as the related
product is sold. Advance payments received for products or services are
recorded as deferred revenue and are recognized when the product is shipped or
services are performed.
Stock-Based Compensation. We account for stock-based compensation costs under
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), which permits
continued application of the intrinsic value method of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Under
the intrinsic value method, compensation cost represents the excess, if any, of
the quoted market price of the Company's common stock at the grant date over
the amount the grantee must pay for the stock. Our policy is to grant stock
options at the fair market value at the date of grant. Therefore, we do not
have any compensation costs for options granted to employees. Options granted
to non-employees, as defined under SFAS 123, would be recorded as compensation
expense. The Company has not granted any options to non-employees during the
three and nine months ended March 31, 2002 and 2001.
Research and Development Expenses. Research and development charges, including
clinical trials expense, are expensed as incurred.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 AND 2001
Revenues. Revenues increased 20% to $7.2 million in the three months ended March
31, 2002 from $6.0 million in the three months ended March 31, 2001. Net sales
of products increased 8% to $4.2 million from $3.9 million for the three months
ended March 31, 2002 and 2001, respectively. Net sales for the three months
ended March 31, 2002 and 2001 consisted entirely of biomaterials sales.
Research and Development Revenues. Research and development revenues increased
120% to $198,000 from $90,000 for the three months ended March 31, 2002 and
2001, respectively. Prior year revenues were generated under the NIST articular
cartilage development grant acquired in conjunction with the THM acquisition.
The increase over the prior year reflects increased activity under the cartilage
grant ($105,000 in the three months ended March 31, 2002 compared to $90,000 in
March 31, 2001) as well as the addition of a second NIST grant for synthetic
vascular graft research in October 2001 which generated $93,000 in revenue for
the three months ending March 31, 2002.
Royalty Income. Royalty income increased 38% to $2.8 million from $2.0 million
in the three months ended March 31, 2002 and 2001, respectively. This reflects a
greater number of units sold as well as an increase in average selling price for
the Angio-Seal. Royalty units increased 35% as approximately 175,000 Angio-Seal
units were sold to end-users during the three months ended March 31, 2002
compared to approximately 129,000 units sold during the three months ended March
31, 2001. This unit increase was due to St. Jude Medical's increased sales and
marketing efforts including the launch of the STS platform, a new generation of
the Angio-Seal product line, in January 2002 and continued strong sales of the
entire Angio-Seal product line in the worldwide market.
12
Cost of Products Sold. Cost of products sold increased 8% to $2.1 million in the
three months ended March 31, 2002 from $1.9 million in the three months ended
March 31, 2002. While overall cost of products sold increased, gross margin
remained steady at 51% reflecting the high margins on our biomaterials products
and continued allocation of overhead across increased sales volumes.
Research and Development Expense. Research and development expense increased 57%
to $2.8 million in the three months ended March 31, 2002 from $1.8 million in
the three months ended March 31, 2001. This increase was mainly attributable to
our continued development efforts on the TriActiv system, including clinical
trial expenses. In December, we began our U.S. pivotal clinical study, a planned
500-800 patient randomized trial at up to 50 sites around the U.S.. We
anticipate trial enrollment will continue through the end of fiscal year 2003.
We also continued to expand our development efforts on our biomaterials products
including our work under the NIST articular cartilage and vascular graft
development grants. We expect research and development expense to continue to
increase as we investigate and develop new products, conduct clinical trials and
seek regulatory approvals for our proprietary products.
Selling, General and Administrative Expense. Selling, general and administrative
expense increased 52% to $1.3 million in the three months ended March 31, 2002
from $834,000 in the three months ended March 31, 2001. This increase was
primarily the result of sales and marketing expenses which increased $331,000,
to $513,000 in the three months ended March 31, 2002 from $183,000 in the three
months ended March 31, 2001. This increase related primarily to increased
marketing efforts on the TriActiv system as we prepare for the commercial launch
of this product in Europe in the fourth fiscal quarter of 2002 and continue to
evaluate our market strategy for the U.S.. In addition, general and
administrative expenses increased $101,000, to $677,000 in the three months
ended March 31, 2002 from $576,000 in the three months ended March 31, 2001.
