(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-23-661
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ROCKWELL MEDICAL TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
MICHIGAN 38-3317208
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
30142 WIXOM ROAD
WIXOM, MICHIGAN 48393
(Address of principal (Zip code)
executive offices)
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Securities registered pursuant to Section 12 (b) of the Exchange Act: NONE
Securities registered pursuant to Section 12 (g) of the Exchange Act:
COMMON SHARES, NO PAR VALUE
(TITLE OF CLASS)
State issuer's revenues for its most recent fiscal year: $9,015,542
State the aggregate market value of the voting and non-voting common equity held by non-affiliates: $17,223,478, as of March 22, 2002.
Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 7,539,668 Common Shares outstanding and 3,625,000 Common Share Purchase Warrants outstanding as of March 26, 2002.
Documents incorporated by reference: Portions of the Registrant's definitive Proxy Statement pertaining to the 2001 Annual Meeting of Shareholders (the "Proxy Statement") filed pursuant to Regulation 14A are herein incorporated by reference.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Rockwell Medical Technologies, Inc. (the "Company") is a Michigan corporation, incorporated on October 25, 1996. From October 25, 1996 through February 18, 1997 the Company had no operations and incurred only legal and consulting expenses. On February 19, 1997, the Company acquired substantially all of the assets of Rockwell Medical Supplies, L.L.C. and of Rockwell Transportation, L.L.C. (collectively, the "Predecessor Company") used in connection with the business of manufacturing hemodialysis concentrates and dialysis kits and distributing and delivering these and other products to hemodialysis clinics. The Predecessor Company began operations in January 1996.
Rockwell Medical Technologies, Inc. manufactures hemodialysis concentrates and dialysis kits, and sells, distributes and delivers such concentrates and dialysis kits, as well as other ancillary hemodialysis products, to hemodialysis providers in the United States and internationally. Hemodialysis is a process which is able to duplicate kidney function in patients whose kidneys have failed to function properly. Without properly functioning kidneys, the patient's body cannot rid itself of excess water and waste nor regulate the amount of electrolytes in the patient's blood. Long-term dialysis treatments are essential for these patients' survival.
Rockwell Medical Technologies, Inc. has licensed an iron maintenance therapy for dialysis patients utilizing water soluble iron in dialysate. The Company has licensed two patents, one issued and one pending, relating to the use and delivery method for transferring iron compounds to a dialysis patient via dialysate. A specific iron compound, Ferric Pyrophosphate is in clinical trial stage. Pursuant to the license agreements, the Company is responsible for completion of clinical trials and obtaining U.S. Food and Drug Administration ("FDA") approval to market water soluble iron in dialysate. Such approval will be required in order for the Company to realize commercial benefit from the license agreements. Rockwell believes that this product will represent a substantial improvement in iron maintenance therapy and, if approved, will compete in the estimated $750,000,000 global market for iron maintenance therapy, including the estimated $350,000,000 U.S. market. No assurance can be given that this product will be approved by the FDA or that, if approved, it will be successfully marketed.
INDUSTRY BACKGROUND
The Company provides products used in the treatment of patients with end-stage renal disease ("ESRD"). In 2002 it is estimated that there are over 360,000 ESRD patients in the United States, whose permanent kidney failure requires long-term dialysis for survival. Incidence of kidney failure is increasing as a result of the aging population, an increasing occurrence of diabetes and hypertension, and increased use of prescription drugs. ESRD patients are essentially treated as chronic patients, with repeated dialysis treatments replacing their nonfunctioning kidneys. Most patients undergoing hemodialysis treatments generally receive three treatments per week or 156 treatments per year, although the amount of weekly treatments may vary.
Hemodialysis patients generally receive their treatments at hospitals or independent hemodialysis clinics. A hemodialysis provider, such as a hospital or a freestanding clinic, uses a dialysis station to treat patients. A dialysis station contains a dialysis machine that takes a concentrate solution and certain chemical powders, such as the Company's solutions and powders, and accurately dilutes them with purified water. The resulting solution, known as dialysate, is then pumped through a device known as a dialyzer (artificial kidney), while at the same time the patient's blood is pumped through a membrane within the dialyzer. Excess water and chemicals from the patient's blood pass through the membrane and are carried away in the dialysate while certain chemicals in the dialysate penetrate the membrane and enter the patient's blood to maintain proper chemical levels in the body. Dialysate generally contains dextrose, sodium, calcium, potassium, magnesium, chloride and acetic acid. The patient's physician chooses the formula required for each patient based on each particular patient's needs, although most patients receive one of eight common formulations.
In addition to using concentrate solutions and chemical powders (which must be replaced for each use for each patient) a dialysis station requires various other ancillary products such as on-off kits, sterile subclavian dressing change trays, arterial and venous blood tubing lines, fistula needles, intravenous administration sets, transducer protectors, dialyzers and various other ancillary products, many of which the Company sells.
INDUSTRY TRENDS
Based on statistics compiled by the United States Department of Health and Human Services ("DHHS"), the dialysis industry has experienced steady patient population growth with the patient population increasing between 7-11% each year over the last ten years. ESRD is an irreversible deterioration of kidney function. Population segments with the highest incidence of ESRD are also the fastest growing population segments within the U.S. population including the elderly, Hispanic and African-American population segments. More than 67% of new ESRD cases are attributed to either diabetes or hypertension, while glomerulonephritis is the primary factor behind nearly 12% of treated cases.
Hemodialysis providers are generally either independent clinics or hospitals. According to the DHHS, since 1973 the total number of hemodialysis providers in the United States has increased from 606 in 1973 to over 4,153 in December 2000. Independent providers comprised 3,257 of such providers, hospitals comprised 756 of such providers and kidney transplant centers comprised 242 of such providers at the end of 2000 according to the DHHS. The number of patients receiving hemodialysis has also grown substantially in recent years. According to the published report of the End Stage Renal Disease Network more than 276,000 patients were treated in Medicare-approved renal facilities as compared to 68,390 patients in 1985 as reported by DHHS. According to the DHHS, from 1990 to 2000, the number of hemodialysis stations, which are areas equipped to provide adequate and safe dialysis therapy, grew from 25,052 stations to 62,613 stations. The number of Medicare-approved dialysis machines increased by 4,365 stations or 7.5% between 1999 and 2000 based on the latest published statistics by the DHHS.
STRATEGY
The Company's long term objectives are to increase its market share, expand its product line offering, extend its geographical coverage and improve its profitability by implementing the following strategies:
- Increasing Revenue Through Sales of New Products. The Company has signed global licensing agreements for delivery of water soluble iron via dialysate. The Company believes that this product represents a major improvement in iron maintenance therapy. This product requires FDA approval for inclusion in the Company's product line. The Company believes that if FDA approval is obtained for this product, that it will capture substantial market share of both the dialysate market and the market for iron maintenance therapy.
The Company introduced two new product lines in 1999; Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate that it believes are superior to competitors' product offerings and have acted as a catalyst to attract new customers and to expand its existing business relationship with dialysis providers.
- Acting as a Single Source Supplier. The Company has positioned itself as an independent "one-stop-shop" to its customers for the concentrates, chemicals and supplies necessary to support a hemodialysis provider's operation. Some of the Company's competitors for concentrates do not offer a full line of hemodialysis products requiring customers to do business with a number of suppliers in order to purchase necessary supplies. Rockwell offers a broad line of hemodialysis supplies.
- Increasing Revenue Through Ancillary Product Line Expansion. The Company believes that the market potential for ancillary products and supplies used by hemodialysis providers is equivalent to or greater than the market for dialysis concentrates. The Company's strategy is to offer cost effective ancillary products that include ancillary products such as specialized kits, fistula needles, gloves, chemicals, sterile dressings and blood tubing. Many of these ancillary items are purchased based on price and are generally acquired from various suppliers. The Company believes that as it continues to
gain market share that it will increasingly be able to procure these ancillary items on a cost effective basis and will provide its customers with both convenience from a single supply source and at a highly competitive price level.
- Offering a Higher Level of Delivery/Customer Service. By using its own delivery vehicles and drivers, the Company believes that it can offer a higher level of customer service to hemodialysis providers than if it relied primarily on the use of common carriers to distribute its products. The Company's drivers perform services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. A drum pump-off requires the driver to pump hemodialysis concentrates from a 55 gallon drum into larger holding tanks within the hemodialysis clinic. Certain of the company's competitors generally use common carriers for delivery of their products. The Company believes it offers a higher level of distribution service to its customers through the use of its own delivery vehicles and drivers.
- Expanding Market Share in Target Regions. Because of the costs associated with transporting and delivering hemodialysis concentrates, the Company believes that it has a competitive cost advantage with certain clinics that are located within a reasonable proximity to the Company's manufacturing facilities over other manufacturers outside of such proximity. The Company also believes that it can add additional manufacturing sites in certain geographic regions that will provide it with a competitive cost advantage and with superior customer service levels due to their proximity to the customer. The Company intends to leverage its existing customer relationships to expand into geographic areas where it currently has a minor or negligible presence.
PRODUCTS
The Company manufactures hemodialysis concentrates and sells, distributes and delivers such products, as well as a full line of ancillary hemodialysis products to hemodialysis providers and distributors located in more than 27 states as well as several foreign countries. Hemodialysis concentrates are comprised of two primary product types, which are generally described as acid dialysate and bicarbonate.
"Acidified Dialysate Concentrate"
Acid dialysate generally contains sodium chloride, dextrose and electrolyte additives such as magnesium, potassium, and calcium. Acid products are manufactured in three basic series to reflect the dilution ratios used in dialysis machines which are manufactured by various companies. The Company supplies all three product series and currently manufactures approximately 60 different formulations. The Company supplies liquid acid concentrate in both 55 gallon drums and in cases with 4 -- 1 gallon containers.
"Dri-Sate Dry Acid Concentrate"
In June of 1998, the Company obtained 510(k) clearance from the FDA to manufacture and market Dri-Sate Dry Acid Concentrate. This product line enhanced the Company's previous liquid acid product offering. Since its introduction in 1999, the Company's dry acid product line has grown to represent over 45% of its acid product sales.
The Company's Dri-Sate Dry Acid Concentrate allows a clinic to mix its acid concentrate on-site. The clinical technician, using a specially designed mixer, adds pre-measured packets of the necessary ingredients to 50 or 100 gallons of purified water (AMII standard). Once mixed, the product is equivalent to the acid provided to the clinic in liquid form. By using Dri-Sate Dry Acid Concentrate numerous advantages are realized by the clinics including lower cost per treatment, increased storage space, reduced number of deliveries and more flexibility in scheduling. The Company believes it will attain increased profit margins due to the reduction in freight cost associated with shipping the dry product as compared to the liquid form. The Company also believes it will generate increased back-haul revenue due to the elimination of returning empty drums to the Company's facilities.
"Bicarbonate"
Bicarbonate is generally sold in powder form and each clinic generally mixes bicarbonate on site as required. The company offers approximately 20 bicarbonate products covering all three series of manufacturers' bicarbonate dilution ratios.
"SteriLyte(TM) Liquid Bicarbonate"
In June of 1997, the Company obtained 510(k) clearance from the FDA to manufacture and market SteriLyte(TM) Liquid Bicarbonate. The Company's SteriLyte(TM) Liquid Bicarbonate, which is used primarily in acute care settings, is currently the only liquid bicarbonate on the market manufactured utilizing a process called gamma irradiation. Historically, other manufacturers have been required to recall product due to excess levels of molds and bacteria in their product. Gamma irradiation is a process that minimizes the presence of mold and bacteria in the product thereby providing a higher quality product to the customer. The Company's SteriLyte(TM) Liquid Bicarbonate, by utilizing gamma irradiation, offers the dialysis community a high-quality product and provides the clinic a safe and uninterrupted supply source.
"Ancillary Products"
The Company offers a wide range of ancillary products including blood tubing, fistula needles, gloves, kits, dressings, cleaning agents, filtration salts and other supplies used by hemodialysis providers. The Company added blood tubing to its product offering in 2002.
DISTRIBUTION AND DELIVERY OPERATIONS
The majority of the distribution of the Company's products is provided by the Company's subsidiary, Rockwell Transportation, Inc. Rockwell Transportation, Inc. leases and operates a fleet of ten trucks which are used to deliver products to the Company's customers. A minor portion of the Company's deliveries, primarily to medical products distributors, is provided by common carriers contracted by the Company on a competitive rate basis.
Rockwell Transportation, Inc. currently employs ten drivers to operate its truck fleet and a fleet operations manager to manage its distribution operations. The Company's liquid acid concentrates are generally packaged in 55-gallon re-usable drums weighing approximately 550 pounds each. The Company performs services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. The Company's primary competitors generally use common carriers and/or do not perform the same services for delivery of their products. The Company believes it offers a higher level of service to its customers through the use of its own delivery vehicles and drivers.
As the Company continues to grow and migrate its product mix to its Dri-Sate Dry Acid Concentrate the Company anticipates that it will achieve distribution efficiencies from its truck fleet as a result of reduced frequency of deliveries, increased end user sales volume per truckload and increased backhaul revenue.
The Company's trucking operations are and will continue to be subject to various state and federal regulations, which if changed or modified, could adversely affect the Company's business, financial condition and results of operations.
SALES AND MARKETING
The Company primarily sells its products directly to domestic hemodialysis providers through five independent sales representative companies and three direct salespeople employed by the Company. In addition, the President and Chief Executive Officer of the Company leads and directs the sales efforts to the Company's major accounts. The Company also utilizes several independent distributors in the United States. Certain international customers are sold through sales agents.
The Company's sales and marketing initiatives are directed at purchasing decision makers at both large for-profit national and regional hemodialysis chains and toward independent hemodialysis service providers.
The Company's marketing efforts include advertising in trade publications, distribution of product literature and attendance at industry trade shows and conferences. Targeted audiences of the Company's sales and marketing efforts include clinic administrators, purchasing professionals, nurses, hospital administrators and nephrologists.
COMPETITION
The Company competes against larger more established competitors with substantially greater financial, technical, manufacturing, marketing, research and development and management resources than those of the Company. The Company competes against three major competitors, of which its two largest competitors are primarily in the business of operating hemodialysis clinics. The two largest providers of hemodialysis concentrates are Fresenius Medical Care, Inc. ("Fresenius") and Gambro Healthcare, Inc. ("Gambro") who the Company believes also have the first and third largest ESRD patient base in the United States. These companies produce and sell a more comprehensive line of dialysis equipment, supplies and services.
Fresenius treats an estimated 80,000 dialysis patients in the United States and operates an estimated 1,000 clinics. It also has a renal products business that manufactures a broad array of equipment including dialysis machines, dialyzers (artificial kidneys), concentrates and other supplies used in hemodialysis. In addition to its captive customer base in its own clinics, Fresenius also serves other clinic chains and independent clinics with its broad array of products. The Company believes that Fresenius sources its concentrate manufacturing through its own manufacturing facilities. Fresenius operates an extensive warehouse network in the United States serving its captive customer base and other independent clinics.
Based upon information published by Gambro, Gambro treats an estimated 39,000 dialysis patients in the United States and operates approximately 525 clinics. Gambro manufactures and sells hemodialysis machines and other ancillary supplies. Gambro sells its concentrate solutions to both its own captive clinic base and to other clinic chains and independent clinics. The Company believes that Gambro operates one manufacturing facility in Central Florida and additionally sources concentrate through a private label manufacturer in the eastern United States. Gambro also imports products from its European manufacturing facilities. The Company believes that Gambro engages a third party trucking company to deliver its products throughout the United States directly from the point of manufacture and regional public and private warehouse locations. Gambro serves the independent clinic market with liquid acid and powder bicarbonate concentrate products used by its brand of dialysis machines as well as those machines manufactured by its competitors in that segment. Gambro does not offer a liquid bicarbonate product line nor does it offer a powder acidified concentrate product line.
The Company also competes against Cantel Medical Corp.'s Minntech ("Minntech") subsidiary. Minntech's Renal Systems division primarily sells concentrates and Renalin, a specialty reuse agent for dialyzers and does not offer the full breadth of products offered by the Company. The Company believes that Minntech has one domestic manufacturing facility located in Minnesota and a distribution center in Camp Hill, Pennsylvania. The Company believes that Minntech largely uses its own vehicles for delivery of product to customers.
The Company intends to enter the iron therapy market if its water soluble
iron product is approved by the FDA. The iron therapy market for intravenous
(IV) iron is serviced by two manufacturers and three products. The market leader
is Watson Pharmaceutical which acquired Schein and R&D Labs. R&D Labs markets a
product called Ferrlecit(R) which is an injectable of sodium ferric gluconate
complex in sucrose. Schein markets a product called IN-FeD(R) which is an
injectable iron supplement of dextran and ferric hydroxide. Watson is a large
manufacturer of both generic and branded drugs. The third injectable iron
product on the market is Venofer(R), an injectable iron sucrose product marketed
by American Regent Laboratories, Inc. Both Watson and American Regent
Laboratories, Inc. have substantially greater resources than the Company.
The markets for these products are highly competitive. New products being developed by Rockwell will face competition from both conventional forms of iron delivery (i.e., oral and parenteral). Competition in drug delivery systems is generally based on marketing strength, product performance characteristics (i.e., reliability, safety, patient convenience) and product price. Acceptance by dialysis providers and nephrologists is also
critical to the success of a product. The first product on the market in a particular therapeutic area typically is able to obtain and maintain a significant market share. In a highly competitive marketplace and with evolving technology, there can be no assurance that additional product introductions or developments by others will not render Rockwell's products or technologies noncompetitive or obsolete.
