The company has faced recalls, seizures, production suspensions and management changes in the past 12 months, which has led to it entering into a consent decree with the US Food and Drug Administration (FDA).
In its latest filing with the US Securities and Exchange Commission (SEC), KV states that the requirements of the consent decree “have had, and are expected to continue to have, a material adverse effect” on its liquidity.
Until KV is able to resume manufacture and shipping of “certain or many of its approved products” it does not expect to generate material revenues. The company has stated this will occur in Q4 of the calendar year at the earliest.
KV acknowledges that restarting manufacture and shipping “will likely entail significant costs”. In addition government enforcement actions could impose restrictions on KV’s business and make it pay fines.
The company has also paid “substantial amounts of professional fees” over the past 12 months. This includes the hiring of Morrison Anderson & Associates, a specialist restructuring and bankruptcy firm, to reorganise financial operations. KV expects these fees to be “significantly reduced in future periods”.
KV believes that if it can monetise certain auction rate securities it will have sufficient money to meet its outgoings for the quarter ending September 30.
Into the next financial year
KV has sought to cuts costs by reducing its staff from 1,700 to 700 since the turn of the year and is also trying to sell its subsidiary Particle Dynamics, Inc (PDI). By selling PDI and taking other financial actions KV is hoping to generate $140m to $200m.
However, there is no guarantee that these actions will be successful. Even if PDI is sold and other financial actions are taken KV acknowledges that it “will need to obtain additional capital through asset sales and external financing” to meet outgoings in its next fiscal year, which begins after September 30.
KV is still working with KPMG to prepare its financial filings dating back to September and expects that its annual 10-K will show “one or more material weaknesses in internal controls over financial reporting”.
The company’s share price fell by almost 39 per cent yesterday following the filing with the SEC.