This was primarily attributable to $93,000 of increased personnel costs in our
human resources, business development and finance departments to support our
continued growth. Litigation expenses for our patent infringement suit, which
are included in selling, general and administrative expense, increased slightly
to $79,000 for the three months ended March 31, 2002 from $75,000 from the three
months ended March 31, 2001. These costs related to our motion for
reconsideration of prior orders and subsequent filing of and preparation for
appeal. We filed for appeal in November 2001. We have submitted our brief and
expect oral arguments to occur in the first quarter of our fiscal year 2003.
Net Interest Income. Interest expense decreased 24% to $54,000 in the three
months ended March 31, 2002 from $72,000 in the three months ended March 31,
2001. This decrease was the result of a lower principal balance on the THM
Biomedical acquisition obligation as we continue to make the required quarterly
payments. Interest income increased 5% to $472,000 in the three months ended
March 31, 2001 from $452,000 in the three months ended March 31, 2001. This is a
result of increased cash and investment balances offset by lower interest rates.
Other Non-Operating Income (Expense). Other non-operating expense was $2,000 for
the three months ended March 31, 2002 and represents a loss on the disposal of
fixed assets.
Net Income. Net income decreased to $983,000 in the three months ended March 31,
2002 from a net income of $1.9 million in the three months ended March 31, 2001.
Net income for the three months ended March 31, 2002 was the result of $1.5
million of income before income taxes and a $518,000 charge for income taxes.
This is our third quarter of recognizing income tax expense. We recognized a tax
benefit in fiscal year 2001 related to the realization of certain deferred tax
assets which had previously been offset by a valuation allowance. There was no
income tax expense for the three months ended March 31, 2001.
COMPARISON OF NINE MONTHS ENDED MARCH 31, 2002 AND 2001
Revenues. Revenues increased 33% to $21.0 million in the nine months ended March
31, 2002 from $15.7 million in the nine months ended March 31, 2001. Net sales
of products increased 36% to $13.1 million from $9.6 million for the nine months
ended March 31, 2002 and 2001, respectively. Biomaterials sales increased 42%,
as the $13.1 million of sales for the nine months ended March 31, 2002 were
entirely biomaterials sales compared to $9.2 million in the nine months ended
March 31, 2001. There were no Angio-Seal sales for the nine months ended March
31, 2002 compared to $358,000 for the nine months ended March 31, 2001. The nine
months ended March 31, 2002 did
13
not include Angio-Seal device sales as St. Jude Medical transitioned the
manufacturing of these devices to their facility in August 2000.
Research and Development Revenues. Research and development revenues increased
132% to $479,000 from $207,000 for the nine months ended March 31, 2002 and
2001, respectively. Prior year revenues were generated under the NIST articular
cartilage development grant acquired in conjunction with the THM acquisition.
The increase over the prior year reflects increased activity under the cartilage
grant ($321,000 in the nine months ended March 31, 2002 compared to $207,000 in
March 31, 2001) as well as the addition of a second NIST grant for synthetic
vascular graft research in October 2001 which generated $158,000 in revenue for
the nine months ending March 31, 2002.
Royalty Income. Royalty income increased 24% to $7.4 million from $6.0 million
in the nine months ended March 31, 2002 and 2001, respectively. This increase
was achieved despite the contractual 25% reduction in the Angio-Seal royalty
rate, from 12% to 9%, during the quarter ended December 31, 2000 and reflects a
greater number of units sold as well as an increase in average selling price for
the Angio-Seal. Royalty units increased 37% as approximately 466,000 Angio-Seal
units were sold to end-users during the nine months ended March 31, 2002
compared to approximately 340,000 units sold during the nine months ended March
31, 2001. This unit increase was due to St. Jude Medical's increased sales and
marketing efforts including the launch of the STS platform, a new generation of
the Angio-Seal product line, and continued strong sales of the entire Angio-Seal
product line in the worldwide market.