QUALITY ASSURANCE AND CONTROL
The U.S. Food and Drug Administration ("FDA") expanded the regulatory requirements governing manufacturers of medical devices effective January 1, 2000. The Company has revised its operational manuals and quality system to conform with those regulations. The FDA inspected the Company during 2000 and found the Company to be in substantial compliance with regulatory requirements.
To assure quality and consistency of the Company's concentrates, the Company conducts specific analytical tests during the manufacturing process for each type of product that it manufactures. The Company's quality control laboratory conducts analytical tests to verify that the chemical properties of the mix comply with the specifications required by industry standards. Upon verification that a batch meets those specifications, the Company then packages those concentrates. The Company also tests packaged concentrates at the beginning and end of each production run to assure product consistency during the filling process. Each batch is assigned a lot number for tracking purposes and becomes available for shipment subsequent to verification that all product specifications have been met.
The Company utilizes automated testing equipment in order to assure quality and consistency in the manufacture of its concentrates. The equipment allows the Company to analyze the materials used in the hemodialysis concentrate manufacturing process, to assay and adjust the in-process hemodialysis concentrate, and to assay and certify that the finished products are within the chemical and biological specifications required by industry regulations. The Company's testing equipment provides it with high degree of accuracy and efficiency in performing the necessary testing.
GOVERNMENT REGULATION
The testing, manufacture and sale of the Company's hemodialysis concentrates and the ancillary products distributed by the Company are subject to regulation by numerous governmental authorities, principally the United States Food and Drug Administration ("FDA") and corresponding state and foreign agencies. Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDA Act"), and the regulations promulgated thereunder, the FDA regulates the pre-clinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances or approvals and criminal prosecution.
A medical device may be marketed in the United States only with prior authorization from the FDA unless it is subject to a specific exemption. Devices classified by the FDA as posing less risk than class III devices are categorized as class I (general controls) or class II (general and specific controls) and are eligible to seek "510(k) clearance." Such clearance generally is granted when submitted information establishes that a proposed device is "substantially equivalent" in intended use to a class I or II device already legally on the market or to a "pre-amendment" class III device (i.e., one that has been in commercial distribution since before May 28, 1976) for which the FDA has not called for pre-market approval ("PMA") applications. The FDA in recent years has been requiring a more rigorous demonstration of substantial equivalence than in the past, including requiring clinical trial data in some cases. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. The Company believes that it now usually takes from one to four months from the date of submission to obtain 510(k) clearance, but it can take substantially longer. The Company's hemodialysis concentrates, liquid bicarbonate and other ancillary products are categorized as class II devices.
A device requiring prior marketing authorization that does not qualify for 510(k) clearance is categorized as class III, which is reserved for devices classified by FDA as posing the greatest risk (e.g., life-sustaining, life-supporting or implantable devices), or devices that are not substantially equivalent to a legally marketed class I or class II device. A class III device generally must receive approval of a PMA application, which requires proving to the FDA the safety and effectiveness of the device. The process of obtaining PMA approval is expensive and uncertain. The Company believes that process usually takes from one to three years after filing, but it can take longer.
If human clinical trials of a device are required, whether for a 510(k) submission or a PMA application, and the device presents a "significant risk," the sponsor of the trial (usually the manufacturer or the distributor of the device) will have to file an investigational device exemption ("IDE") application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards ("IRBs"), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a "non-significant risk" to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by one or more appropriate IRBs without the need for FDA approval.
Any devices manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed Good Manufacturing Practice ("GMP") requirements, which include testing, control and documentation requirements. Manufacturers and distributors must also comply with Medical Device Reporting ("MDR") requirements that a firm report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state agencies for compliance with GMP requirements and other applicable Quality System regulations. The Company also is subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, transportation and disposal of hazardous or potentially hazardous substances.
The Company has 510(k) clearance from the FDA to market hemodialysis concentrates in both liquid and powder form. In addition, the Company has received 510(k) clearance for its Dri-Sate Dry Acid Concentrate Mixer.
The Company's retention of such 510(k) clearances is also dependent upon its compliance with the FDA Act and related laws and regulations, including GMP regulations. There can be no assurance that the Company will maintain its 510(k) authority from the FDA to manufacture and distribute its products. Failure to do so could result in the need to cease manufacturing and/or distributing the Company's products, which would have a material adverse effect on the Company's business, financial condition and results of operations. If any of the Company's FDA clearances are denied or rescinded, sales of the Company's products in the United States would be prohibited during the period the Company does not have such clearances.
In addition to the regulations for medical devices covering the Company's current dialysate products, the Company's new product development efforts will be subject to the regulations pertaining to pharmaceutical products. The Company has signed licensing agreements for water soluble iron supplements to be included in the Company's dialysate products. Water soluble iron when coupled with the Company's dialysate will be used as an iron maintenance therapy for dialysis patients and is expected to be considered a drug/device combination by the FDA. As a result, the Company's iron maintenance therapy product will be subject to the FDA regulations for pharmaceutical products, as well.
The marketing of pharmaceutical products in the United States requires the
approval of the FDA. The FDA has established regulations, guidelines and safety
standards which apply to the pre-clinical evaluation, clinical testing,
manufacturing and marketing of pharmaceutical products. The process of obtaining
FDA approval for a new product may take several years and is likely to involve
the expenditure of substantial resources. The steps required before a product
can be produced and marketed for human use include: (i) pre-clinical studies;
(ii) submission to the FDA of an Investigational New Drug Exemption ("IND"),
which must become effective before human clinical trials may commence in the
United States; (iii) adequate and well controlled human clinical trials; (iv)
submission to the FDA of a New Drug Application ("NDA") or, in some cases, an
Abbreviated New Drug Application ("ANDA"); and (v) review and approval of the
NDA or ANDA by the FDA. An NDA generally is required for products with new
active ingredients, new indications, new routes of administration, new dosage
forms or new strengths. An NDA requires that complete clinical studies of a
product's safety and efficacy be submitted to the FDA, the cost of which is
substantial. These costs can be reduced, however, for delivery systems which
utilize approved drugs.
An ANDA involves an abbreviated approval process that may be available for products that have the same active ingredient(s), indication, route of administration, dosage form and dosage strength as an existing FDA-approved product, if clinical studies have demonstrated bio-equivalence of the new product to the FDA-approved product. Under FDA ANDA regulations, companies that seek to introduce an ANDA product must also certify that the product does not infringe on the approved product's patent or that such patent has expired. If the applicant certifies that its product does not infringe on the approved product's patent, the patent holder may institute legal action to determine the relative rights of the parties and the application of the patent, and the FDA may not finally approve the ANDA until a court finally determines that the applicable patent is invalid or would not be infringed by the applicant's product.
Pre-clinical studies are conducted to obtain preliminary information on a product's efficacy and safety. The results of these studies are submitted to the FDA as part of the IND and are reviewed by the FDA before human clinical trials begin. Human clinical trials may commence 30 days after receipt of the IND by the FDA, unless the FDA objects to the commencement of clinical trials.
Human clinical trials are typically conducted in three sequential phases, but the phases may overlap. Phase I trials consist of testing the product primarily for safety in a small number of patients at one or more doses. In Phase II trials, the safety and efficacy of the product are evaluated in a patient population somewhat larger than the Phase I trials. Phase III trials typically involve additional testing for safety and clinical efficacy in an expanded population at different test sites. A clinical plan, or protocol, accompanied by the approval of the institution participating in the trials, must be reviewed by the FDA prior to commencement of each phase of the clinical trials. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time.
The results of product development and pre-clinical and clinical studies are submitted to the FDA as an NDA or an ANDA for approval. If an application is submitted, there can be no assurance that the FDA will review and approve the NDA or an ANDA in a timely manner. The FDA may deny an NDA or an ANDA if applicable regulatory criteria are not satisfied or it may require additional clinical testing. Even if such data is submitted, the FDA may ultimately deny approval of the product. Further, if there are any modifications to the drug, including changes in indication, manufacturing process, labeling, or a change in a manufacturing facility, an NDA or an ANDA supplement may be required to be submitted to the FDA. Product approvals may be withdrawn after the product reaches the market if compliance with regulatory standards is not maintained or if problems occur regarding the safety or efficacy of the product. The FDA may require testing and surveillance programs to monitor the effect of products which have been commercialized, and has the power to prevent or limit further marketing of these products based on the results of these post-marketing programs.
The approval procedures for the marketing of the Company's products in foreign countries vary from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Even after foreign approvals are obtained, further delays may be encountered before products may
be marketed. For example, many countries require additional governmental approval for price reimbursement under national health insurance systems.
As with manufacturers of devices, manufacturers of drugs are subject to periodic inspections for compliance with the FDA's good manufacturing practices ("GMP") regulations and each domestic drug manufacturing facility must be registered with the FDA. Foreign regulatory authorities may also have similar regulations. In complying with standards set forth in these regulations, the Company must expend significant time, money and effort in the area of quality assurance to insure full technical compliance. FDA approval to manufacture a drug is site specific. In the event an approved manufacturing facility for a particular drug becomes inoperable, obtaining the required FDA approval to manufacture such drug at a different manufacturing site could result in production delays, which could adversely affect the Company's business and results of operations.
The federal and state governments in the United States, as well as many foreign governments, from time to time explore ways to reduce medical care costs through health care reform. Due to uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation, the Company cannot predict what impact any reform proposal ultimately adopted may have on the pharmaceutical and medical device industry or on the business or operating results of the Company. The Company's activities are subject to various federal, state and local laws and regulations regarding occupational safety, laboratory practices, and environmental protection and may be subject to other present and possible future local, state, federal and foreign regulations.
PRODUCT LICENSE AGREEMENTS
The Company entered into two license agreements for water soluble iron supplements via dialysate. These license agreements cover both issued and pending patents in the United States. These agreements also cover issued and pending patents in a number of foreign jurisdictions including what the Company believes to represent the major global markets for iron maintenance therapy. The license agreements continue for the duration of the underlying patents in each country or approximately 15 years in the United States and may be extended thereafter.
The product license agreements call for the Company to obtain FDA approval of water soluble iron via dialysate. A Phase II clinical trial on Ferric Pyrophosphate under an Investigational New Drug (IND) exemption was completed by a licensor. The Company plans to conduct further clinical trials in order to obtain FDA approval to market water soluble iron via dialysate. The duration and scope of these clinical trials is under evaluation. The Company will be required to fund the cost of obtaining marketing approval of the product in order to realize any benefit from commercialization of the product. In addition to funding clinical trials and patent maintenance expenses, the Company is obligated to fund certain milestone payments and to pay ongoing royalties upon successful introduction of the product.
TRADEMARKS & PATENTS
The Company has several trademarks and servicemarks used on its products and in its advertising and promotion of such products, and has applied for U.S. registration of such marks. Several such registrations have now been issued while others remain pending.
The Company has applied for U.S. and international patents on its Dri-Sate Dry Acid Concentrate method and apparatus for preparing liquid dialysate. This U.S. patent has now been allowed but has not yet issued. The Company has no other patents.
SUPPLIERS
The Company believes that the raw materials for the Company's hemodialysis concentrates, the components for the Company's hemodialysis kits and the ancillary hemodialysis products distributed by the Company are generally available from several potential suppliers. Principal suppliers include Archer Daniels Midland, Cargill, Church & Dwight Co. Inc., Morton Salt Company and Nipro Medical Corporation.
CUSTOMERS
The Company operates in one market segment which involves the manufacture and distribution of hemodialysis concentrates, dialysis kits and ancillary products used in the dialysis process to hemodialysis clinics. For the year ended December 31, 2001, the Company had sales in excess of 10% of revenue with two customers representing 31% of the Company's total sales. For the year ended December 31, 2000, the Company had sales in excess of 10% of revenue with three customers representing approximately 36% of total sales.
EMPLOYEES
As of March 22, 2002, the Company had approximately 75 employees. In addition, if the Company's sales volumes increase, the Company expects to add additional production, distribution, and administrative resources. The Company's arrangements with its employees are not governed by any collective bargaining agreement. Employees are employed on an "at-will" basis with the exception of certain key management employees.
The employment agreements of Mr. Robert L. Chioini, the Company's Chairman, President and Chief Executive Officer and Mr. Thomas E. Klema, the Company's Vice President, Chief Financial Officer and Secretary have expired. The Company is in negotiation with both Mr. Chioini and Mr. Klema with respect to new employment agreements.
RESEARCH & DEVELOPMENT
The Company did not engage in any significant research and development activity in 2001 or 2000. However, the Company has licensed an iron maintenance therapy utilizing water soluble iron via dialysate and intends to undertake clinical trials to obtain FDA approval for this product. Funding of clinical trials will have a material impact on the Company and the Company will be required to seek additional sources of financing to fund product development efforts. Should the Company be unable to fund new product development efforts it may have to abandon or postpone the approval process for the licensed products. If the Company is unable to obtain FDA approval or to fund certain milestone payments it may forfeit its rights under its license agreements.
Statements in this Form 10-K concerning the timing of regulatory filings and approvals are forward looking statements which are subject to risks and uncertainties. The length of time necessary to complete clinical trials, and from submission of an application for market approval to a final decision by a regulatory authority, varies significantly. No assurance can be given that the Company, will have the financial resources necessary to complete the clinical trials for this product or that it will be successfully completed, that the Company will be able to obtain regulatory approval for any such product, or that any approved product may be produced in commercial quantities, at reasonable costs, and be successfully marketed. Similarly, there can be no assurance that the Company's competitors, most of whom have greater resources than the Company, will not develop and introduce products that will adversely affect the Company's business and results of operations.
OTHER
The Company does not anticipate any significant cost or impact from compliance with environmental laws.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company entered into a lease agreement in October 2000 to lease a new 51,000 square foot facility in Wixom, Michigan. The Company occupied the new facility in July 2001 under a seven year lease. Base rent for the facility is $31,786 per month. In addition, the Company is responsible for all property taxes, insurance premiums and maintenance costs.
On March 12, 2000 the Company entered into an agreement to lease a 51,000 square foot facility in Grapevine, Texas. The principal provisions under the five year lease term include base monthly rental payments of $17,521 and payment of common area maintenance costs by the lessee.
The Company believes that these facilities are suitable and adequate to meet its production and distribution requirements. However, should the Company's business continue to expand, the Company may require additional manufacturing capacity and distribution facilities to meet its requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company filed a civil action on September 20, 2000 in the Circuit Court of Wayne County Michigan against Mr. Gary D. Lewis, individually and Wall Street Partners, Inc., a Michigan Corporation, jointly and severally. The Company filed a breach of contract suit against Wall Street Partners, Inc. for breach of contract pertaining to consulting services provided the Company by Wall Street Partners, Inc. Also named in the suit was Mr. Gary D. Lewis, the principal of the consulting firm. Mr. Lewis is a former Chairman of the Company, a former director of the Company and was the beneficial owner of record of more than 5% of the Company's common shares. The Company requested recovery of amounts paid to Wall Street Partners, Inc. and Mr. Lewis.
On November 21, 2001 a jury found in favor of the Company and awarded the Company $350,000 plus interest. On December 13, 2001, a judgment in the amount of $175,000 with interest was entered for the Company against Gary D. Lewis personally and a judgment in the amount of $175,000 with interest was entered for the Company against Wall Street Partners, Inc. A motion by the defendant for re-trial was denied February 15, 2002. The defendant has the right to appeal the judgment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Shares and Common Share Purchase Warrants are traded on The Nasdaq SmallCap Market under the symbols RMTI and RMTIW, respectively. The Common Shares and the Common Share Purchase Warrants began trading on The Nasdaq SmallCap Market on January 26, 1998 at an initial public offering price of $4.00 per Common Shares and $0.10 per Common Share Purchase Warrant.
It is a requirement for continued trading of the Company's Common Shares on The Nasdaq SmallCap Market that the Company either maintain a minimum of $2,500,000 in net equity, have a $35,000,000 market capitalization or have earned $500,000 in net income for two of the three most recently completed fiscal years. The Company has relied on having net equity in excess of $2,500,000 to meet this requirement. As of December 31, 2001, the Company had net equity of $2,596,611. If the Company continues to incur operating losses and if it is unable to raise sufficient equity to keep its net equity at or above $2,500,000 it may be subject to delisting from Nasdaq.
If the Company's Common Shares and Common Share Purchase Warrants are delisted from The Nasdaq SmallCap Market, they would likely be quoted on the OTC Bulletin Board. Any delisting could cause the market price of the Common Shares and Common Share Purchase Warrants to decline and could make it much more difficult to buy or sell Common Shares or Common Share Purchase Warrants on the open market.
The Prices below are the high and low bid prices as reported by Nasdaq in each quarter during 2000 and 2001. The below prices reflect inter-dealer prices, without retail mark-up, mark down or commission and may not represent actual transactions.
BID PRICE
INFORMATION
----------------
QUARTER ENDED HIGH LOW
------------- ---- ---
March 31, 2000.............................................. $6.000 $2.438
June 30, 2000............................................... 3.781 1.500
September 30, 2000.......................................... 2.219 1.000
December 31, 2000........................................... 1.563 .344
March 31, 2001.............................................. 1.250 .375
June 30, 200................................................ 1.550 .590
September 30, 2001.......................................... 1.410 .660
December 31, 2001........................................... 1.750 .560
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As of March 21, 2002, there were 60 record holders of the Common Shares and 43 record holders of the Common Share Purchase Warrants.
In 2001, the Company issued 1,940,442 Common Shares for which it realized net proceeds of $1,096,486 from Common Share issuance transactions.
