UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
July 31, 2001
Date of Report (Date of earliest event reported)
KFx INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-23634 84-1079971
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(State or other jurisdiction of Commission File Number IRS Employer
incorporation or organization) Identification Number
3300 East 1st Avenue, Suite 290
Denver, Colorado, USA 80206
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(Address of principal executive offices) (Zip Code)
(303) 293-2992
(Registrant's telephone number,
including area code)
EXPLANATORY NOTE
This Form 8-K/A amends Item 7(b) of the current report on Form 8-K/A filed by
KFx Inc. on October 15, 2001 to update pro forma financial statements included
in that report.
On August 15, 2001, KFx Inc. (the "Company") filed a Form 8-K dated July 31,
2001 (the "Original 8-K") to file certain material agreements relating to an
asset purchase and license agreement providing for (i) the acquisition of
certain Pavilion Technologies, Inc. ("Pavilion") assets relating to process
optimization for the utility based boiler, gas turbine and power production and
process steam turbine (the "Segment") by Pegasus Technologies, Inc. ("Pegasus"),
a majority-owned subsidiary of the Company; (ii) Pegasus' rights and access to
certain Pavilion assets, personnel and services relating to the Segment; and
(iii) the licensing of certain Pavilion intellectual property related to the
Segment in a limited field of use. The Company filed a Form 8-K/A on October 15,
2001 to file certain audited financial statements of the Segment, certain
unaudited pro forma combined financial statements and a consent of independent
accountants relating to the audited financial statements of the Segment. This
Form 8-K/A further amends the Original 8-K to provide updated pro forma
financial statements in Item 7(b).
Item 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
PAGE NO.
b) Unaudited Pro Forma Combined Financial Statements F-3
Unaudited Pro Forma Combined Statement of Operations F-5
Notes to Unaudited Pro Forma Combined Financial Statements F-6
F-2
Item 7(b). Unaudited Pro Forma Combined Financial Statements of KFx Inc. and the
Power Optimization Division of Pavilion Technologies, Inc. as of December 31,
2001.
KFX, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On July 31, 2001, KFx, Inc. ("KFx") completed the purchase of certain assets and
liabilities of the Power Optimization Division of Pavilion Technologies, Inc.
(the "Power Optimization Division") pursuant to the terms of the Purchase
Agreement dated as of July 31, 2001 (the "Purchase Agreement"), entered into by
Pavilion Inc. ("Pavilion"), Pegasus, a subsidiary of KFx Inc., and KFx.
These purchased assets and acquired liabilities were primarily accounts
receivable, unbilled revenue, deposits, customer list, exclusive rights to
license Pavilion's software, other intangibles and deferred revenue. Pavilion
has retained certain liabilities of the Power Optimization Division, including
but not limited to Pavilion indemnifying Pegasus regarding the intellectual
property of Pavilion's software being licensed. The Purchase Agreement initially
provided for a base price of $9,500,000 in cash, payable to Pavilion due in
installments through July 31, 2003, adjusted for the net of assets and
liabilities assumed. The present value of these payments is approximately
$8,567,000 using a 14% effective interest rate. Additionally, Pegasus was to
initially pay Pavilion royalties of up to $5,500,000 between August 1, 2001 and
October 31, 2005, based on Pavilion and Pegasus software licenses sold by
Pegasus. On March 28, 2002, the Purchase Agreement was amended to decrease the
base cash payment to $7.5 million, from $9.5 million, subject to certain
adjustments for the value of assets and liabilities acquired and certain
transaction costs. The present value of these payments is approximately
$7,067,000 using a 14% effective interest rate. This reduction resulted in a net
purchase price adjustment, based upon the present value of the payments, of
approximately $1,500,000, which was recorded as a reduction of goodwill as of
December 31, 2001. The amendment also increased the future royalty payments on
licenses sold to a total of $9 million and eliminated the expiration date on the
royalty payment period. Future royalty payments are considered contingent
purchase price and will result in additions to goodwill as the royalties become
due. Per the terms of this amendment, Pegasus paid Pavilion $4.35 million on
March 28, 2002 as the final purchase price payment for the acquisition. KFx
guarantees the duties and obligations of Pegasus under the Purchase agreement.