Cost of Products Sold. Cost of products sold increased 20% to $6.3 million in
the nine months ended March 31, 2002 from $5.2 million in the nine months ended
March 31, 2001. While overall cost of products sold increased, gross margin also
increased to 52% from 45%. This increase reflects the high margins on our
biomaterials products as well as continued allocation of overhead across greater
sales volumes, which results in a decrease in per unit costs.
Research and Development Expense. Research and development expense increased 57%
to $7.9 million in the nine months ended March 31, 2002 from $5.0 million in the
nine months ended March 31, 2001. This increase was mainly attributable to our
continued development efforts on the TriActiv system, including clinical trial
expenses. In December, we began our U.S. pivotal clinical study, a planned
500-800 patient randomized trial at up to 50 sites around the U.S. We anticipate
trial enrollment will continue through the end of fiscal year 2003. We also
continued to expand our development efforts on our biomaterials products
including our work under the NIST articular cartilage and synthetic vascular
graft development grants. We expect research and development expense to increase
as we investigate and develop new products, conduct clinical trials and seek
regulatory approvals for our proprietary products.
Selling, General and Administrative Expense. Selling, general and administrative
expense increased 48% to $3.2 million in the nine months ended March 31, 2002
from $2.1 million in the nine months ended March 31, 2001. This increase was
primarily the result of sales and marketing expenses which increased to $1.1
million in the nine months ended March 31, 2002 from $450,000 in the nine months
ended March 31, 2001. This increase related primarily to increased marketing
efforts on the TriActiv system as we prepare for the commercial launch of this
product in Europe in the fourth fiscal quarter of 2002 and continue to evaluate
our market strategy for the U.S. In addition, general and administrative
expenses increased 22%, or $350,000, to $1.9 million in the nine months ended
March 31, 2002 from $1.6 million in the nine months ended March 31, 2001. This
was attributable to $266,000 of increased personnel costs in our human
resources, business development and finance departments to support our continued
growth. Litigation expenses for our patent infringement suit increased to
$129,000 for the nine months ended March 31, 2002 from $97,000 from the nine
months ended March 31, 2001. These costs related to our motion for
reconsideration of prior orders and subsequent filing of and preparation for
appeal. We filed for appeal in November 2001. We have submitted our brief and
expect oral arguments to occur in the first quarter of our fiscal year 2003.
Net Interest Income. Interest expense increased 1% to $174,000 in the nine
months ended March 31, 2002 from $173,000 in the nine months ended March 31,
2001. This increase was the result of interest expense on the THM Biomedical
acquisition obligation for a full nine months in the current year as opposed to
seven months of expense in the prior year. Interest income decreased slightly to
$1.4 million in the nine months ended March 31, 2002 from $1.5
14
million in the nine months ended March 31, 2002. Although our cash and
investment balances have increased, this has been offset by lower interest
rates.
Other Non-Operating Income (Expense). Other non-operating expense was $4,500 for
the nine months ended March 31, 2002 and represents a loss on the disposal of
fixed assets.
Net Income. Net income increased to $3.2 million in the nine months ended March
31, 2002 from a net loss of $2.9 million in the nine months ended March 31,
2001. Net income for the nine months ended March 31, 2002 was the result of $4.8
million of income before income taxes and a $1.7 million charge for income
taxes. This is our first fiscal year of recognizing income tax expense. We
recognized a tax benefit in fiscal year 2001 related to the realization of
certain deferred tax assets which had previously been offset by a valuation
allowance. The $2.9 million net loss for the nine months ended March 31, 2001
was the result of the $7.6 million IPR&D charge. Exclusive of this charge, net
income would have been $4.7 million. There was no income tax expense for the
period ending March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by our operating activities was $4.7 million and $3.7 million
in the nine months ended March 31, 2002 and 2001, respectively. In the nine
months ended March 31, 2002, changes in asset and liability balances used
$11,000 of cash, in addition to net income of $3.2 million and non-cash
depreciation and amortization of $1.6 million. In the nine months ended March
31, 2001, changes in asset and liability balances used $2.4 million of cash. The
net loss of $2.9 million was offset by the $7.6 million and $1.4 million
non-cash charges for the write-off of in-process research and development and
depreciation and amortization, respectively.