During the year ended December 31, 2001, the Company issued Common Shares pursuant to a private placement of its Common Shares. The offering was completed on March 21, 2002. Under the offering, the Company issued 1,999,261 Common Shares. Investors in the offering received unregistered Common Shares which may not be resold for a period of one year following the date they are acquired. The Company engaged placement agents on a best efforts basis for which the agent is entitled to 10% of gross proceeds raised by the placement agent. The offering was made to accredited investors and to certain other investors. During 2001, the Company issued 1,751,781 Common Shares at prices between $.50 -- $1.16 realizing gross proceeds of $1,110,950 under this offering and net proceeds of $1,017,956 after offering expenses. Total commissions paid to placement agents in 2001 were $ 60,975. The sale of the shares pursuant to this offering was exempt from the registration requirements of the Securities Act of 1933 (the "Act") under Section 4(2) of the Act and under Regulation "D" of the Act.
During 2001, the Company issued 30,000 Common Shares pursuant to options exercised by consultants. The options were granted under the Company's 1997 Stock Option Plan, for the performance of services to the Company and were granted at an exercise price of $.01. These options had a fair market value of $22,120 on the date of grant.
In 2001, the Company issued 117,020 Common Shares and realized proceeds of $78,520, as a result of the exercise of stock option grants by certain executive officers of the Company. The exercise price of the options was $.67.
On August 11, 2000, the Company sold 76,843 unregistered Common Shares to an investor for $1.30 per share. The Company paid a commission to a broker of 10% of the gross proceeds on the transaction. The net proceeds to the Company were $78,336. The sale of the shares pursuant to this offering was exempt from the registration requirements of the Act under Section 4(2) of the Act. The sale was subject to rescission rights as the Company failed to meet the minimum sale requirement of its offering. In consideration for rescission of these rights, on March 29, 2001, the shareholder was issued 41,641 common shares for no additional consideration.
On December 1, 2000, the Company issued 125,000 Common Shares in exchange for substantially all of the business and assets of a dialysis products manufacturer. The Common Shares had a fair market value of $125,000 on the date of issuance. The shareholder which acquired the Common Shares is required to hold the Common Shares for a period of one year from the date of issuance. The sale of the shares pursuant to this offering was exempt from the registration requirements of the Act under Section 4(2) of the Act.
DIVIDENDS
The payment of dividends by the Company is within the discretion of its Board of Directors and depends in part upon the Company's earnings, capital requirements, financial condition and requirements, future prospects, restrictions in future financing agreements, business conditions and other factors deemed relevant by the Board. Since its inception, the Company has not paid any cash dividends on its Common Shares and does not anticipate paying such dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its operations.
ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the year ended December 31, 2001 compared to the year ended December 31, 2000
For the year ended December 31, 2001, sales were $9.0 million as compared to sales of $7.5 million for 2000 representing an increase of 20.9%. The Company's revenue increased largely from unit volume growth across its key product lines with both expansion of new clinics with existing customers and from new customers. The Company realized substantial revenue growth in its concentrate product lines with revenue up 27%.
Overall, the Company's concentrate sales represented 88% of total revenue and increased by 27% over 2000. The Company believes that both clinic chains and independent providers are attracted to its dry product offering due to the internal efficiencies and savings derived from dry products. 2001 unit volumes increased 25% over 2000 unit volume for its Dri-Sate Dry Acid Concentrate product line. The Company also continued to realize growth in its liquid acid drum business which increased 9% in 2001 over 2000. Similarly, its SteriLyte(TM) Liquid Bicarbonate product line unit volume increased 74% in 2001 as compared to 2000.
The Company's other ancillary sales and freight revenue decreased in 2001 as compared to 2000. Ancillary supply sales declined slightly overall with increased sales of higher margin kits offset by a decline in sales of lower margin products. This was the result of a shift in focus of the Company as it seeks to reduce the sales of lower margin products. After reducing over-the-road fleet capacity from twelve trucks to nine in 2000, fleet capacity was utilized to a greater extent on delivery of the Company's products creating fewer opportunities and reduced capacity for backhaul revenue in 2001 as compared to 2000. As a result, freight
revenue decreased substantially due to more efficient fleet utilization stemming from the 27% increase in concentrate revenue. As a result, backhaul revenue declined by 33% in 2001 as compared to 2000.
Gross Profit decreased to $912,000 in 2001 from $980,000 in 2000 although revenue increased 20.9% in 2001 over 2000. Similarly, gross profit margins declined from 13.1% in 2000 to 10.1% in 2001. The reduction in gross profit margin stemmed from the addition of production capacity and the start-up of two new facilities during 2001. During 2001, the Company moved into two new 51,000 square foot facilities in Grapevine, Texas and in Wixom, Michigan replacing the Company's previous 32,500 square foot facility. As a result of the relocation to a new facility and addition of a second manufacturing facility, the Company incurred substantial start-up and operating expenses throughout 2001.
The financial impact of these additional costs in 2001 resulted in a reduction in gross profit margins in 2001. The Company anticipates additional production volume in the future and has added production equipment that will provide it with the productive capacity to efficiently process increased sales volumes. As part of this initiative, the Company added new and more productive packaging equipment in late 2001 to package its Dri-Sate Product line. The Company anticipates that this new packaging equipment will increase manufacturing efficiency in the future. As the Company installed the new production equipment in late 2001, the Company realized minimal benefit from the increased efficiency of the new equipment in 2001. In addition, the Company increased its annual operating costs by over $400,000 for additional personnel and facility costs for its expanded production capacity. The Company anticipates that gross profit margins will improve in the future concurrent with an increase in sales volumes.
Selling, General and Administrative Costs aggregated $2,353,000 in 2001 compared to $2,024,000 in 2000 or an increase of $329,000. Selling, General and Administrative expense decreased as a percent of sales by one percentage point to 26.1% as compared to 27.1% in 2000. Increases in expenses were incurred in 2001 for additional sales personnel and selling expense of $80,000 which was partially offset by reduced marketing and advertising costs of $40,000. The Company incurred an increase in non-cash stock option expense for consultants of $200,000. In comparison with 2000, the Company also realized increases in costs for various insurance coverages aggregating $40,000. In addition, the Company incurred relocation related expenses of approximately $75,000 in 2001 included in Selling, General and Administrative expense.
As a result of upgrading its production equipment, the Company incurred other expenses of $49,000 consisting primarily of a loss on the disposition of certain equipment of $41,000.
Interest expense totaled $101,000 in 2001 and net of interest income of $11,000, net interest expense totaled $90,000. Net interest income was $28,000 in 2000. The increase in net interest expense was a function of the addition of a revolving loan facility with a financial institution, notes payable used to finance new equipment and leasehold improvements and a reduction in funds available for investment from 2000.
Net Loss was ($1,579,000) in 2001 as compared to a net loss of ($1,017,000) in 2000. The Company has not recorded a federal income tax benefit from its current or prior losses given a lack of assurance of realization of the carryforward benefit of those losses.
Net Loss per share for 2001 was ($.26) as compared to a loss per share of ($.21) in 2000 with the 2001 loss per share reduced by ($.06) due to an increase in the average number of shares outstanding.
For the year ended December 31, 2000 compared to the year ended December 31, 1999
For the year ended December 31, 2000, sales were $7.5 million as compared to sales of $6.7 million for 1999 representing an increase of 11.5%. Sales increased due to a variety of factors including new business development, and growth within existing customers. The Company realized substantial revenue increases in two key areas of strategic focus in 2000. The Company's Dry Acid product line sales increased 95% and its ancillary product sales increased 39% compared to 1999.
The Company's concentrate sales, which represented 86% of the Company's 2000 revenue, increased by 9.5% in 2000 over 1999 due to new customers, increased product sales at existing customers and higher actual average selling prices. During 2000, the Company increased its revenue with both regional and national clinic
chains that have converted to the Company's dry acid product line. During 1999, the Company realized non-recurring liquid acid drum purchase volumes related to Year 2000 supply stocking and the termination of distributor relationships that together represented 8% of 1999 revenue. Despite these non-recurring sales in 1999, acid dialysate concentrate sales in 2000 were up 8% driven by strong dry acid product sales growth of 95%. The Company believes that both clinic chains and independent providers are attracted to its dry product offering due to the internal efficiencies and savings derived from dry products. In addition, the customers are attracted to Rockwell due to the Company's high product quality, its broad range of products and formulations and its high level of delivery and customer service.
For the Company's other revenue sources, 2000 saw growth in its ancillary sales which was a key area of focus. The Company's sales of ancillary products rose 39% with an increased emphasis on the sale of fistula needles driving the majority of the ancillary product sales growth. The Company was also able to maintain its backhaul revenue at a level comparable to 1999. Largely as a result of the change of the Company's product mix to dry acid from liquid acid in drums, the Company was able to reduce the size of its over-the-road truck fleet in 2000 over the course of the year, from twelve trucks to nine.
Gross profit in 2000 increased $69,000 or 7.6% over 1999. The Company's gross profit margins were 13.1% in 2000 as compared to 13.6 % in 1999. The Company's distribution costs rose during the year by approximately 2.5% of sales reflecting a combination of factors including higher fleet operating costs, fleet resources that were surplus to requirements as dry product sales increased and new clinic chain customers with clinics that were in more distant locations. Fleet operating costs rose significantly due mostly to higher fuel and maintenance costs. The Company took actions to reduce its fleet in 2000.
Selling, General and Administrative Costs were $2,024,000 in 2000 compared to $2,043,000 in 1999 or a decrease of $19,000. Cost increases were incurred primarily to support increased business activities and for the sales and marketing introduction of new product lines. The Company increased expenditures for marketing and advertising to develop customer and market awareness of its products. In addition, the Company added personnel to transact its business operations during 2000. However, the Company realized reduced expenditures for consulting services due to the termination of consulting fees paid to Wall Street Partners, Inc. in 2000. In 1999, the Company paid $240,000 to Wall Street Partners, Inc. for consulting services.
Interest Income, net of expense aggregated $28,000 in 2000 compared to $61,000 in 1999. The decrease in interest income was primarily due to reduced funds available for investment. In addition, the Company incurred interest expense related to notes payable of $7,000.
The Company incurred a loss of ($1,017,000) for 2000 which represented a reduction of $54,000 from its loss in 1999 which was ($1,071,000). The Company has not recorded a federal income tax benefit from its current or prior losses given a lack of assurance of realization of the carryforward benefit of those losses.
Net Loss per share decreased to ($.21) in 2000 from ($.22) in 1999. The $.01 improvement in the loss per share was principally from improvement in operating results due to increased sales. The increase in shares outstanding had a negligible effect on earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company has utilized cash since its inception and anticipates that it will require additional cash to fund its development and operating requirements. The Company has incurred operating losses since inception. In 2001, the Company used $920,000 to fund operating activities. The Company obtained both debt and equity financing in 2001. The Company raised capital from three primary sources that provided the capital for expansion of two new manufacturing facilities and to fund operating requirements.
In 2001, the Company entered into a working capital line with Heller Healthcare Finance, now "GE Healthcare Finance" for a $2 million working capital line of credit secured by the Company's accounts receivable and other assets. The working capital line has a sub-limit of $1 million and is expandable to $2 million. As of December 31, 2001, the Company had outstanding borrowings of $547,000 under this line of credit.
In 2001, the Company entered into a note payable with GE Healthcare Finance for the purchase of equipment for its two new manufacturing facilities. As of December 31, 2001, the Company had $406,000 in escrow from proceeds of this note payable. The Company anticipates that the remaining escrow will be deployed on new equipment in the first half of 2002.
In 2001, the Company conducted a private placement of its Common Shares and raised approximately $1.1 million in equity. The Company intends to attempt to raise additional debt and equity capital in 2002.
The Company's long term strategy is to expand its operations to serve dialysate providers both in North America and abroad. The Company anticipates that as a result of its existing supply agreements and customer relationships that it has the capability to capture substantial market share that will lead to the Company becoming profitable. The Company believes that it has sufficient capacity to achieve a profitable level of operations.
In order to fund the working capital and capital expenditure requirements to achieve a profitable level of operations and to continue to execute its new product development strategy, the Company will require additional financing. The Company estimates the cost to fund its new product developments effort will be between $1,000,000-$3,000,000 over the next 1-3 years. The Company believes that it will be able to raise the capital required to expand its operations through either debt or equity financing arrangements. The Company has identified sources of financing and is currently in negotiations with potential lenders and investors; however, there can be no assurance that the Company will be successful in raising additional funds through either equity or debt financing arrangements. If the Company is not successful in raising additional funds, the Company may be required to alter its growth strategy, curtail its expansion plans or take other measures to conserve its cash resources.
There can be no assurance that the Company will be able to achieve the planned efficiencies and increase its sales levels and market share to sustain its operations. There can be no assurance that the Company has sufficient funds should the business plans not yield the expected results. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Registrant required by this item are set forth on pages F-1 through F-15.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on June 4, 2002.
ITEM 10. EXECUTIVE COMPENSATION.
Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on June 4, 2002.
ITEM 11. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on June 4, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on June 4, 2002.
ITEMS 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3(i).1 Articles of Incorporation of the Company, incorporated by
reference to Exhibit 3(i).1 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
3(i).2 Certificate of Amendment to Articles of Incorporation of the
Company, incorporated by reference to Exhibit 3(i).2 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
3(i).3 Certificate of Correction to Articles of Incorporation of
the Company, incorporated by reference to Exhibit 3(i).3 to
the Company's Registration Statement on Form SB-2, File No.
333-31991.
3(i).4 Certificate of Amendment to Articles of Incorporation of the
Company, incorporated by reference to Exhibit 3(i).4 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
3(ii) Bylaws of the Company, incorporated by reference to Exhibit
3(ii) to the Company's Registration Statement on Form SB-2,
File No. 333-31991.
4.1 Form of Warrant Agreement, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
SB-2, File No. 333-31991.
4.2 Form of Underwriters Warrant Agreement, incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
4.3 Registration Rights Agreement among the Company and the
holders of certain of the Company's Common Share Purchase
Warrants, incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
4.4 Form of Lock-up Agreement, incorporated by reference to
Exhibit 4.7 to the Company's Registration Statement on Form
SB-2, File No. 333-31991.
10.1 Rockwell Medical Technologies, Inc. 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
10.2 Employment Agreement dated as of February 19, 1997 between
the Company and Robert L. Chioini, incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form SB-2, File No. 333-31991.
10.3 Consulting and Financial Advisory Services Agreement dated
as of February 19, 1997 between the Company and Wall Street
Partners, Inc., incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form SB-2, File No.
333-31991.
10.4 Asset Purchase Agreement dated as of November 1, 1996 by and
among the Predecessor Company, the Family Partnerships (as
defined therein), the Members (as defined therein) and the
Company (formerly known as Acquisition Partners, Inc.),
incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
10.5 First Amendment to Asset Purchase Agreement dated as of
January 31, 1997 by and among the Predecessor Company, the
Family Partnerships, the Members and the Company (formerly
known as Acquisition Partners, Inc.), incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
10.6 Second Amendment to Asset Purchase Agreement dated as of
February 19, 1997 by and among the Predecessor Company, the
Family Partnerships, the Members and the Company (formerly
known as Acquisition Partners, Inc.), incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
10.7 Letter Agreement dated April 4, 1997 among the parties to
the Asset Purchase Agreement concerning the conversion of
the promissory note payable to the Supply Company,
incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
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10.8 Lease Agreement dated as of September 5, 1995 between the Supply Company, as tenant, and Oakland Oaks,
L.L.C., as landlord, incorporated by reference to Exhibit 10.9 to the Company's Registration Statement
on Form SB-2, File No. 333-31991.
10.9 Assignment and First Amendment to Wixom Building Lease dated as of February 19, 1997 among the Supply
Company, as assignor, the Company, as assignee, and Oakland Oaks, L.L.C., as landlord, incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on Form SB-2, File No. 333-31991.
10.10 Letter Agreement dated November 21, 1997 among the parties to the Asset Purchase Agreement to confirm
the reduction of the purchase price of the Asset Purchase Agreement, incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on Form SB-2, File No. 333-31991.
10.11 Employment Agreement dated as of January 12, 1999 between the Company and Thomas E. Klema incorporated
by reference to the annual report on Form 10-KSB filed March 30, 1999.
10.12 Lease Agreement dated March 12, 2000 between the Company and DFW Trade Center III Limited Partnership
incorporated by reference to the annual report on Form 10-KSB filed March 30, 2000.
10.13 Employment Agreement dated as of March 20, 2000 between the Company and Robert L. Chioini incorporated
by reference to the quarterly report on Form 10-QSB filed August 11, 2000.
10.14 Lease Agreement dated October 23, 2000 between the Company and International-Wixom, LLC incorporated by
reference to the quarterly report on Form 10-QSB filed November 14, 2000.
10.15 Loan and Security Agreement dated March 28, 2001 between the Company and Heller Healthcare Finance, Inc.
incorporated by reference to the annual report on Form 10-KSB filed April 2, 2001.
10.16 Promissory Note between GE Healthcare Financial Services and Rockwell Medical Technologies, Inc. dated
August 15, 2001 incorporated by reference to the quarterly report on Form 10-QSB filed November 14,
2001.
10.17 Licensing Agreement between the Company and Ash Medical Systems, Inc. dated October 3, 2001 with certain
portions of the exhibit deleted under a request for confidential treatment under rule 24b-2 of the
Securities Exchange Act of 1934.