These unaudited pro forma combined financial statements and accompanying notes
have been prepared and should be read in conjunction with the historical
financial statements and the related notes thereto of KFx Inc., the "Management
Discussion and Analysis of Financial Condition and Results of Operations"
contained in KFx's Annual Report on Form 10-K/A for the year ended December 31,
2001 and carve out financial statements of the Power Optimization Division as of
March 31, 2001 in the Current Report on Form 8-K/A dated October 15, 2001, filed
with the Securities and Exchange Commission.
The acquisition has been accounted for by the purchase method and the results of
operations of the Power Optimization Division are included in the KFx financial
statements beginning in the third quarter of 2001. The pro forma combined
statement of operations assumes the acquisition took place as of the beginning
of the period presented. The pro forma combined statement of operations for the
year ended December 31, 2001 combines KFx's audited statement of operations for
the year ended December 31, 2001 and the Power Optimization Division's unaudited
statement of operations for the seven months ended July 31, 2001.
The pro forma adjustments do not reflect any operating efficiency and cost
savings that may be achieved with respect to the acquisition. The pro forma
adjustments do not include any adjustments to historical sales for any future
price changes nor any adjustments to sales, marketing or any other expenses for
any future operating changes. The following pro forma information is not
necessarily indicative of the operating results that would have occurred had the
acquisition been consummated on the dates at the beginning of the period for
which such transactions are being given effect. The pro forma adjustments
reflecting the consummation of the acquisition are based upon the assumptions
set forth in the notes hereto.
KFx currently knows of no events other than those disclosed in these pro forma
notes that would require a material change to the preliminary purchase price
allocation of the acquisition. The purchase price allocation was determined
based upon a study undertaken by KFx in conjunction with independent appraisers
to determine the fair value of certain of the assets acquired, including
identifiable intangible assets, and liabilities. The future results of
operations will differ, perhaps significantly, from the pro forma amounts
reflected herein because of a
F-3
variety of factors, including access to additional information, changes in value
not currently identified and changes in operating results, which could result in
adjustment to among other items identifiable intangible assets and goodwill.
F-4
KFX, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands)
As Reported
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Power
KFX, Inc. Optimization
Twelve Division Seven
Months ended Months ended
December 31, July 31, Pro Forma
2001 2001 Adjustments Combined
OPERATING REVENUES
Software licenses and services $ 3,003 $ 736 $ $ 3,739
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Total operating revenues 3,003 736 3,739
OPERATING COST & EXPENSES
Cost of Pegasus software licenses and services 1,981 895 221 A 3,097
K-Fuel demonstration plant and laboratory 221 221
Marketing, sales, general and administrative 6,977 1,440 46 A 8,463
Pegasus research and development 655 181 836
Depreciation and amortization 2,789 2,789
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Total operating costs and expenses 12,623 2,516 267 15,406
OPERATING LOSS (9,620) (1,780) (267) (11,667)
Interest expense (including accretion of
debenture premium) (5,478) (16) (577)B (6,071)
Other (79) 31 (48)
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NET LOSS $ (15,177) $ (1,765) $ (844) $ (17,786)
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Basic and diluted net loss per share $ (.58) $ (.68)
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Weighted-average common shares outstanding 26,095 26,095
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F-5
KFX, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following adjustments give pro forma effect to the transaction:
(A) Adjustments to record amortization of the identified intangibles from the
purchase price allocation. Based upon KFx's valuation obtained from independent
appraisers, there was $1,426,000 of identifiable intangibles, which was
comprised of $319,000 for order backlog, $990,000 for maintenance contracts and
$117,000 for customer lists. Intangible amortization was calculated based upon
estimated useful lives of 18 to 84 months.
(B) On a pro forma basis, interest expense was incurred as a result of the debt
incurred to finance the acquisition. Interest expense was based upon the present
value of the installments of the debt at the beginning of the period, as amended
on March 28, 2002, and was calculated using an effective interest rate of 14%.
F-6
KFX, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 3, 2002 KFX INC.
By: /s/ Patrick S. Flaherty
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Name: Patrick S. Flaherty
Title: Vice President-Finance &
Chief Financial Officer
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