Our cash, cash equivalents and short-term investments were $30.7 million at
March 31, 2002. In addition, we had $2.1 million in restricted investment
accounts. We have pledged this $2.1 million in investments as collateral to
secure bank loans made to officers to pay taxes incurred by these employees when
they received common stock at the time of our initial public offering. In
exchange for our pledging this collateral, the employees have pledged their
common stock to the company as collateral.
We have a $4.1 million capital spending plan for fiscal 2002, of which $2.3
million has been spent on machinery, equipment, furniture and fixtures and
leasehold improvements. These expenditures are related to the continued
expansion of our manufacturing capabilities for our biomaterials and TriActiv
product lines.
We have a $2.5 million obligation to the shareholders of THM Biomedical, Inc., a
company we acquired in September 2000 (see below). The obligation is due in
equal quarterly installments of $281,250 which began on December 31, 2000 and
end on September 30, 2004.
We have operating leases which consist of rent for our facilities in Exton,
Pennsylvania and Duluth, Minnesota. Rent expense under these leases for the
three and nine months ended March 31, 2002 was approximately $134,000 and
$374,000, respectively. Our commitment under the non-cancelable portion of
these leases for the remaining three months of the year ended June 30, 2002 is
$174,000. For the subsequent four fiscal years ended June 30, 2003, 2004, 2005
and 2006, our commitments are approximately $559,000, $523,000, $550,000 and
$240,000, respectively. We have no lease commitments past November 2005.
We plan to continue to spend substantial amounts to fund clinical trials, to
gain regulatory approvals, to expand our facilities to accommodate the
manufacturing of the TriActiv and our expanding base of biomaterials products,
and to continue to expand research and development activities, particularly for
the TriActiv system and our biomaterials products. We believe our current cash
and investment balances, in addition to cash generated from operations, will be
sufficient to meet our operating and capital requirements through at least
fiscal 2003. Our future capital requirements and the adequacy of available funds
will depend, however, on numerous factors, including market acceptance of our
existing and future products, including TriActiv; the successful
commercialization of products in development; progress in our product
development efforts; the magnitude and scope of such efforts; progress with
pre-clinical studies, clinical trials and product clearance by the FDA and other
agencies, the cost and timing of our efforts to expand our manufacturing
capabilities; the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights; competing technological and
market developments; and the development of strategic alliances for the
marketing of certain of our products. There can be no assurance that we will
record profits in future periods.
If current cash balances and cash generated from operations is insufficient, we
may need to pursue sales of equity and/or debt. The terms of any such future
equity financing may be dilutive to our stockholders and the terms of any debt
financing may contain restrictive covenants, which limit our ability to pursue
certain courses of action. Our ability to
15
obtain financing is dependent on the status of our future business prospects as
well as conditions prevailing in the relevant capital markets. No assurance can
be given that any additional financing will be made available to us or will be
available on acceptable terms should such a need arise. Our estimate of the time
periods for which cash and cash equivalents will be adequate to fund operations
is a forward looking statement within the meaning of Private Securities
Litigation Reform Act of 1995 and is subject to risks and uncertainties. Actual
results may differ materially from those contemplated in such forward-looking
statements. In addition to those described above, factors which may cause such a
difference are set forth under the caption "Risks Related to Our Business " as
well as in our annual report on form 10-K generally.
ACQUISITION OF THM BIOMEDICAL, INC. AND IN-PROCESS RESEARCH AND DEVELOPMENT
CHARGE
On September 1, 2000 we acquired THM Biomedical, Inc. (THM), a developer of
porous, biodegradable, tissue-engineering products for the repair and
replacement of musculoskeletal tissues, for approximately $10.5 million plus
acquisition costs of approximately $228,000. The transaction was financed with
$6.6 million in cash and a note payable to the shareholders of THM in the amount
of $4.5 million (the Acquisition Obligation). The Acquisition Obligation is due
in equal quarterly installments of $281,250 beginning on December 31, 2000 and
ending on September 30, 2004. Accordingly, the present value of the cash
payments (discounted based upon our available borrowing rate of 7.5%) of $3.9
million was recorded as a liability on the Company's financial statements, with
a remaining balance of $2.5 million at March 31, 2002.