10.18 Licensing Agreement between the Company and Charak LLC and Dr. Ajay Gupta dated January 7, 2002 with
certain portions of the exhibit deleted under a request for confidential treatment under rule 24b-2 of
the Securities Exchange Act of 1934.
21.1 List of Subsidiaries incorporated by reference to Exhibit 21.1 to the Company's Registration Statement
on Form SB-2, File No. 333-31991.
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(b) Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
ROCKWELL MEDICAL TECHNOLOGIES, INC.
(Registrant)
By: /s/ ROBERT L. CHIOINI
------------------------------------
Robert L. Chioini
President and Chief Executive
Officer
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In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT L. CHIOINI President, Chief Executive Officer and April 1, 2002
--------------------------------------------- Director (Principal Executive Officer)
Robert L. Chioini
/s/ THOMAS E. KLEMA Vice President of Finance, Chief April 1, 2002
--------------------------------------------- Financial Officer, Treasurer and
Thomas E. Klema Secretary (Principal Financial Officer
and Principal Accounting Officer)
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
I. Consolidated Financial Statements for Rockwell Medical
Technologies, Inc. and Subsidiary
Report of Independent Accountants for the years ended
December 31, 2001 and 2000............................. F-1
Consolidated Balance Sheets at December 31, 2001 and
December 31, 2000...................................... F-2
Consolidated Income Statements for the years ended
December 31, 2001 and 2000............................. F-3
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 2001 and 2000......... F-4
Consolidated Statements of Cash Flow for the years ended
December 31, 2001 and 2000............................. F-5
Notes to the Consolidated Financial Statements............ F-6-F-16
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[PLANTE & MORAN, L. L. P. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders Rockwell Medical Technologies, Inc. and Subsidiary
We have audited the consolidated balance sheet of Rockwell Medical Technologies, Inc. and Subsidiary as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders' 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 audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above, present fairly, in all material respects, the financial position of Rockwell Medical Technologies, Inc. and Subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred substantial losses from operations since inception that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Plante & Moran, LLP
Auburn Hills, Michigan
February 20, 2002
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(WHOLE DOLLARS)
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
Cash and Cash Equivalents................................... $ 83,041 $ 210,801
Restricted Cash and Cash Equivalents........................ 292,845 150,000
Accounts Receivable, net of a reserve of $53,000 in 2001 and
$63,000 in 2000........................................... 1,115,365 926,879
Inventory................................................... 1,066,528 585,121
Other Current Assets........................................ 108,054 98,619
----------- -----------
TOTAL CURRENT ASSETS................................... 2,665,833 1,971,420
Property and Equipment, net................................. 1,716,224 823,749
Restricted Cash............................................. 264,056 --
Other Noncurrent Assets..................................... 491,301 170,994
Excess of Purchase Price over Fair Value of Net Assets
Acquired, net............................................. 920,745 1,085,770
----------- -----------
TOTAL ASSETS........................................... $ 6,058,159 $ 4,051,933
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short Term Borrowings....................................... $ 546,560 $ --
Notes Payable............................................... 276,966 10,637
Accounts Payable............................................ 1,159,383 740,888
Accrued Liabilities......................................... 586,096 419,375
----------- -----------
TOTAL CURRENT LIABILITIES.............................. 2,569,005 1,170,900
Long Term Notes Payable..................................... 892,543 19,839
SHAREHOLDERS' EQUITY:
Common Share, no par value, 7,197,390 and 5,256,948 shares
issued and outstanding.................................... 10,349,865 9,035,345
Common Share Purchase Warrants, 3,625,000 shares issued and
outstanding............................................... 251,150 251,150
Accumulated Deficit......................................... (8,004,404) (6,425,301)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY............................. 2,596,611 2,861,194
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 6,058,159 $ 4,051,933
=========== ===========
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The accompanying notes are an integral part of the consolidated financial statements.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(WHOLE DOLLARS)
2001 2000
---- ----
SALES....................................................... $ 9,015,542 $ 7,457,001
Cost of Sales............................................... 8,103,343 6,477,343
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GROSS PROFIT........................................... 912,199 979,658
Selling, General and Administrative......................... 2,352,561 2,024,396
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OPERATING LOSS......................................... (1,440,362) (1,044,738)
Other Expenses.............................................. (48,740) --
Interest Income (Expense), net.............................. (90,001) 27,934
----------- -----------
LOSS BEFORE INCOME TAXES............................... (1,579,103) (1,016,804)
Income Tax Expense.......................................... -- --
----------- -----------
NET LOSS............................................... $(1,579,103) $(1,016,804)
=========== ===========
Basic And Diluted Loss Per Share............................ $ (.26) $ (.21)
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The accompanying notes are an integral part of the consolidated financial statements.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(WHOLE DOLLARS)
COMMON SHARES PURCHASE WARRANTS TOTAL
------------------------ --------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT WARRANTS AMOUNT DEFICIT EQUITY
------ ------ -------- ------ ----------- -------------
Balance as of December
31, 1999.............. 4,854,397 $ 8,762,941 3,625,000 $251,150 $(5,408,497) $3,605,594
Issuance of Common
Shares................ 402,551 223,104 223,104
Compensation related to
Stock Options......... -- 49,300 49,300
Net Loss................ (1,016,804) (1,016,804)
--------- ----------- --------- -------- ----------- ----------
Balance as of December
31, 2000.............. 5,256,948 $ 9,035,345 3,625,000 $251,150 $(6,425,301) $2,861,194
Issuance of Common
Shares................ 1,940,442 1,096,486 1,096,486
Compensation related to
Stock Options......... -- 218,034 218,034
Net Loss................ (1,579,103) (1,579,103)
--------- ----------- --------- -------- ----------- ----------
Balance as of December
31, 2001.............. 7,197,390 $10,349,865 3,625,000 $251,150 $(8,004,404) $2,596,611
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The accompanying notes are an integral part of the consolidated financial statements.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(WHOLE DOLLARS)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(1,579,103) $(1,016,804)
Adjustments To Reconcile Net Loss To Net Cash Used In
Operating Activities:
Depreciation and Amortization.......................... 384,427 379,127
Compensation Recognized For Stock Options.............. 218,034 68,050
Loss on Disposal of Fixed Assets....................... 41,040 --
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable........... (188,486) 53,810
(Increase) Decrease in Inventory..................... (481,407) ( 171,881)
(Increase) Decrease in Other Assets.................. (79,742) (100,599)
Increase (Decrease) in Accounts Payable.............. 418,495 213,598
Increase (Decrease) in Other Liabilities............. 346,721 78,353
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Changes in Assets and Liabilities................. 15,581 73,281
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CASH USED IN OPERATING ACTIVITIES................. (920,021) (496,346)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment..................................... (1,045,107) (304,530)
Proceeds From Disposal of Equipment....................... 23,000 --
Increase in Restricted Cash Equivalents................... (406,901) (150,000)
Patent Licensing Fees..................................... (250,000) --
Purchase of Business...................................... -- (4,736)
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CASH USED IN INVESTING ACTIVITIES................. (1,679,008) (459,266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Borrowings on Line of Credit................ 7,037,385 --
Payments on Line of Credit................................ (6,490,825) --
Proceeds From Issuance of Notes Payable................... 1,036,172 --
Issuance of Common Shares and Purchase Warrants........... 1,054,487 79,354
Payments on Notes Payable................................. (165,950) (6,234)
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CASH PROVIDED BY FINANCING ACTIVITIES............. 2,471,269 73,120
(DECREASE) IN CASH.......................................... (127,760) (882,492)
CASH AT BEGINNING OF PERIOD................................. 210,801 1,093,293
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CASH AT END OF PERIOD....................................... $ 83,041 $ 210,801
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Supplemental Cash Flow disclosure:
2001 2000
---- ----
Interest Paid............................................... $ 77,354 $ 7,086
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The accompanying notes are an integral part of the consolidated financial statements.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Rockwell Medical Technologies, Inc.(the "Company") manufactures, sells and distributes hemodialysis concentrates and other ancillary medical products and supplies used in the treatment of patients with End Stage Renal Disease "ESRD". The Company supplies medical service providers who treat patients with kidney disease. The Company's products are used to cleanse patients blood and replace nutrients lost during the kidney dialysis process. The Company primarily sells its products in the United States.
The Company is regulated by the Federal Food and Drug Administration under the Federal Drug and Cosmetics Act, as well as by other federal, state and local agencies. Rockwell Medical Technologies, Inc. has received 510(k) approval from the FDA to market hemodialysis solutions and powders. The Company also has 510(k) approval to sell its Dri-Sate Dry Acid Concentrate product line and its Dri-Sate Mixer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts of Rockwell Medical Technologies, Inc. and its wholly owned subsidiary, Rockwell Transportation, Inc. All intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue at the time of transfer of title to the buyer of the Company's products consistent with generally accepted accounting principles.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers cash on hand, unrestricted certificates of deposit and short term marketable securities as cash and cash equivalents.
Restricted cash consists of $406,901 of cash equivalents at December 31, 2001 restricted for use to acquire capital equipment under the terms of a financing agreement and $150,000 of certificates of deposit at December 31, 2001 and 2000 securing letters of credit.
INVENTORY
Inventory is stated at the lower of cost or net realizable value. Cost is determined on the first-in first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at cost. Expenditures for normal maintenance and repairs are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over their useful lives, which range from three to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the related lease term.
EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF ASSETS ACQUIRED
The excess of the price paid by the Company over the fair value of the net assets acquired in various business combinations has been recorded as an intangible asset and is being amortized on a straight line basis over estimated useful lives of between 10 and 15 years. Accumulated amortization of this asset was $771,090 and $606,065 at December 31, 2001 and 2000, respectively. The Company assesses the recoverability of the
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
asset based on estimated future discounted cash flows of the business. Based upon the Company's analysis no impairment of the asset exists at December 31, 2001.
INCOME TAXES
A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the year. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between book and tax accounting and operating loss and tax credit carryforwards.
STOCK OPTIONS
Options granted to employees are accounted for using the intrinsic value method, under which compensation expense is recorded at the amount by which the market price of the underlying stock at the date of the grant exceeds the exercise price of the option. Stock options granted to non-employees are recorded at the fair value of the awards at the date of the grant.
ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
NET LOSS PER SHARE
Basic and Diluted net loss per share for the years ended December 31, 2001 and December 31, 2000 were calculated based on the weighted average shares outstanding of 5,986,409 and 4,879,999, respectively.
The dilutive effect of stock options have not been included in the average shares outstanding for the calculation of diluted loss per share as the effect, considering the Company's net loss, would be antidilutive. At December 31, 2001 potentially dilutive securities comprised 1,036,193 stock options exercisable at prices from $.70 to $3.00 per share, 3,625,000 Common Share Purchase Warrants exercisable at $4.50 per Common Share; and Underwriter's Warrants which are comprised of an option to purchase 95,000 Common Shares at a price of $6.60 per share and 142,500 warrants to purchase shares at $7.43 per share.
At December 31, 2000 potentially dilutive securities comprised 668,693 stock options exercisable at prices from $1.00 to $3.00 per share; 3,625,000 Common Share Purchase Warrants exercisable at $4.50 per Common Share; and Underwriter's Warrants which are comprised of an option to purchase 95,000 Common Shares at a price of $6.60 per share and 142,500 warrants to purchase shares at $7.43 per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently approved SFAS 142 Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 142 would continue to require recognition of goodwill as an asset but would no longer require amortization of goodwill. Goodwill will be tested for impairment at adoption of SFAS 142 and annually thereafter. In addition, SFAS 142 establishes a new method of testing goodwill for impairment by using a fair-value based approach. In accordance with the transition provisions of SFAS 142, goodwill shall no longer be amortized starting in the first quarter of 2002. Total goodwill, net of accumulated amortization, was $920,745 at December 31, 2001. Amortization expense related to goodwill in 2001 was $165,025. Management is currently evaluating the impact of adopting this Statement effective January 1, 2002 on the consolidated financial statements.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MANAGEMENT'S PLAN OF OPERATION
Rockwell Medical Technologies, Inc. is engaged in the manufacture, sale and distribution of hemodialysis concentrates and kits to various clinics primarily in the United States. The Company provides hemodialysis solutions and supplies to leading national hemodialysis provider chains along with a number of independently operated regional and local clinics. The Company has established relationships with a number of the leading hemodialysis treatment providers to supply its hemodialysis solutions and other hemodialysis supplies. The Company manufactures hemodialysis solutions and delivers those directly to its customers through its distribution subsidiary, Rockwell Transportation, Inc.
The Company has followed a strategy of developing market share through a differentiated value proposition to its customers including new products, superior delivery and customer service, and tailoring product line offerings to match customer requirements, including offering a full line of formulations and supplies. In 2001, the Company increased its revenue by $1,558,000 or 20.9% over 2000. In 2000, the Company's revenue increased $768,000 or 11.5% over 1999. The Company anticipates that it will continue to increase its revenue and to increase its market share.
STRATEGY
The Company's long term objectives are to increase its market share, expand its product line offering, extend its geographical coverage and improve its profitability by implementing the following strategies:
- Increasing Revenue Through Sales of New Products. The Company has signed global licensing agreements for delivery of water soluble iron via dialysate. The Company believes that this product represents a major improvement in iron maintenance therapy. This product requires FDA approval for inclusion in the Company's product line. The Company believes that if FDA approval is obtained for this product, that it will capture substantial market share of both the dialysate market and the market for iron maintenance therapy.
The Company introduced two new product lines in 1999; Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate that it believes are superior to competitors' product offerings and have acted as a catalyst to attract new customers and to expand its existing business relationship with dialysis providers.
- Acting as a Single Source Supplier. The Company has positioned itself as an independent "one-stop-shop" to its customers for the concentrates, chemicals and supplies necessary to support a hemodialysis provider's operation. Some of the Company's competitors for concentrates do not offer a full line of hemodialysis products requiring customers to do business with a number of suppliers in order to purchase necessary supplies. Rockwell offers a broad line of hemodialysis supplies.
- Increasing Revenue Through Ancillary Product Line Expansion. The Company believes that the market potential for ancillary products and supplies used by hemodialysis providers is equivalent to or greater than the market for dialysis concentrates. The Company's strategy is to offer cost effective ancillary products that include ancillary products such as specialized kits, fistula needles, gloves, chemicals, sterile dressings and blood tubing. Many of these ancillary items are purchased based on price and are generally acquired from various suppliers. The Company believes that as it continues to gain market share that it will increasingly be able to procure these ancillary items on a cost effective basis and will provide its customers with both convenience from a single supply source and at a highly competitive price level.
- Offering a Higher Level of Delivery/Customer Service. By using its own delivery vehicles and drivers, the Company believes that it can offer a higher level of customer service to hemodialysis providers than if it relied primarily on the use of common carriers to distribute its products. The Company's drivers
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
perform services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. A drum pump-off requires the driver to pump hemodialysis concentrates from a 55 gallon drum into larger holding tanks within the hemodialysis clinic. Certain of the company's competitors generally use common carriers for delivery of their products. The Company believes it offers a higher level of distribution service to its customers through the use of its own delivery vehicles and drivers.
CASH RESOURCES & LIQUIDITY
The Company has utilized cash since its inception and anticipates that it will require additional cash to fund its development and operating requirements. The Company has incurred operating losses since inception. In 2001, the Company used $920,000 to fund operating activities. The Company obtained both debt and equity financing in 2001. The Company raised capital from three primary sources that provided the capital for expansion of two new manufacturing facilities and to fund operating requirements.
In 2001, the Company entered into a working capital line with Heller Healthcare Finance, now "GE Healthcare Finance" for a $2 million working capital line of credit secured by the Company's accounts receivable and other assets. The working capital line has a sub-limit of $1 million and is expandable to $2 million. As of December 31, 2001, the Company had outstanding borrowings of $547,000 under this line of credit.
In 2001, the Company entered into a note payable with GE Healthcare Finance for the purchase of equipment for its two new manufacturing facilities. As of December 31, 2001, the Company had $406,000 in escrow from proceeds of this note payable. The Company anticipates that the remaining escrow will be deployed on new equipment in the first half of 2002.
In 2001, the Company conducted a private placement of its Common Shares and raised approximately $1.1 million in equity. The Company intends to attempt to raise additional debt and equity capital in 2002.
The Company's long term strategy is to expand its operations to serve dialysate providers both in North America and abroad. The Company anticipates that as a result of its existing supply agreements and customer relationships that it has the capability to capture substantial market share that will lead to the Company becoming profitable. The Company believes that it has sufficient capacity to achieve a profitable level of operations.
In order to fund the working capital and capital expenditure requirements to achieve a profitable level of operations and to continue to execute its new product development strategy, the Company will require additional financing. The Company estimates the cost to fund its new product developments effort will be between $1,000,000 - $3,000,000 over the next 1-3 years. The Company believes that it will be able to raise the capital required to expand its operations through either debt or equity financing arrangements. The Company has identified sources of financing and is currently in negotiations with potential lenders and investors; however, there can be no assurance that the Company will be successful in raising additional funds through either equity or debt financing arrangements. If the Company is not successful in raising additional funds, the Company may be required to alter its growth strategy, curtail its expansion plans or take other measures to conserve its cash resources.
There can be no assurance that the Company will be able to achieve the planned efficiencies and increase its sales levels and market share to sustain its operations. There can be no assurance that the Company has sufficient funds should the business plans not yield the expected results. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SIGNIFICANT MARKET SEGMENTS
The Company operates in one market segment which involves the manufacture and distribution of hemodialysis concentrates, dialysis kits and ancillary products used in the dialysis process to hemodialysis clinics. For the year ended December 31, 2001, the Company had sales in excess of 10% of revenue with two customers representing 31% of total sales. For the year ended December 31, 2000, the Company had sales in excess of 10% of revenue with three customers representing 36% of total sales.