The $7.6 million IPR&D charge represented the estimated fair value of purchased
in-process technology which had not yet reached technological feasibility and
had no alternative future use and was comprised of the following projects:
Articular Cartilage ($5.4 million), Bone Fusion ($389,000), Other Bone
Applications ($261,000), and Drug Delivery ($1.5 million). Each of the four
projects utilizes the core open-cell poly lactic acid (OPLA) technology, a
porous tissue matrix (PTM) technology developed by THM. PTM technology
facilitates wound healing in both bone and soft tissue and is bioabsorbable at
controlled rates for specific functions and tissues. Each of the IPR&D projects
utilizes these properties of the PTM technology to address its respective
market. For example, the articular cartilage project uses the PTM technology as
the foundation for an articular cartilage repair and regrowth product. The total
IPR&D value was determined by estimating the stage of completion of each IPR&D
project at the date of the acquisition, estimating the costs to develop each
IPR&D project into commercially viable products, estimating the resulting net
cash flows from such projects, and discounting the net cash flows back to their
present values. The discount rate in each project takes into account the
uncertainty surrounding the successful development and commercialization of the
purchased in-process technology.
The stage of completion for all projects ranged from 48% to 72% as of the
acquisition date with the weighted average completion rate approximately 56%. As
of that date, the estimated costs to bring the projects under development to
technological feasibility and through clinical trials were approximately $7.3
million.
Since the date of the acquisition, as planned, we have primarily devoted our
development efforts of PTM technology to the articular cartilage application and
have expended $641,000 on such efforts through March 31, 2002. In addition, in
October 2001 we received regulatory approval for a proprietary PTM based
product, Improvise, which is a cement flow restrictor, with applications in the
orthopedics market. We are also seeking regulatory approval on a second
proprietary PTM based orthopedic product.
The net cash flows from IPR&D projects were based on management's best estimates
of revenue, cost of sales, research and development costs, general and
administrative costs, and income taxes from such projects. These estimates were
determined considering our historical experience and industry trends and
averages. The cash flow estimates from sales of products incorporating these
technologies are expected to commence between the fiscal years 2003 and 2005,
depending on the project, with revenue growth rates in the 50% range in the
immediate years following worldwide market launch, declining to the 5% range as
each market nears maturity. These projections were based on our best estimates
of market size and growth at the time of the acquisition, expected trends in
technology and the nature and expected timing of new product introductions by us
and our competitors. The cash flows from revenues in each period are reduced by
related expenses, capital expenditures, the cost of working capital and an
assigned contribution to the core technology serving as a foundation for the
research and development.
16
The discount rates used in discounting the net cash flows from purchased
in-process technology were 80% for articular cartilage, 85% for bone fusion, 78%
for other bone applications and 83% for drug delivery. These discount rates for
each project were determined upon consideration of the stage of completion of
the project, the assumptions, nature and timing of the remaining efforts for
completion and risks and uncertainties of the project.
Substantial further research and development, pre-clinical testing and clinical
trials will be required to determine the technical feasibility and commercial
viability of the products under development. There can be no assurance such
efforts will be successful. If these projects are not successfully developed,
our revenue and profitability may be adversely affected in future periods. We
are continuously monitoring our development projects and currently believe that
the assumptions used in the valuation of purchased in-process technology
reasonably estimate the future benefits attributable to such purchased
in-process technology. No assurance can be given that actual results will not
deviate from those assumptions in future periods.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income and expense are sensitive to changes in the general level of
interest rates. In this regard, changes in interest rates affect the interest
earned on our cash, cash equivalents and investments as well as interest paid on
our debt.