5. INVENTORY
Components of inventory as of December 31, 2001 and 2000 are as follows:
2001 2000
---- ----
Raw Materials........................................... $ 206,724 $133,203
Finished Goods.......................................... 859,804 451,918
---------- --------
Total.............................................. $1,066,528 $585,121
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6. PROPERTY AND EQUIPMENT
Major classes of Property and Equipment, stated at cost, as of December 31, 2001 and 2000 are as follows:
2001 2000
---- ----
Leasehold Improvements................................ $ 379,244 $ 193,720
Machinery and Equipment............................... 1,796,308 1,030,288
Office Furniture and Equipment........................ 224,307 139,762
Laboratory Equipment.................................. 155,029 135,893
Vehicles, including trailers.......................... 117,179 132,016
---------- ----------
2,672,067 1,631,679
Accumulated Depreciation............................ (955,843) (807,930)
---------- ----------
Net Property and Equipment............................ $1,716,224 $ 823,749
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7. LICENSING AGREEMENTS
As of December 31, 2001, the Company had entered into a global licensing agreement covering patents for a method for iron delivery to a patient by transfer from dialysate. The invention relates to methods and compositions for delivering iron to an iron-deficient patient using an iron complex in an aqueous solution. Subsequent to December 31, 2001, the Company entered into a second licensing agreement for a more specific form of water soluble iron delivery via dialysate. The Company intends to obtain FDA approval for this product as an additive to its dialysate product line which upon approval will be marketed as an iron maintenance therapy for dialysis patients.
As of December 31, 2001, the Company has recorded licensing fees of $250,000 in other assets related to patents with a remaining life of fifteen years. The Company's policy is to amortize licensing fees over the life of the patents pertaining to the licensing agreements. The Company recognized $4,190 of amortization in 2001.
8. LINE OF CREDIT
As of March 28, 2001, the Company entered into a $2,000,000 revolving credit loan facility with a financial institution. Under the terms of the agreement, the loan has an initial sub-limit of $1,000,000. The two
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year loan facility is secured by the Company's accounts receivable and other assets. The Company is obligated to pay interest at the rate of two percentage points over the prime rate, plus other fees aggregating .25% of the loan balance. As of December 31, 2001, the Company's outstanding borrowings were $546,560 under this loan facility.
9. NOTES PAYABLE
In August 2001, the Company entered into a financing agreement with a financial institution to fund $1,000,000 of equipment capital expenditures for the Company's manufacturing facilities. The note payable requires monthly payments of principal and interest aggregating $19,859 over a sixty month term commencing in March 2002. The note bears interest at the rate of 7.38% and is collateralized by the equipment acquired by the Company.
The Company has several notes payable related to equipment financing and leasehold improvements at a facility leased by the Company. The notes payable are payable in even monthly installments of principal and interest payable over periods ranging from 2002 -- 2006. Interest rates on the notes range from 7.8% -- 12.3%. These notes payable had outstanding balances of $65,990 and $30,476 at December 31, 2001 and 2000, respectively.
The Company also has a note payable to a landlord related to leasehold improvements at a Company facility. The remaining principal balance as of December 31, 2001 was $103,518 with the remainder to be paid in 2002 based on eleven monthly payments of principal and interest of $10,000 per month with an effective interest rate of approximately 12%.
Future principal payments on notes payable are:
Year ending December 31, 2002............................... $ 276,966
Year ending December 31, 2003............................... 198,532
Year ending December 31, 2004............................... 205,631
Year ending December 31, 2005............................... 218,363
Year ending December 31, 2006............................... 230,662
Thereafter.................................................. 39,355
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Total Notes Payable....................................... $1,169,509
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10. OPERATING LEASES
The Company leases its production facilities and administrative offices as well as transportation equipment used by the Company's subsidiary, Rockwell Transportation, Inc. under operating lease agreements. The lease terms are three to seven years. Lease payments under all operating leases were $835,799 and $583,064 for the years ended December 31, 2001 and 2000, respectively.
In 2000, the Company entered into two lease agreements for new facilities both approximating 51,000 square feet. A five year lease arrangement for a second manufacturing facility was entered into by the Company on March 12, 2000 commencing in September 2000. In addition, the Company entered into a lease agreement to lease a new manufacturing facility to replace its then existing facility lease which expired December 5, 2000. The replacement facility lease is for a seven year term and commenced in July 2001.
In the instance of early termination, the transportation equipment leases require the Company to pay the excess of the purchase price for such vehicles (determined in accordance with the terms of the lease) over the equipment's fair market value.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments under these lease agreements are as follows:
Year ending December 31, 2002............................... $ 825,113
Year ending December 31, 2003............................... 789,765
Year ending December 31, 2004............................... 677,991
Year ending December 31, 2005............................... 594,258
Year ending December 31, 2006............................... 386,232
Thereafter.................................................. 540,367
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Total..................................................... $3,813,726
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11. INCOME TAXES
The Company recorded no income tax expense or benefit for the years ended December 31, 2001 and 2000 due to the Company incurring net operating losses in each of those years and recording a valuation allowance against its net deferred tax assets.
A reconciliation of income tax expense at the statutory rate to income tax expense at the Company's effective tax rate is as follows:
2001 2000
---- ----
Tax Recovery Computed at 34% of Pretax Loss....... $ (537,000) $ (345,000)
Effect of Permanent Differences Principally
Related to Stock Compensation Expense.......... 4,000 16,000
Effect of Change in Valuation Allowance........... 533,000 329,000
----------- -----------
Total Income Tax Benefit.......................... $ -0- $ -0-
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The details of the net deferred tax asset are as follows:
2001 2000
---- ----
Total Deferred Tax Assets......................... $ 2,462,000 $ 1,925,000
Total Deferred Tax Liabilities.................... (45,000) (41,000)
Valuation Allowance Recognized for Deferred Tax
Assets......................................... (2,417,000) (1,884,000)
----------- -----------
Net Deferred Tax Asset............................ $ -0- $ -0-
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Deferred income tax liabilities result primarily from the use of accelerated depreciation for tax reporting purposes. Deferred income tax assets result primarily from net operating loss carryforwards. For tax purposes, the Company has net operating loss carryforwards of approximately $6,800,000 that expire between 2012 and 2021.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the Company's history of operating losses, management has placed a full valuation allowance against the net deferred tax assets as of December 31, 2001 and 2000.
12. CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 Common Shares, no par value per share, of which 7,197,390 shares were outstanding at December 31, 2001 and 5,256,948 shares were outstanding at December 31, 2000; 2,000,000 Preferred Shares, none issued or outstanding, and 1,416,664 of
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8.5% non-voting cumulative redeemable Series A Preferred Shares, $1.00 par value (the "Series A Preferred Shares"), of which none were outstanding as of December 31, 2000.
In 2001, the Company issued 1,940,442 Common Shares for which it realized net proceeds of $1,096,486 from Common Share issuance transactions.
During the year ended December 31, 2001, the Company issued Common Shares pursuant to a private placement of its Common Shares. The offering was completed March 21, 2002. Under this offering the Company issued 1,999,261 Common Shares. Investors in the offering received unregistered Common Shares which may not be resold for a period of one year following the date they are acquired. The Company engaged placement agents on a best efforts basis for which the agent is entitled to 10% of gross proceeds raised by the placement agent. During 2001, the Company issued 1,751,781 Common Shares at prices between $.50 -- $1.16 realizing gross proceeds of $1,110,950 under this offering and net proceeds of $1,017,966 after offering expenses.
For the year ended December 31, 2000, the Company issued 76,843 Common Shares at a price of $1.30 per Common Share to an individual investor in a private placement of its Common Shares for net proceeds to the Company of $78,336. The sale was subject to recession rights because the Company failed to meet the minimum sale requirement of its offering. In consideration, for the waiver of these rights, on March 29, 2001, the shareholder was issued 41,641 Common Shares for no additional consideration.
COMMON SHARES
Holders of the Common Shares are entitled to one vote per share on all matters submitted to a vote of shareholders of the Company and are to receive dividends when and if declared by the Board of Directors. The Board is authorized to issue additional Common Shares within the limits of the Company's Articles of Incorporation without further shareholder action.
WARRANTS
Holders of the Common Share Purchase Warrants ("Warrants"), were entitled to purchase one Common Share at the exercise price of $4.50 per share for a period of three years commencing January 26, 1999 and expiring January 26, 2002. The Company extended the expiration date of these warrants until January 26, 2003 under the same terms and conditions. The exercise price and the number of Common Shares to be issued upon the exercise of each Warrant are subject to adjustment in the event of share split, share dividend, recapitalization, merger, consolidation or certain other events. At December 31, 2001 there were 3,625,000 Warrants issued and outstanding.
Under certain conditions, the Warrants may be redeemed by the Company at a redemption price of $.10 per Warrant upon not less than 30 days prior written notice to the holders of such Warrants, provided the closing bid price of the Common Shares has been at least $7.00 for 20 consecutive trading days ending on the third day prior to the date the notice of redemption is given.
UNDERWRITERS' WARRANTS
In conjunction with the Company's Initial Public Offering in January 1998, the Underwriters' of the offering were entitled to warrants ("the Underwriters' Warrants") which provided them options to purchase 180,000 Common Shares for a purchase price of $6.60 per share and 270,000 warrants for a purchase price of $.165 per warrant. Each underlying warrant entitled the Underwriter to purchase a Common Share at a purchase price of $7.43 per share, exercisable at any time from January 26, 1999 to January 26, 2003. At December 31, 2001, Underwriters' warrants with options to purchase 95,000 Common Shares and 142,500 underlying warrants remained outstanding.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS
EMPLOYEE STOCK OPTIONS
The Board of Directors approved the Rockwell Medical Technologies, Inc., 1997 Stock Option Plan on July 15, 1997 (the "Plan"). The Stock Option Committee as appointed by the Board of Directors administers the Plan, which provides for grants of nonqualified or incentive stock options to key employees, officers, directors, consultants and advisors to the Company. As of June 4, 2001, the Shareholders of the Company adopted an amendment to the stock option plan to increase the number of options available to be granted to 1,900,000 from 900,000. Under the amendment to the Plan, the Company may grant up to 1,900,000 options to purchase Common Shares. Exercise prices, subject to certain plan limitations, are at the discretion of the Committee. Options granted normally expire 10 years from the date of grant or upon termination of employment. The Committee determines vesting rights on the date of grant. Employee options typically vest over a three year period from the date of grant.
Employee stock options awarded in July and November of 1997 had an exercise price of $3.00, which is less than the deemed fair market value of the stock at the date of grant as determined by the Company as $4.00. On April 13, 1998 these option holders, excluding the President -- CEO and members of the Board of Directors, were offered the alternative of receiving new stock options in the same quantity as previously awarded but at an exercise price of $1.4375, the closing price on the Nasdaq SmallCap Market on the date of the offer. Vesting rights on the new options began to accrue on the date of the offer. Under the provisions of APB No. 25, compensation expense on these employee stock options is recognized over the vesting period and is determined as the difference between the IPO price of $4.00 per share (the deemed fair value of the shares on the date of the award), and the exercise price, as adjusted on April 13, 1998.
Compensation expense related to employee stock options for the years ended December 31, 2001 and 2000 was $10,538 and $49,300, respectively.
A summary of the status of the Company's Employee Stock Option Plan excluding options granted to consultants is as follows:
SHARES PRICE
------ -----
Outstanding at December 31, 1999............................ 619,401 $2.18
Granted................................................... 81,000 1.56
Exercised................................................. 708 1.44
Cancelled................................................. 31,000 2.19
---------
Outstanding at December 31, 2000.......................... 668,693 2.11
Granted................................................... 497,320 .69
Exercised................................................. 117,020 .67
Cancelled................................................. 12,800 1.61
---------
Outstanding at December 31, 2001............................ 1,036,193 1.59
=========
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OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------
WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- --------- ----------- -------- --------- --------
$ .70 to $1.44 445,110 5.5-9.8 yrs. $0.79 129,810 $1.00
$1.50 to $2.00 201,000 6.9-8.9 yrs. $1.70 181,167 $1.69
$2.25 to $3.00 390,083 5.6-8.0 yrs. $2.46 390,083 $2.46
--------- -------
Total 1,036,193 8.1 yrs. $1.59 701,060 $1.99
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ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation expense for the employee stock options been determined based on the fair value of the option at the grant dates of the awards, consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts as follows:
2001 2000
---- ----
Net loss
As reported....................................... $(1,579,103) $(1,016,804)
Pro forma......................................... $(1,850,621) $(1,292,069)
Basic and Diluted loss per share
As reported....................................... $ (.26) $ (.21)
Pro forma......................................... $ (.31) $ (.27)
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The per share weighted average fair values at the date of grant for the options granted to employees during the years ended December 31, 2001 and 2000 were $ .69 and $1.00 respectively. For the period ended December 31, 2001 the fair value was determined using the Black Scholes option pricing model using the following assumptions: dividend yield of 0.0 percent, risk free interest rate of 3.6 percent, volatility of 128% and expected lives of 3.0 years. For the period ended December 31, 2000 the fair value was determined using the Black Scholes option pricing model using the following assumptions: dividend yield of 0.0 percent, risk free interest rate of 6.00 percent, volatility of 126% and expected lives of 3.0 years.
NON-EMPLOYEE STOCK OPTIONS
In 2001, the Company granted 30,301 options to several business consultants with an exercise price of $.01 per Common Share. These options were immediately exercised by the consultants resulting in the issuance of 30,000 Common Shares. These options had a fair market value of $22,120 on the date of grant.
The Company also granted 202,020 options to a consultant on November 30, 2000. The Consultant immediately exercised the options which resulted in the issuance of 200,000 shares of common stock. These options had a fair market value of $225,000 on the date of grant. The fair market value of options granted to consultants is amortized to expense over the term of the related consulting agreement. The Company recognized $206,250 and $18,750 of amortization expense for the years ended December 31, 2001 and 2000, respectively, related to these option grants.
14. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2001 and December 31, 2000, the Company had revenue from companies in which its outside directors held an equity interest. Mr. Ronald D. Boyd, a director of the Company as of February 15, 2001, holds an equity interest in customers of the Company's products. Revenue from these entities was $73,000 and $62,000 in 2001 and 2000, respectively. Mr. Kenneth L. Holt, a director of the Company as of March 14, 2000, holds an equity interest in customers of the Company. Revenue from these entities was $68,000 and $53,000 in 2001 and 2000, respectively.
15. SUPPLEMENTAL CASH FLOW INFORMATION
The Company entered into non-cash transactions described below during the years ended December 31, 2001 and December 31, 2000 which have not been included in the Consolidated Statement of Cash Flows.
As a result of the financing agreement related to a leased facility, the Company has financed $211,772 of leasehold improvements on a long-term basis as disclosed in Note 9. Of the $211,772, the Company had recorded an obligation of $180,000 as accrued liabilities at December 31, 2000 for improvements in 2000 and acquired an additional $31,772 of leasehold improvements during the quarter ended March 31, 2001. In
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, in 2001, the Company acquired leasehold improvements on facilities and other equipment aggregating $57,038 and $42,000 financed with notes payable and the issuance of common stock respectively.
In the year ended December 31, 2000, the Company issued 125,000 shares of common stock valued at $125,000 and paid $4,736 to acquire the assets and business of a small company.
In 2000, the Company issued 200,000 shares of common stock related to a stock option grant to a consultant in exchange for consulting services. The fair market value on the date of the grant was $225,000 which is being amortized to expense over the one year service period of the agreement.
The Company acquired $36,710 of equipment during the year ended December 31, 2000 which was financed through the issuance of notes payable.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3(i).1 Articles of Incorporation of the Company, incorporated by
reference to Exhibit 3(i).1 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
3(i).2 Certificate of Amendment to Articles of Incorporation of the
Company, incorporated by reference to Exhibit 3(i).2 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
3(i).3 Certificate of Correction to Articles of Incorporation of
the Company, incorporated by reference to Exhibit 3(i).3 to
the Company's Registration Statement on Form SB-2, File No.
333-31991.
3(i).4 Certificate of Amendment to Articles of Incorporation of the
Company, incorporated by reference to Exhibit 3(i).4 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
3(ii) Bylaws of the Company, incorporated by reference to Exhibit
3(ii) to the Company's Registration Statement on Form SB-2,
File No. 333-31991.
4.1 Form of Warrant Agreement, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
SB-2, File No. 333-31991.
4.2 Form of Underwriters Warrant Agreement, incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
4.3 Registration Rights Agreement among the Company and the
holders of certain of the Company's Common Share Purchase
Warrants, incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
4.4 Form of Lock-up Agreement, incorporated by reference to
Exhibit 4.7 to the Company's Registration Statement on Form
SB-2, File No. 333-31991.
10.1 Rockwell Medical Technologies, Inc. 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
10.2 Employment Agreement dated as of February 19, 1997 between
the Company and Robert L. Chioini, incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form SB-2, File No. 333-31991.
10.3 Consulting and Financial Advisory Services Agreement dated
as of February 19, 1997 between the Company and Wall Street
Partners, Inc., incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form SB-2, File No.
333-31991.
10.4 Asset Purchase Agreement dated as of November 1, 1996 by and
among the Predecessor Company, the Family Partnerships (as
defined therein), the Members (as defined therein) and the
Company (formerly known as Acquisition Partners, Inc.),
incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
10.5 First Amendment to Asset Purchase Agreement dated as of
January 31, 1997 by and among the Predecessor Company, the
Family Partnerships, the Members and the Company (formerly
known as Acquisition Partners, Inc.), incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
10.6 Second Amendment to Asset Purchase Agreement dated as of
February 19, 1997 by and among the Predecessor Company, the
Family Partnerships, the Members and the Company (formerly
known as Acquisition Partners, Inc.), incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form SB-2, File No. 333-31991.
10.7 Letter Agreement dated April 4, 1997 among the parties to
the Asset Purchase Agreement concerning the conversion of
the promissory note payable to the Supply Company,
incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
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EXHIBIT
NO. DESCRIPTION
------- -----------
10.8 Lease Agreement dated as of September 5, 1995 between the
Supply Company, as tenant, and Oakland Oaks, L.L.C., as
landlord, incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form SB-2, File No.
333-31991.
10.9 Assignment and First Amendment to Wixom Building Lease dated
as of February 19, 1997 among the Supply Company, as
assignor, the Company, as assignee, and Oakland Oaks,
L.L.C., as landlord, incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form SB-2,
File No. 333-31991.
10.10 Letter Agreement dated November 21, 1997 among the parties
to the Asset Purchase Agreement to confirm the reduction of
the purchase price of the Asset Purchase Agreement,
incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form SB-2, File No. 333-31991.
10.11 Employment Agreement dated as of January 12, 1999 between
the Company and Thomas E. Klema incorporated by reference to
the annual report on Form 10-KSB filed March 30, 1999.
10.12 Lease Agreement dated March 12, 2000 between the Company and
DFW Trade Center III Limited Partnership incorporated by
reference to the annual report on Form 10-KSB filed March
30, 2000.
10.13 Employment Agreement dated as of March 20, 2000 between the
Company and Robert L. Chioini incorporated by reference to
the quarterly report on Form 10-QSB filed August 11, 2000.
10.14 Lease Agreement dated October 23, 2000 between the Company
and International-Wixom, LLC incorporated by reference to
the quarterly report on Form 10-QSB filed November 14, 2000.
10.15 Loan and Security Agreement dated March 28, 2001 between the
Company and Heller Healthcare Finance, Inc. incorporated by
reference to the annual report on Form 10-KSB filed April 2,
2001.
10.16 Promissory Note between GE Healthcare Financial Services and
Rockwell Medical Technologies, Inc. dated August 15, 2001
incorporated by reference to the quarterly report on Form
10-QSB filed November 14, 2001.
10.17 Licensing Agreement between the Company and Ash Medical
Systems, Inc. dated October 3, 2001 with certain portions of
the exhibit deleted under a request for confidential
treatment under rule 24b-2 of the Securities Exchange Act of
1934.
10.18 Licensing Agreement between the Company and Charak LLC and
Dr. Ajay Gupta dated January 7, 2002 with certain portions
of the exhibit deleted under a request for confidential
treatment under rule 24b-2 of the Securities Exchange Act of
1934.
21.1 List of Subsidiaries incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form SB-2,
File No. 333-31991.
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(b) Reports on Form 8-K
None
EXHIBIT 10.17
Portions of the following exhibit have been omitted under a request for confidential treatment under Section 24b-2 of the Securities Act of 1934. Locations of these omitted portions is denoted by the following legend. [ * * ]
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made this 3rd day of October, 2001, by and between Ash Medical Systems, Inc. ("AMS"), an Indiana corporation having a principal place of business at 2700 Kent Avenue, West Lafayette, Indiana, and Rockwell Medical Technologies, Inc. ("RMTI"), a Michigan corporation having a principal place of at 30142 Wixom Road, Wixom, Michigan.
WITNESSETH:
WHEREAS, AMS represents and warrants that it is the owner of certain proprietary technology, a patent granted, U.S. and foreign patent applications pending, processes, methods, designs, technical know-how, information, associated rights and tangible property relating to a Iron Delivery Method for transferring iron to a patient from dialysate more specifically set forth in U.S. Patent No. 5,906,978, European Patent Application No. 97937224.05, Canadian Patent Application No. 2,263,779, and U.S. Continuation Patent Application Serial No. 09/143,143 (the "Technology"); and
WHEREAS, RMTI desires to secure from AMS, and AMS is willing to provide RMTI with an exclusive, worldwide, non-transferable license to use the Technology to manufacture, have manufactured, use, commercialize and sell liquid and/or dry dialysate compositions which utilize the Technology for the treatment of patients in renal failure by hemodialysis or peritoneal dialysis (or by any therapy) (hereinafter referred to as the "Products") upon certain terms and conditions.
NOW THEREFORE, for and in consideration of the recitals and covenants set forth herein, the parties agree as follows:
ARTICLE I
TERM
This Agreement shall begin on the date first written above and shall continue until terminated by agreement of the parties or as otherwise provided herein. Each subsequent twelve (12) month period constitutes a year ("Year").
ARTICLE II
GRANT OF LICENSE
AMS hereby grants to RMTI, subject to the conditions outlined in Article III, an exclusive, worldwide, non-transferable license to manufacture, have manufactured, commercialize, use, market, and sell the Products, and/or otherwise exploit the Technology in the treatment of patients with renal failure by hemodialysis and peritoneal dialysis, such Technology relating to the delivery of iron from dialysate includes all inventions, improvements, enhancements and modifications thereto made, conceived or acquired by AMS after the date of this Agreement and any patent based on and covering the same which AMS now or thereafter owns, controls or has the right to commercially exploit.
ARTICLE III
CONSIDERATION FOR GRANT
3.1 Patent Costs. If RMTI deems it necessary for AMS to seek additional patent protection on any portion of the Technology not already covered by U.S. Patent No. 5,906,978 and pending U.S. and foreign patent applications to enhance protection of their exclusive license, AMS, at RMTI's expense, will prepare and file the requested patent applications. All future costs for filing, prosecuting, issuing, and/or maintaining patents covering the Technology, including the existing patents and patent technology and such additional patent applications requested by RMTI, including maintenance fees once patent(s) issue, will be borne by RMTI as long as this Agreement is in force. All future costs for filing, prosecuting, issuing, and/or maintaining corresponding foreign patents shall be borne by RMTI during the term of the Agreement. RMTI agrees to pay all outstanding invoices for filing, prosecuting, issuing, and/or maintaining patents associated with the Technology existing at the time of execution of this Agreement, in a total amount not to exceed Ten Thousand Dollars ($10,000.00). AMS will use best efforts to keep RMTI fully advised as to the status and course of prosecution of all such pending patent applications, including supplying copies of all official papers received, and copies of all papers filed by the attorneys involved. Upon 15 days advance notice to AMS, RMTI has the right to discontinue preparation and/or prosecution of any such additional patent(s) at any time, and shall be kept advised of the status of same in a manner sufficiently detailed and prompt to enable effective exercise of this right. AMS shall have the right to continue
efforts to obtain any such existing or additional patents at its own expense in any instance where RMTI decides to discontinue such efforts.
3.2 Non-Refundable License Fee. RMTI agrees to pay AMS the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) license fee, which shall be non-refundable, payable in three segments: One Hundred Thousand Dollars ($100,000.00) upon execution of this Agreement; Seventy-Five Thousand Dollars ($75,000.00) within six (6) months of such date; and Seventy-Five Thousand Dollars ($75,000.00) within twelve (12) months of such date.
3.3 Royalty. RMTI shall pay AMS a royalty ("Royalty") in the amount of
[* *] of RMTI's increase in revenue over the revenue that RMTI would have earned
on its liquid and dry dialysate without the Product. The Royalty will be based
on [* *] of the increase in the "average actual selling price" over the "base
average actual selling price" of liquid and dry dialysate containing the
Product, on a 55-gallon drum equivalent basis. The "average actual selling
price" of the Product includes actual gross invoice price for Products sold to
independent and unrelated third parties in the normal course of business, less
any and all chargebacks, rebates, discounts, buying group discounts, taxes,
duties, handling or other charges, credits, fees allowances, and returns. The
"base average actual selling price" is the weighted average actual selling price
of liquid and dry dialysate products without iron on a 55-gallon drum equivalent
basis sold by RMTI during the 12-month period preceding the month in which RMTI
first offered Products for sale. The "base average actual selling price" will be
readjusted, using a 12 month weighted average, every anniversary date from the
date the Product was first offered for sale, however, it can never be adjusted
lower than the initial 12-month period preceding the month in which RMTI first
offered Products for sale. Royalty shall be paid on the 15th day of the second
month following the month in which the Royalty was earned.
3.4 Continuation Fee. In the event that RMTI does not have the Product to the market by the end of Year 5 of this Agreement, RMTI shall have the choice to pay AMS the additional sum of $250,000.00 per annum as a fee for continuation of this Agreement ("Continuation Fee") until the Product is on the market. Once the Product is on the market the Continuation Fee will be eliminated. Continuation Fees, if due, will be paid on anniversary date of this Agreement beginning with the 5th anniversary date.
3.5 Technical Support. RMTI, at its sole cost and expense, shall be responsible for all regulatory affairs associated with the Products, including clinical trials and commercialization submissions to the U. S. Food and Drug Administration. AMS, including its Medical Director, agrees to provide, and RMTI agrees to pay AMS for, such reasonable technical and clinical support as RMTI may request. AMS' current Medical Director, Dr. Stephen R. Ash, shall be billed at the rate of $187.50 per hour or $1,500.00 per day and all other personnel will be billed at mutually agreed-upon market rates. Expenses will be reimbursed promptly upon invoicing by AMS.
3.6 Audits. RMTI shall make its records and facilities involved in the performance of this Agreement available to independent CPA auditors designated by and at the expense of AMS, at reasonable and mutually convenient times during normal business hours for audit purposes and shall take any reasonable actions facilitate such. All information obtained during any such audit shall be deemed confidential, and such auditors shall report to both AMS and RMTI only the conclusion reached by their audit relative to the accuracy and adequacy of Royalty payments made to AMS hereunder
ARTICLE IV
WARRANTIES AND REPRESENTATIONS BY AMS AND RMTI
4.1 AMS warrants to RMTI that AMS is the sole and exclusive owner of the Technology as of the date of execution hereof, including all patents and patent applications, that AMS has the right to grant the exclusive license granted hereunder; that no agreement or other document effective as of the date of execution hereof has been executed which is in conflict herewith and will not execute any such agreement during the term hereof; that AMS officers have the full right, authority and authorization to execute this Agreement and to grant the exclusive rights granted to RMTI hereunder; and that no consent or authorization of any third party is required as a condition precedent to its execution or performance of this Agreement.
4.2 RMTI hereby represents to AMS that it has executed no agreement or other document in conflict herewith; that its officers have the full right, authority and authorization to execute this Agreement; and that no consent or authorization of any third party is required as a condition precedent to its execution or performance of this Agreement.
4.3 RMTI represents to AMS that no Products will be knowingly sold or otherwise distributed except in full compliance with all legal and regulatory requirements.
ARTICLE V
INFORMATION AND OWNERSHIP REGARDING THE INVENTIONS
5.1 The Technology which relates to the delivery of iron by dialysate,
and all inventions, improvements, enhancements and modifications thereto made,
conceived or developed by AMS or its agents or representatives after the date of
this Agreement, and any patent covering the same in whole or in part which AMS
now or hereafter owns, controls or has the right to commercially exploit, shall
be and remain the sole and exclusive property of AMS, subject to and included
within the license hereby granted. AMS shall, upon demand, execute and deliver
to RMTI, or cause to be executed and delivered to RMTI, such documents as may be
deemed necessary or advisable by counsel for RMTI for filing in the appropriate
public offices to evidence the grant of the exclusive license hereby granted to
RMTI.
5.2 All inventions, improvements, enhancements and modifications to the
Technology made, conceived or developed by RMTI or its agent and representative
during the term of this Agreement and any patent covering the same in whole or
in part ("RMTI Enhancements"), shall be the sole property of RMTI. Should RMTI
chose not to maintain its exclusive license under Section 3.4 of this Agreement,
or if this Agreement is terminated by AMS or RMTI under Section 7 of this
Agreement, RMTI grants AMS a non-exclusive, royalty-free license to exploit such
RMTI Enhancements.
ARTICLE VI
INFRINGEMENT, INDEMNIFICATION AND INSURANCE
6.1 Infringement. RMTI may choose to prosecute at its own expense and for its own benefit, any party infringing on the rights granted to RMTI pursuant to this Agreement and AMS shall cooperate fully with such. In any case where RMTI chooses not to prosecute an infringing party, AMS shall have the right to prosecute at its own expense and for its own benefit such infringing party and RMTI shall cooperate fully with such.
6.2 Indemnification.
6.2.1 RMTI shall indemnify and hold harmless AMS, its officers, directors, agents and representatives, and employees from and against any and all claims, losses, damages, judgments, costs, awards, expenses (including reasonable attorney's fees) and liabilities of every kind (collectively, "Losses") arising directly out of or resulting directly from any breach by RMTI of any of its warranties, guarantees, representations, obligations or covenants contained herein.
6.2.2 AMS shall indemnify and hold harmless RMTI, its officers, directors, agents and representatives, and employees from and against any and all Losses arising directly out of or resulting directly from any breach by AMS of any of its warranties, representations, obligations or covenants contained herein.
6.3 Insurance. RMTI agrees to purchase, at its sole cost, comprehensive general liability insurance (occurrence or claims-made form) for bodily injury and property damage, including contractual and product liability, in an amount of not less than $3,000,000 combined single limits and provide AMS with a certificate of insurance naming AMS as an additional insured. Such contract of insurance shall be primary with respect of any other insurance available to AMS and shall contain a waiver of subrogation by RMTI's insurance carrier against AMS and its insurance carrier with respect to all obligations assumed by RMTI pursuant to this Agreement. Such insurance shall contain provisions to the effect that policy limits may not be reduced, terms changed, or the policy canceled with less than thirty (30) days written notice to AMS.
6.4 Sublicenses. It is recognized that RMTI may from time to time deem it necessary or desirable to grant sublicenses to third parties under the Technology licensed to it pursuant to this Agreement, under terms and conditions it deems best suited to each such situation, in order to prevent unlicensed infringement, resolve disputes and/or litigation, maintain orderly and effective marketing of the Products or for other reasons, and the parties therefore agree that in any such event RMTI will first consult with AMS concerning each such matter and AMS shall have the right to approve or disapprove any such sublicense, providing however that AMS shall not act unreasonably in exercising such right. RMTI agrees to preserve AMS' royalty dollar amount on a 55-gallon drum equivalent basis if Products are sublicensed.
ARTICLE VII
TERMINATION
7.1 This Agreement may be terminated as follows:
7.1.3 At the sole option of AMS and upon written notice by AMS, in the event RMTI fails to meet any of its financial obligations under this Agreement. RMTI will have fifteen (15) days following receipt of notice to cure the violation.
7.1.2 At the option of either party and upon thirty
(30) days written notice, in the event of the other party's failure
to perform any of its non-financial duties or obligations under
this Agreement. The defaulting party will have thirty (30) days
following receipt of notice to cure the violation.
7.1.3 At the option of RMTI, at any time during the term hereof upon ninety (90) days written notice.
7.2 Remedies hereunder are not exclusive. The non-breaching party shall have all remedies available at law or in equity. The provisions of Article VIII and the obligations for payment of royalties under Section 3.3 shall survive any termination of this Agreement.
ARTICLE VIII
CONFIDENTIALITY
8.1 Definition of Confidential Information. As used in this Agreement,
"Confidential Information" shall mean all information which is transmitted in
written, graphic or photographic form and marked as "Confidential" or if
transmitted in oral form and reasonably known to be confidential or claimed to
be so by the discloser at the time of transmittal, but Confidential Information
does not include that which (a) can be shown by the receiving party to have been
in its possession prior to disclosure to it by the transmitting party; (b) at
the time of disclosure hereunder is, or thereafter becomes, through no fault of
the receiving party, part of the public domain by publication or otherwise; or
(c) is furnished to the receiving party by a third party after the time of
disclosure hereunder as a matter of right, who owes no obligation of
confidentiality to the transmitting party with respect to the Confidential
Information.
8.2 Exchange of Information. All Confidential Information exchanged between AMS and RMTI pursuant to this Agreement or previously exchanged between AMS and
RMTI relating to the subject matter hereof, shall be kept confidential by each party with the same degree of care normally accorded by such party to its own confidential information except for purposes authorized by this Agreement. Neither party shall disclose such Confidential Information to any person or entity during the term of this Agreement, provided, however, that each party may disclose said Confidential Information to responsible officers and employees of any party who require said information for the purposes contemplated by this Agreement, provided that said officers and employees shall have assumed like obligations of confidentiality. This obligation of confidentiality shall survive the termination of this Agreement for a period of five (5) years after the termination of this Agreement.
ARTICLE IX
ASSIGNABILITY
9.1 Notwithstanding the references in this Agreement to non-transferability of the license contained herein, (i) AMS shall be permitted to assign its rights and obligations under this Agreement to a third party purchaser of all or substantially all of AMS' business, and (ii) RMTI shall be permitted to assign its rights and obligations under this Agreement to a third party purchaser of all or substantially all of RMTI's business. This Agreement shall be binding upon and shall inure to the benefit of AMS and RMTI and their permitted assigns and successors in interest.
ARTICLE X
GOVERNING LAW
10.1 This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana; provided, however, that any patent question or controversy shall be resolved in the courts having jurisdiction over the patent in question in accordance with the laws applicable to such patent.