Our investment portfolio consists primarily of high quality U.S. government or
corporate securities and certificates of deposit with an average maturity of
eight years. We mitigate default risk by investing in what we believe 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 March 31, 2002, our total portfolio consisted of
approximately $28.7 million of investments, with maturities ranging from one to
fifteen years. Additionally, we generally hold securities until the earlier of
their call or their maturity. Therefore, we do not expect our results of
operations or cash flows to be materially impacted due to a sudden change in
interest rates. We have $2.5 million in outstanding debt at March 31, 2002
related to the acquisition of THM. We do not currently hedge any foreign
currency or interest rate transactions.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
This document and other documents we have filed with the Securities and Exchange
Commission (SEC) have forward-looking statements. In addition, our senior
management may make forward-looking statements orally to analysts, investors,
the media and others. Forward-looking statements might include one or more of
the following:
- - Projections of revenues, income earnings per share, capital expenditures,
capital structure or other financial items;
- - Descriptions of plans or objectives of management for future operations,
products or services, including future acquisition objectives;
- - Forecasts of future economic performance; and
- - Descriptions of assumptions underlying or relating to any of the foregoing
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include words such as
"believe", "expect", "anticipate", "intend", "plan", "estimate", or words of
similar meaning, or future conditional verbs such as "will", "would", "should",
"could" or "may". Such statements give our expectations or predictions of future
conditions, events or results. They are not guarantees of future performance. By
their nature, forward-looking statements are subject to risks and uncertainties.
There are a number of factors, many of which are beyond our control, that could
cause actual conditions, events or results to differ significantly from those
described in the forward-looking statements. Some of these factors are described
as "Risks Related to our Business" below. Factors relating to the regulation and
supervision of our company are also described or incorporated in our Annual
Report on Form 10-K filed with the SEC. There are other factors besides those
described or incorporated in this report or in the Form 10-K that could cause
actual conditions, events or results to differ from those in the forward-looking
statements.
17
Forward-looking statements speak only as of the day they are made. We do not
undertake to publicly update or revise forward-looking statements to reflect
circumstances or events that occur after the date the forward-looking statements
are made.
RISKS RELATED TO OUR BUSINESS
There are many risk factors that could adversely affect our business, operating
results and financial condition. These risk factors, described in detail in our
Annual Report on Form 10-K, include but are not limited to:
- - our dependence on the continued growth and success of our biomaterials
products;
- - our dependence on our biomaterials customers for marketing and obtaining
regulatory approval for their products;
- - successful commercialization of the TriActiv system in the European
community;
- - our ability to obtain regulatory approval for the TriActiv system in the
United States;
- - subsequent to regulatory approval, the successful commercialization of the
TriActiv system;
- - our reliance on revenues from the Angio-Seal product line;
- - the performance of St. Jude Medical as the manufacturer, marketer and
distributor of the Angio-Seal product;
- - our ability to obtain any additional required funding for future development
and marketing of the TriActiv product as well as our biomaterials products;
- - the competitive markets for our products and our ability to respond more
quickly than our competitors to new or emerging technologies and or changes
in customer requirements;
- - the acceptance of our products by the medical community;
- - our dependence on key vendors and key personnel;
- - the use of hazardous materials which could expose us to future environmental
liabilities;
- - our failure to expand our management systems and controls to support
anticipated growth;
- - the ownership of our stockholders may be diluted by future acquisitions or
strategic alliances;
- - risks related to our intellectual property, including patent and proprietary
rights and trademarks; and
- - risks related to our industry including potential for litigation, ability to
obtain reimbursement for our products and our products exposure to extensive
government regulation.
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. We caution that a
number of important factors could cause our actual results for fiscal year 2002
and beyond to differ materially from those in any forward-looking statements
made by us or on our behalf. These important factors include, without
limitation, the success of our biomaterials products, our ability to obtain the
necessary regulatory approvals for, fund and commercialize the TriActiv system,
the success of St. Jude Medical in manufacturing, marketing and distributing the
Angio-Seal product line, the ability of our customers to market and obtain
regulatory approvals for their biomaterials products, the acceptance of our
products by the medical community, our ability to maintain key vendors and
personnel, competition in our markets, general business conditions in the
healthcare industry and general economic conditions. Our 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 our common stock.
18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
None
B. Reports on Form 8-K.
None
19
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: May 15, 2002 By: /s/ Wendy F. DiCicco
-----------------------
Wendy F. DiCicco
Chief Financial Officer
20