ARTICLE XI
NOTICES
11.1 For purposes of notices given pursuant to this Agreement, the addresses as set forth in Section 11.2 shall be used unless changed by written notice given by one party to the other:
11.2 For the purposes of notices under Section 11.1 above, the following addresses shall be used:
For AMS: Ash Medical Systems, Inc.
2700 Kent Avenue
West Lafayette, IN 47906
Attn.: Robert B. Truitt, President and CEO
Facsimile Number: (317) 463-4129
For RMTI: Rockwell Medical Technologies, Inc.
30142 Wixom Road
Wixom, MI 48393
Attn.: Robert Chioini, Chairman, President, CEO
Facsimile Number: (248) 960-9119
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11.3 All notices hereunder shall be in writing and shall be deemed given when (a) personally delivered; (b) when received, if mailed by certified mail, return receipt requested, postage prepaid; (c) when received when sent by courier service, UPS, or equivalent carrier; or (d) on the first business day after receipt of facsimile copy when transmitted by confirmed facsimile, with hard copy mailed by United States mail.
ARTICLE XII
MISCELLANEOUS
12.1. Headings. The headings used in this Agreement are for purposes of convenience and ready referral and shall not be deemed to limit the construction of any paragraph to which they appertain.
12.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect or limit the validity or enforceability of any other provision hereof.
12.3 No Waiver. No waiver by either party or any breach of the terms of this Agreement shall be deemed a waiver of any subsequent breach thereof.
12.4 Entire Understanding. This Agreement embodies the entire understanding and agreement between the parties and supersedes all previous negotiations, representations and writings, written or oral, with respect to the subject matter hereof. This Agreement may be amended or modified only by an instrument in writing, duly signed by the parties hereto.
12.5 This Agreement may be executed in more than one counterpart, each of which shall be deemed an original document, and all of which taken together shall be one and the same agreement.
ATTEST: ASH MEDICAL SYSTEMS, INC.
By: /s/ Robert B. Truitt
--------------------------- ---------------------------
Robert B. Truitt
President and CEO
ATTEST: ROCKWELL MEDICAL TECHNOLOGIES, INC.
By: /s/ Robert L. Chioini
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Robert Chioini
Chairman, President, CEO
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EXHIBIT 10.18
Portions of the following exhibit have been omitted under a request for confidential treatment under Section 24b-2 of the Securities Act of 1934. Locations of these omitted portions is denoted by the following legend. [ * * ]
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made this 7th day of January, 2002, by and between: Dr. Ajay Gupta ("AG"), an individual residing at 18946 Vickie Avenue, Apt #241, Cerritos, CA 90703, Charak LLC ("CHARAK"), a corporation organized under the laws of the State of Michigan located at 2336 Hickory Point Drive, Ann Arbor, Michigan and owned by AG, and Rockwell Medical Technologies, Inc. ("RMTI"), a corporation organized under the laws of the State of Michigan located in Wixom, Michigan.
WITNESSETH:
WHEREAS, CHARAK and AG represent and warrant that CHARAK is the owner of certain
proprietary information and technology, including medical and scientific
information, clinical and other information, submissions, and records relating
to FDA approval carried on heretofore, processes, methods, technical know-how
and information attributable to and known by AG personally including
confidential and trade secret information, and associated rights and tangible
property and U.S. and foreign patent applications pending all relating inter
alia to delivery of Iron Salt(s), especially ferric pyrophosphate, and
pharmaceutically acceptable salts thereof delivered through dialysate to
patients suffering from renal failure more specifically set forth in pending
U.S. Patent Application Nos. 08/775,595 (and related Provisional Application No.
60/055,315), and 09/367,629, and related International Patent Applications Nos.
PCT/US98/16383, (WO98US16383), (WO9907419A1) and (WO97US23719) (WO9829434A1)
(International Patent Applications and National State Patent Applications in
foreign countries based on such International Patent Applications (foreign
patent applications)), (all such patent applications and all patents issued
therefrom comprising the "Patent Rights," and all such technology hereinafter
collectively referred to as "CHARAK TECHNOLOGY"), subject only to the rights of
Henry Ford Health Systems Inc., a Michigan Corporation ("HFHS") to use the
Patent Rights and know-how existing as of the date hereof for the sole purpose
of research at its principal research facility or patient use within the
existing HFHS facilities as the same may be expanded in the ordinary course of
business ("the HFHS Shop Right"); and
WHEREAS, RMTI desires to secure from CHARAK, and CHARAK is willing to provide RMTI, upon certain terms and conditions, an exclusive, worldwide, non-transferable license to use the CHARAK TECHNOLOGY (less the HFHS Shop Right)
("the Licensed Technology,") which expression shall include Enhancements (as herein defined) of CHARAK, AG, and/or CHARAK Affiliates (hereinafter defined) including a license to manufacture, use, commercialize and sell liquid and/or dry dialysate compositions which utilize and are protected by the Licensed Technology ("the Licensed Products").
NOW THEREFORE, for and in consideration of the recitals and covenants set forth herein, the parties agree as follows:
ARTICLE I
TERM
The term of this Agreement (the "Term") shall commence on the date first written above and shall continue on a product by product and Enhancement by Enhancement and country by country basis until the last patent included in the Patent Rights covering a Licensed Product or Enhancement in any country in which RMTI remains licensed hereunder expires, plus a period of ten years. The Term with respect to any product or Enhancement in any country shall automatically be extended for successive one (1) year periods unless, at least twelve months before the expiration of the original or any renewal Term, either party gives written notice to the other that it does not wish to extend the Agreement with respect to such product or Enhancement in such country. For purposes of this Article, a patent included in the Patent Rights covers a Licensed Product (or Enhancement) if the manufacture, use and/or sale of the Licensed Product or Enhancement would, absent a license granted hereunder, infringe such patent.
ARTICLE II
GRANT OF LICENSE
CHARAK hereby grants to RMTI, subject to the conditions herein including as outlined in Article III and subject to the HFHS Shop Right, an exclusive, worldwide, non-transferable license to manufacture, have manufactured, commercialize, use, market, offer for sale, and sell the Licensed Products, and/or otherwise exploit the Licensed Technology in the treatment of patients with renal failure by hemodialysis, peritoneal dialysis or by any other therapy, together with the right to grant sublicenses for any or all such Licensed Product(s) and/or Licensed Technology, as set forth more fully hereinafter. The Licensed
Technology shall include all inventions, improvements, and modifications thereto ("Enhancements") made, conceived or acquired by CHARAK, AG and any CHARAK Affiliate (as defined more particularly hereinafter) during the term of this Agreement, and any patent based on and covering the same which CHARAK, AG or any CHARAK Affiliate now or hereafter owns, controls or has the right to commercially exploit.
ARTICLE III
CONSIDERATION FOR GRANT
3.1 Patent/Other Obligations and Costs. If RMTI deems it necessary for CHARAK to obtain additional patent protection on any portion of the Licensed Technology, whether now existing or developed in the future, not covered by patents issued from the Patent Rights, to assure protection of their exclusive license rights herein, CHARAK, at RMTI's expense, will prepare and file the requested patent applications.
RMTI shall use its best reasonable efforts, on a country by country basis, to obtain, and thereafter maintain, Foreign Registrations or Approvals to market the Licensed Products in order to enable their full commercial exploitation, commensurate with RMTI's size, capabilities, and reasonable business judgment as to feasibility and return on investment, and will use best efforts to do so within one year following the date of patent issuance in countries where patent protection is obtained, but delay by regulatory authorities shall not be deemed lack of best reasonable effort by RMTI.
After obtaining regulatory approval to market the Licensed Products, RMTI shall use its best reasonable efforts on a country by country product by product basis to market the Licensed Products.
All future costs for filing, prosecuting, and/or issuing patent applications and/or maintaining patents (both existing patent applications and additional patent applications requested by RMTI) covering either in full or part the Licensed Technology, including maintenance fees once patent(s) issue, will be borne by RMTI as long as this Agreement is in force, on a country by country basis, except as provided below. In addition, RMTI agrees to reimburse AG for all bona fide, reasonable and documented expenses related to prosecution, filing and maintenance fees of patent applications within the Patent Rights incurred prior to the date hereof, but only to the extent such expenses do not duplicate
expenses reimbursed by Shein, and only to the maximum allowable extent of Twenty Five Thousand Dollars U.S. ($U.S. 25,000).
CHARAK warrants that it will keep RMTI and its designated counsel promptly and fully advised, at RMTI cost, as to the status and course of prosecution of all such pending patent applications, including supplying copies of all official papers received, copies of all papers filed by the attorneys involved and copies of all correspondence to and from such attorneys regarding such applications. RMTI shall have the right to make final decisions as to what is done in each step in the course of prosecution in all such cases so long as it is obligated to pay the related expenses. In any instance where RMTI decides not to proceed with or otherwise discontinue prosecution or maintenance of any patent or application, it shall to the extent reasonably possible notify CHARAK in sufficient time to permit CHARAK to act and CHARAK may elect to continue on its own and at its own expense.
3.2 Conditionally Non-Refundable License Fee. RMTI agrees to pay CHARAK a license fee, which shall be non-refundable except for CHARAK's breach of warranty or fraud, payable in 6 segments as follows: Fifty Thousand US Dollars (US $50,000) at the time of execution of this Agreement, to be paid in the common stock of RMTI valued at a price per share corresponding to that existing at the close of trading on the NASDAQ exchange on the previous day; Seventy Five Thousand U.S. Dollars (U.S. $75,000) upon issuance of a U.S. Patent based on U.S. Patent Application No. 08/775,595 with claims generally corresponding to those present in the application prior to the date of execution hereof; Fifty Thousand US Dollars (US $50,000) upon successful completion of Phase III clinical trials and filing with the FDA for 510(k) approval; One Hundred Thousand US Dollars (US $100,000) upon approval of the therapy by the US FDA; One Hundred Seventy Five Thousand US Dollars (US $175,000) upon successful assignment of a billing/reimbursement code for the Licensed Products by the United States Health Care Financing Administration (HCFA); and One Hundred Fifty Thousand U.S. Dollars (U.S. $150,000) upon the grant of Orphan Drug Status by the FDA.
3.2.1 In the event of CHARAK or AG's breach of warranty or fraud during the active term of this Agreement, the license fees received by CHARAK shall be refundable as follows:
- Full amount received by CHARAK, if such event occurs during the first
five years from the date of this Agreement, and
- Only one-half the amount received by CHARAK, if such event occurs
later.
3.3 Royalty. RMTI shall pay Charak a Royalty ("Royalty") based on RMTI's average actual selling price of Licensed Products, as particularly specified herein, where the selling price of Licensed Products exceeds [* *], at rates set forth below, and, if the selling price of Licensed Products is below [* *], RMTI shall pay Charak a Royalty ("Royalty") based on RMTI's Revenue Advantage, which will be based on RMTI's increase in per unit revenue, received by RMTI, for liquid and dry dialysate products which embody Licensed Technology ("Licensed Products") with respect to the per unit revenue received by RMTI in that country for liquid and dry dialysate products that do not embody Licensed Technology ("Conventional Products").
The Royalty Rate to be used in calculating Royalty payable to CHARAK for each
country or territory in which Licensed Products are sold by RMTI at per-drum
sales prices of [* *], for sales of
Licensed Products at per-drum prices between [*
*] and for per drum sales prices of Licensed Products less than
[* *] of the prevailing RMTI Revenue
Advantage, in countries where the Licensed Products are covered by patents which
have not expired or been invalidated or held unenforceable by a court of
competent jurisdiction, and in countries where the Licensed Products are subject
to a grant of regulatory exclusivity. In all other countries or territories, and
after any or all patents included in Licensed Technology have expired or
regulatory exclusivity has expired, the corresponding Royalty Rates shall be
reduced to [*
*].
The Revenue Advantage Royalty will be calculated by using the increase in the "average actual selling price" of Licensed Products over the "base average actual selling price" of Conventional Products, on a 55-gallon drum equivalent basis ("a unit") in each country or territory where Licensed Products are sold. The "average actual selling price" of the Licensed Products in a given country is the weighted average actual gross invoice price received by RMTI per unit sold to independent and unrelated third parties in or for that
country in the normal course of business, less any and all chargebacks, rebates, discounts, buying group discounts, taxes, duties, handling or other charges, credits, fees allowances, and returns, on a 55-gallon drum equivalent basis (i.e., per unit) sold by RMTI during the 12 month period preceding the month in which RMTI sells Licensed Products during each quarterly period for which a Royalty is payable. The "base average actual selling price" in a given country is the weighted average actual selling price of liquid and dry dialysate products without the Licensed Technology (Conventional Products), on a per unit basis, sold in that country. If RMTI sells Licensed Products in any new territory for which it does not already have a "base average actual selling price" of its Conventional Products, it will initially use the same "base average actual selling price" as that prevailing in the United States, which will then be applied to the weighted average actual selling price of Licensed Products in the territory involved to calculate the "Revenue Advantage".
Royalty to CHARAK for Licensed Product drum prices less than [* *] = Royalty Rate x Unit Volume x Revenue Advantage [i.e., Average Actual Selling Price with Licensed Technology minus Average Actual Selling Price without Licensed Technology].
If the Licensed Technology is sold separately from RMTI's Conventional Product,
the Licensed Technology will earn a specified royalty. The royalty will be
[* *] of revenue of the Licensed Technology in all countries,
provided it has exclusivity via a patent or Orphan Drug Designation. If after
any or all patents included in Licensed Technology have expired or regulatory
exclusivity has expired, or there is no exclusivity, the corresponding Royalty
Rate shall be [* *] in all countries.
The Royalty shall be payable to CHARAK within one month of the quarter most recently ended and RMTI shall provide duly verified details and computation basis for computation to CHARAK for CHARAK's verification/audit.
3.4 Sublicense Rights. CHARAK grants RMTI the right to issue sublicenses for the Licensed Technology, to the full extent of but not exceeding the rights of RMTI under this Agreement, or less than that, on particular terms and conditions deemed best by RMTI in each instance, with appropriate disclosure of CHARAK's rights. RMTI shall promptly advise CHARAK as to the issuance of each and every such sublicense, identifying the sub-licensee by name and address, shall promptly account to CHARAK for all sales of Licensed Products by such sub-licensees, and shall pay royalties to CHARAK
for such sub-licensee sales within thirty (30) days following the end of each quarter, on the same overall basis as RMTI is itself obligated to CHARAK for RMTI's sales under this Agreement, but based on the pricing used by each Sublicensee in each country or territory.
3.5 Commercialization and Technical Support. RMTI undertakes and agrees with CHARAK to faithfully and diligently exploit, on the basis set forth in paragraph 3.1 hereinabove, the commercial potential of the Licensed Technology. RMTI, at its sole cost and expense, shall be responsible for all regulatory affairs associated with the Licensed Products during the active term of this Agreement in all countries or territories for which this agreement remains in effect, including clinical trials and commercialization submissions to the U. S. Food and Drug Administration, but CHARAK and AG shall assign to RMTI all rights and status obtained prior to the date of this Agreement and shall cooperate and assist RMTI in all ways and at all times reasonably requested by RMTI. RMTI shall prepare and submit in its name a completed new drug and/or device application (NDA) (or the equivalent in other countries) for the Licensed Product and shall use its best reasonable efforts to obtain FDA approval of the NDA. RMTI shall be responsible for obtaining applicable State regulatory/formulary approvals for the marketing, sale and distribution of Licensed Products in both the U.S. and foreign countries.
Throughout the term of this Agreement, CHARAK and AG agree to provide, and RMTI agrees to pay CHARAK and/or AG for, such reasonable technical and clinical consultation and support at mutually convenient times during normal business hours as RMTI may request, including the services of AG, which shall be exclusive to RMTI with respect to all aspects of the Licensed Technology. AG's services shall be billed, for the first year of this Agreement, at the rate of US $1,500.00 per day, or US $187.50 per hour, and all other personnel will be billed at mutually agreed-upon market rates. All costs and expenses will be reimbursed promptly upon invoicing by CHARAK and/or AG.
3.6 Audits. RMTI shall make its and its Affiliate(s) records pertaining to the performance of this Agreement available to independent auditors designated by and at the expense of CHARAK, at RMTI's facilities and at reasonable and mutually convenient times during normal business hours, for audit purposes and shall take any reasonable
actions required to facilitate such audit. All information obtained during any such audit shall be deemed confidential, and such auditors shall report only the conclusion reached by their audit relative to accuracy and adequacy of payments including Royalty payments made to CHARAK hereunder. No such audit shall be conducted more frequently than once per year, or carry back more than two years. It is however agreed that if as a result of any such audit it is found that RMTI has knowingly not duly met its payment obligations to CHARAK then the cost of such audit shall be borne by RMTI. RMTI shall include this same obligation in any sublicenses it issues, except that the facilities involved shall be those of each sublicensee, as determined most appropriate by them.
ARTICLE IV
REPRESENTATIONS BY AND OTHER
UNDERTAKINGS BY CHARAK, AG. AND RMTI
4.1 CHARAK for itself and all CHARAK Affiliates, and AG warrant to RMTI that CHARAK is the sole and exclusive owner of the Licensed Technology as of the date of execution hereof, subject only to the HFHS Shop Right, and that CHARAK has the right to grant the license granted hereunder; that no agreement or other document effective as of the date of execution hereof is in force which is in conflict herewith and neither CHARAK or AG will execute any such agreement during the active term hereof; that CHARAK officers have the full right, authority and authorization to execute this Agreement and to grant the rights granted to RMTI hereunder; and that no consent or authorization of any third party is required as a condition precedent to its execution or performance of this Agreement.
4.2 RMTI hereby represents to CHARAK that no agreement or other document in force as of the date hereof is in conflict herewith; that its officers have the full right, authority and authorization to execute this Agreement; and that no consent or authorization of any third party is required as a condition precedent to its execution or performance of this Agreement.
4.3 RMTI shall be responsible for and use its best efforts to make sure that no Licensed Products will knowingly be sold or otherwise distributed by it or its sublicenses/Affiliates that are not in full compliance with all legal and regulatory requirements. RMTI assures CHARAK that the Licensed Products shall be developed,
manufactured, transported, stored, handled, packaged, marketed, promoted, distributed, offered for sale and sold in accordance with all regulatory authorities, including without limitation, the FDA, in any country of the licensed territory, including, without limitation, cGCP, cGLP, cGMP regulations. The Licensed Products shall not be adulterated or misbranded as defined by the Federal Food, Drug and Cosmetic Act when delivered and shall not be a product which would violate any section of such Act if introduced in interstate commerce.
4.4 AG and CHARAK shall promptly and diligently pursue a grant of regulatory exclusivity ("Orphan Drug Status) from the US FDA for the Licensed Products at their own expense in the name of RMTI.
ARTICLE V
INFORMATION AND OWNERSHIP REGARDING THE LICENSED TECHNOLOGY
5.1 The Licensed Technology, (except for FDA-related rights, etc.) and all inventions, improvements, enhancements and modifications thereto made, conceived or developed by CHARAK or AG, or by any other person or entity controlled or owned by either (all jointly and severally constituting the "CHARAK Affiliates") after the date of this Agreement, and any patent covering such inventions, improvements, enhancements, modifications in whole or part which said CHARAK Affiliates now or hereafter own, control, or have the right to commercially exploit, ("CHARAK Enhancements") shall remain the sole and exclusive property of one or more of the CHARAK Affiliates but shall be deemed included as elsewhere specified herein as within the license hereby granted. CHARAK Affiliates shall, upon demand, execute and deliver to RMTI, or cause to be executed and delivered to RMTI, such conventional documents as are deemed reasonably necessary or advisable by counsel for RMTI for filing in the appropriate public offices to evidence the grant of the exclusive license for the Licensed Technology hereby granted to RMTI.
5.2 CHARAK, AG and all CHARAK Affiliates expressly assure RMTI that they believe that there is nothing that would invalidate/restrict their rights in the Licensed Technology, except the HFHS Shop Right.
5.3 All inventions, improvements, enhancements and modifications to the Licensed Technology made, conceived or developed solely by RMTI or its agents and representatives without involvement of CHARAK, AG or any CHARAK Affiliates after the date of this Agreement which absent a license would infringe Licensed Patents, and any patent covering the same ("RMTI Enhancements"), shall be the sole property of RMTI but may be used non-commercially by CHARAK during the active term of this Agreement.
5.4 All inventions which have at least one inventor which is either AG or a CHARAK Affiliate and at least one inventor which is neither AG nor a CHARAK Affiliate shall (as between RMTI and CHARAK) be assigned to CHARAK and RMTI jointly and shall be part of the Licensed Technology under this Agreement.
ARTICLE VI
INFRINGEMENT, INDEMNIFICATION AND INSURANCE
6.1 (i) RMTI and CHARAK shall each promptly inform the other in writing of any alleged infringement or unauthorized use by a third party of Licensed Technology of which it becomes aware and provide such other with any available evidence of such unauthorized activity.
6.2 RMTI shall have the right, but not the obligation to defend any and all charges of infringement of intellectual property rights concerning the manufacture, use, sale, offer for sale, or importation of the Licensed Products whether such charge is made against RMTI, an RMTI Affiliate or sub-licensee or CHARAK, or an Affiliate of CHARAK, or any combination thereof. RMTI shall also have the right, but not the obligation to bring charges of infringement against any other party on behalf of itself, its Affiliates or sub-licensee, and/or CHARAK for infringement of the Patent Rights. In all such cases, RMTI shall have the right, but not the obligation, to control such litigation or threatened litigation, including the right to choose counsel, the right to direct the conduct of the litigation, the right to settle or compromise the case or position, and to take any other action as RMTI may, in its own discretion deem appropriate. Upon request of RMTI, CHARAK agrees to permit RMTI to bring suit in CHARAK's name and to join in such suit.
6.2.1 RMTI shall bear the expense for protecting the Patent Rights during any infringement proceeding and shall receive the full benefit of any recovery or settlement in connection with any such proceeding; provided, however, that in the event CHARAK elects to participate in the expense of such proceeding, any recovery and any expense relating to the protection of such Patent Rights shall be shared by CHARAK and RMTI as follows:
(a) First, all expenses to be incurred by the parties in protection of any Patent Rights and (including, without limitation, attorney fees) shall be borne 85% by RMTI and 15% by CHARAK and any recovery or award obtained shall first be applied to reimburse RMTI and CHARAK in proportion to their participation in such expenses;
(b) Any cash recovery other than a royalty remaining after the reimbursement of RMTI and CHARAK of all such expenses shall be distributed 85% to RMTI and 15% to CHARAK;
(c) If RMTI settles the litigation under terms requiring the payment of a royalty to the infringer, RMTI shall bear 85% of such payment and CHARAK shall bear 15% of such payment. The amounts payable by CHARAK shall first be applied against the royalties he is otherwise entitled to receive hereunder;
(d) In the event RMTI elects not to take any action against an infringer of Patent Rights within ninety (90) days after actual notice of infringement, CHARAK shall have the right, but not the obligation, to do so and in which event CHARAK shall be responsible for the costs of such litigation. In all such cases CHARAK shall have the right to control such litigation, including the right to choose counsel, the right to direct the conduct of the litigation, the right to settle or compromise the case and take any other action as CHARAK may, in his discretion deem appropriate; provided, however, that CHARAK may not grant a license or sublicense under the Patent Rights to any third party for as long as the Patent Rights are licensed exclusively to RMTI hereunder nor may CHARAK enter into an agreement of any kind which would interfere with, reduce or conflict with
the rights granted to RMTI hereunder. RMTI shall not be entitled to any recovery procured by CHARAK from such protection of Patent Rights by way of settlement, judgment or otherwise; provided, however, if RMTI elects to participate in any such action before the suit is filed in court, the costs shall be borne by and allocated between and recoveries shall be distributed to CHARAK and RMTI mutatis mutandis in the same manner as provided above except that 85% of the costs and recoveries shall be borne by and distributed to CHARAK and 15% of the costs and recoveries shall be borne by and distributed to RMTI.
Notwithstanding the foregoing any infringement settlement that includes a license for future sales of Licensed Products shall be regarded a sublicense and shall be subject to the terms of this Agreement like any other sublicense.
6.3.2 CHARAK Affiliates shall indemnify and hold harmless RMTI and its Affiliates and their officers, directors and employees from and against any and all Losses arising directly out of or resulting directly from any breach by CHARAK or any of its Affiliates of any of its warranties, representations, obligations or covenants contained herein.
6.3.3 Neither party shall be liable, one to the other, for any indirect, special, punitive, consequential or exemplary damages arising out of or in connection with this Agreement.
6.4 Insurance. RMTI agrees to purchase, at its sole cost, comprehensive general liability insurance (occurrence or claims-made form) for bodily injury and property damage, including contractual and product liability, in an amount of not less than $3,000,000 combined single limits and provide CHARAK with a certificate of insurance naming CHARAK as an additional insured. Such contract of insurance shall be primary with respect of any other insurance available to CHARAK and shall contain a waiver of subrogation by RMTI's insurance carrier against CHARAK and its insurance carrier with respect to all obligations assumed by RMTI pursuant to this Agreement. Such insurance shall contain provisions to the effect that policy limits may not be reduced, terms changed, or the policy cancelled without prior written consent from RMTI, and RMTI shall not give such consent without first obtaining CHARAK's consent, which shall not be unreasonably withheld.
6.5 Infringement. RMTI shall promptly confer and provide to one another all available information pertaining to any and all charges and claims of infringement that are made or brought against RMTI and/or CHARAK related to the exercise of the license granted to RMTI pursuant to this Agreement, and RMTI shall have the right but not the obligation to defend against such charges at its own expense. CHARAK shall cooperate fully with such efforts. In any case or instance where RMTI chooses not to defend any such infringement, RMTI shall duly inform CHARAK in advance in writing, and shall provide relevant information then known to RMTI in sufficient detail for CHARAK and/or its attorneys to understand the merits and posture of the case. Upon such intimation CHARAK shall have the right to defend such case and if CHARAK so chooses RMTI shall cooperate fully with such efforts. The costs for the same shall be borne by the party carrying on such defense and, in the event that CHARAK elects to defend the infringement, any damage assessment in excess of what RMTI could have settled the case for, if any, shall also be paid by CHARAK.
6.6 Indemnification.
6.6.1 RMTI shall indemnify and hold harmless CHARAK, AG and their Affiliates and their officers, directors and employees from and against any and all claims, losses, damages, judgments, costs, awards, expenses (including reasonable attorney's fees) and liabilities of every kind (collectively, "Losses") arising directly out of or resulting directly from any breach by RMTI of any of its warranties, guarantees, representations, obligations or covenants contained herein. "Affiliate" shall mean any corporation or partnership or other entity, which directly or indirectly controls, is controlled by, or is under common control with CHARAK and/or Dr. Gupta. "Control" shall mean the legal power to direct or cause the direction of the general management or partners of such entity whether through the ownership of voting securities, by contract or otherwise.
ARTICLE VII
TERMINATION
7.1 This Agreement may be terminated as follows:
7.1.1 At the sole option of CHARAK and upon written notice by CHARAK, in the event RMTI fails to meet any of its financial obligations under this Agreement, but RMTI will have forty-five (45) days following receipt of notice to cure the violation.
7.1.2 At the option of either party and upon sixty (60) days written notice, in the event of the other party's failure to perform any of its non-financial duties or obligations under this Agreement, but the defaulting party may cure and nullify the violation during the notified period following receipt of notice.
7.1.3 At the option of RMTI, at any time during the term hereof with respect to any country, upon six (6) months written notice.
7.1.4 a. At the option of CHARAK, in the event RMTI shall at any time be insolvent or shall have had a petition in bankruptcy filed by or against it, provided, however, that such petition is not dismissed within 120 days of the filing thereof. For purposes of this agreement, "insolvent" shall mean a party is unable to pay its debts as such debts mature.
b. In any particular country in which exclusivity due
to Patent Rights or regulatory action exists, in the event
RMTI fails to apply for Marketing Authorization within twelve
(12) months after successful completion of Phase III or
equivalent Clinical Studies needed for regulatory approval
(the "Target Date") unless such failure or delay is due to
events or circumstances beyond the reasonable control of RMTI.
7.2 Remedies hereunder are not exclusive. The non-breaching party shall have all remedies available at law or in equity. The provisions of Article VIII and the obligations for payment of Royalties under Section 3.3, so long as there is a Revenue Advantage as per Section 3.3, and RMTI obligations to CHARAK for any due and accrued License fees and/or other payments to CHARAK shall survive any termination of this Agreement.
7.3 Upon termination of this Agreement, any sublicenses granted pursuant to this Agreement by RMTI shall also stand terminated simultaneously, but subject to same survival of obligations after termination as contained in Section 7.2 above being applicable to such sub-licensee(s), unless CHARAK agrees in writing to the continuance of any sub-license(s) on such terms and conditions as CHARAK may decide for such continuation.
ARTICLE VIII
CONFIDENTIALITY
8.1 Definition of Confidential Information. As used in this Agreement, "Confidential Information" shall mean all information which is transmitted in written, graphic or photographic form and marked as "Confidential" or transmitted in oral form and reasonably known to be confidential or claimed to be so by the discloser at the time of transmittal or before any non-confidential disclosure of it by the recipient, but Confidential
Information does not include that which (a) can be shown by the receiving party to have been in its possession prior to disclosure to it by the transmitting party; (b) at the time of disclosure hereunder is, or thereafter becomes, through no fault of the receiving party, part of the public domain by publication or otherwise; or (c) is furnished to the receiving party by a third party after the time of disclosure hereunder as a matter of right, who owes no obligation of confidentiality to the transmitting party with respect to the Confidential Information.
8.2 Exchange of Information. All Confidential Information exchanged
between CHARAK and RMTI pursuant to this Agreement or previously exchanged
between CHARAK and RMTI relating to the subject matter hereof, shall be kept
confidential by each party with the same degree of care normally accorded by
such party to its own confidential information except for purposes authorized by
this Agreement. Neither party shall disclose such Confidential Information to
any person or entity during the term of this Agreement and for a period of five
(5) years after the termination of this Agreement, unless previously authorized
in writing by the other party; provided, however, that each party may disclose
said Confidential Information to responsible officers (including authorized
representatives) and employees of any party who requires said information for
the purposes contemplated by this Agreement, provided that said officers and
employees shall have assumed like obligations of confidentiality.
ARTICLE IX
ASSIGNABILITY
9.1 Notwithstanding the references in this Agreement to non-transferability of the license contained herein, (i) CHARAK shall be permitted to assign its rights and obligations under this Agreement to a third party purchaser of all or substantially all of CHARAK 's business pertaining directly to the Licensed Technology, and (ii) RMTI shall be permitted to assign its rights and obligations under this Agreement to a third party purchaser of all or substantially all of RMTI's business pertaining directly to sale or use of the Licensed Products, but only by an express undertaking by the purchasers to faithfully uphold and perform all of RMTI's duties and obligations hereunder, which shall not be divided or fractionalized by any such assignment. This Agreement shall be binding upon and
shall inure to the benefit of CHARAK and RMTI and their permitted assigns and successors in interest.
ARTICLE X
GOVERNING LAW
10.1 This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan and the Federal laws relating to patents, with jurisdiction in the State of Michigan.
ARTICLE XI
NOTICES
11.1 For purposes of notices given pursuant to this Agreement, the addresses as set forth in Section 11.2 shall be used unless changed by written notice given by one party to the other:
11.2 For the purposes of notices under Section 11.1 above, the following addresses shall be used:
For AG: Ajay Gupta, MD
For CHARAK: Charak LLC
2336 Hickory Pointe Drive
Ann Arbor, MI 48105
Attn.: Ajay Gupta, President and CEO
Facsimile Number: 323 563 4924
For RMTI: Rockwell Medical Technologies, Inc.
30142 Wixom Road
Wixom, MI 48393
Attn.: Rob Chioini, Chairman, President, and CEO
Facsimile Number: (248) 960-9119
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11.3 All notices hereunder shall be in writing and shall be deemed given when (a) personally delivered; or (b) when received, if mailed by certified mail, return receipt requested, postage prepaid; or (c) when received when sent by courier service, UPS, or
equivalent carrier; or (d) on the first business day after receipt of facsimile copy when transmitted by confirmed facsimile, with hard copy mailed by United States mail.
ARTICLE XII
MISCELLANEOUS
12.1. Headings. The headings used in this Agreement are for purposes of convenience and ready referral and shall not be deemed to limit or expand the construction of any paragraph to which they appertain.
12.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect or limit the validity or enforceability of any other provision hereof.
12.3 No Waiver. No waiver by either party or any breach of the terms of this Agreement shall be deemed a waiver of any subsequent breach thereof.
12.4 Entire Understanding. This Agreement embodies the entire understanding and agreement between the parties and supersedes all previous negotiations, representations and writings, written or oral, with respect to the subject matter hereof. This Agreement may be amended or modified only by an instrument in writing, duly signed by the parties hereto.
12.5 This agreement may be executed in more than one counterpart, each of which shall be deemed an original document, and all of which taken together shall be one and the same Agreement.
12.6 Dr. Ajay Gupta assures RMTI and warrants that CHARAK is and will remain fully capable of performing all of its obligations under this Agreement, that all statements and verifications of CHARAK and AG herein are believed in good faith to be true, and that AG will faithfully and satisfactorily provide all services and information required of him by this Agreement. RMTI assures CHARAK and AG that RMTI has full corporate power and authority to enter into this Agreement, consummate the transactions contemplated herein and perform its obligations hereunder and RMTI shall faithfully and satisfactorily perform its obligations as required of it by this Agreement.
12.7 Force Majeure - If either CHARAK /AG or RMTI shall be prevented by fire, war, civil disturbances, acts of God, intervention of a Government Authority, or other similar events beyond the reasonable control of CHARAK/AG or RMTI from performing their respective obligations hereunder, neither CHARAK/AG nor RMTI shall be liable to the other for damages ("Force Majeure"). The party being able to perform may, at its sole option, extend the duration for the performance of the obligations by the other under this Agreement by a term equal in length to the period during which the other party was unable to perform its obligations hereunder on account of Force Majeure, or waive such obligations.
12.8 Independent Contractor --CHARAK/AG's relationship with RMTI under this Agreement shall be that of independent contractor. Nothing in this Agreement shall be deemed or construed by the parties hereto or by any third parties creating the relationship of principal and agent, employer and employee or of partnership or of joint venture between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
ATTEST: CHARAK LLC
By: /s/ Dr. Ajay Gupta
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Dr. Ajay Gupta
President and CEO
ATTEST: ROCKWELL MEDICAL TECHNOLOGIES, INC.
By: /s/ Robert Chioini
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Robert Chioini
Chairman, President, CEO
ATTEST: DR. AJAY GUPTA
By: /s/ Dr. Ajay Gupta
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