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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(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, 2004
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
incorporation or organization) identification no.)
30142 WIXOM ROAD 48393
WIXOM, MICHIGAN (Zip code)
(Address of principal executive offices)
(248) 960-9009
(Issuer's telephone number, including area code)
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)
COMMON SHARE PURCHASE WARRANTS
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $17,944,710
The aggregate market value of the voting and non voting common equity held
by non-affiliates computed by reference to the price at which our common shares
were last sold on March 7, 2005 was $26,783,000. In making this calculation, we
have excluded common shares held by our executive officers and directors.
Determination of common share holdings was determined by reference to public
filings, information provided to us by our transfer agent and discussions with
certain shareholders.
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 8,596,531 common shares
outstanding as of March 7, 2005.
Documents incorporated by reference: Portions of the Registrant's definitive
Proxy Statement pertaining to the 2004 Annual Meeting of Shareholders (the
"Proxy Statement") filed pursuant to Regulation 14A are herein incorporated by
reference to Parts II and III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
We are a Michigan corporation, incorporated on October 25, 1996. We
manufacture hemodialysis concentrates and dialysis kits, and we sell, distribute
and deliver these and other ancillary hemodialysis products to hemodialysis
providers in the United States, the Far East, eastern Europe and Latin America.
Hemodialysis duplicates kidney function in patients with failing kidneys.
Without properly functioning kidneys, a patient's body cannot get rid of excess
water and waste products and cannot regulate electrolytes in their blood.
Without frequent and ongoing hemodialysis treatments these patients would die.
We have also entered into two licensing agreements covering three U.S.
patents, two issued and one pending, as well as several foreign patents for iron
supplemented dialysate for treatment of iron deficiency in dialysis patients. We
are planning to conduct clinical trials of iron supplemented dialysate also
known as dialysate iron. To realize a commercial benefit from this therapy, and
pursuant to the agreements, we must complete clinical trials and obtain U.S.
Food and Drug Administration ("FDA") approval to market iron supplemented
dialysate. We will also seek foreign market approval for this product. We
believe this product will substantially improve iron maintenance therapy and, if
approved, will compete for the global market for iron maintenance therapy. We
estimate that the global market size for intravenous iron maintenance therapy to
exceed $500,000,000 per year, with the market size in the United States for such
therapy to be $300,000,000 per year. We cannot, however, give any assurance that
this product will be approved by the FDA or, if approved, that it will be
successfully marketed.
INDUSTRY BACKGROUND
We provide products used in the treatment of patients with end stage renal
disease ("ESRD"). We estimate there are over 360,000 ESRD patients in the United
States and 1.2 million ESRD patients globally, who as a result of permanent
kidney failure require long-term dialysis for survival. The incidence of kidney
failure in the United States is increasing as a result of an aging population,
an increasing occurrence of diabetes and hypertension and increased use of
prescription drugs. ESRD patients are treated with recurring dialysis treatments
replacing the functions of their nonfunctioning kidneys. The most common form of
dialysis treatment is hemodialysis; representing approximately 90% of dialysis
patients in the United States. Most ESRD patients undergoing hemodialysis
treatments generally receive three treatments per week, or 156 treatments per
year, although the number of weekly treatments may vary.
Hemodialysis patients generally receive their treatments at independent
hemodialysis clinics or at hospitals. A hemodialysis provider such as a hospital
or a free standing clinic uses a dialysis station to treat patients. A dialysis
station contains a dialysis machine that takes concentrate solutions primarily
consisting of nutrients and minerals, such as our liquid concentrate solutions
or our concentrate powders mixed with purified water, and accurately dilutes
those solutions 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 semi-permeable 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
nutrients and minerals in the dialysate penetrate the membrane and enter the
patient's blood to maintain proper blood chemistry. 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 provider also requires
various other ancillary products such as dialysis on-off kits, sterile
subclavian dressing change trays, arterial and venous blood tubing lines,
fistula needles, intravenous administration sets, transducer protectors,
dialyzers, specialized kits and various other ancillary products, many of which
we sell.
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DIALYSIS INDUSTRY TRENDS
According to statistics compiled by the Centers for Medicare and Medicaid
Services ("CMS"), the dialysis industry has experienced steady patient
population growth with the patient population increasing between 4-9% 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 within the U.S. population including the elderly, Hispanic and
African-American population segments. More than 73% of new ESRD cases are
attributed to either diabetes, (45%) or hypertension (28%), while
glomerulonephritis is the primary factor behind nearly (8%) of treated cases.
Hemodialysis providers are generally either independent clinics or
hospitals. According to the CMS, since 1973 the total number of hemodialysis
providers in the United States increased from 606 in 1973 to 4,433 in December
2002. The number of patients receiving hemodialysis has also grown substantially
in the last decade with annual patient growth averaging about 14,000 patients or
between 4-9%. According to the CMS, in 2002, more than 298,000 patients were
treated in Medicare-approved renal facilities as compared to 157,525 patients in
1993 and, from 1993 to 2002, the number of hemodialysis stations, which are
areas equipped to provide adequate and safe dialysis therapy, grew from 35,240
stations to 72,115 stations or 104%. In addition, according to CMS, the number
of Medicare-approved dialysis machines increased by approximately 4,000 stations
or 5.8% between 2001 and 2002.
According to reports by major companies in our industry there are believed
to be 1.3 million kidney dialysis patients globally.
STRATEGY
Our long term objectives are to increase our market share, expand our
product line, expand our geographical selling territory and improve our
profitability by implementing the following strategies:
- Increasing Sales Through Sales of New Innovative Products. We have
signed global licensing agreements for delivery of iron supplemented
dialysate. The FDA considers this product to be a combination
pharmaceutical drug (iron) and device (dialysate). We believe iron
supplemented dialysate will substantially improve iron maintenance
therapy. See PRODUCTS -- "Iron Supplemented Dialysate" on page 5 below.
This product requires FDA approval before it can be included in our
product line. In addition, to be commercially successful, the drug portion
of the product will need to be reimbursed by Medicare (CMS). If it is not
reimbursed it may not be adopted by dialysis providers. If it is not
adopted by dialysis providers, our entire investment may be worthless or
of limited commercial value. We believe that if FDA approval is obtained
for this drug and providers are reimbursed by insurers and CMS for using
this drug, the superiority of this drug will enable us to capture market
share in the market for iron maintenance therapy. The process of obtaining
FDA approval for a new drug may take several years and many drugs that
undergo clinical trials are never approved for patient use. It is possible
that our new proprietary product may never be approved to be marketed.
We introduced two new product lines in 1999; Dri-Sate(R) Dry Acid
Concentrate and SteriLyte(R) Liquid Bicarbonate which we believe are
superior to competitors' product offerings and have acted as a catalyst to
attract new customers and to expand our existing business relationships
with dialysis providers. See PRODUCTS -- "Dri-Sate Dry Acid Concentrate"
and "SteriLyte Liquid Bicarbonate" on page 4 below.
- Acting as a Single Source Supplier. We have positioned Rockwell as an
independent "one-stop-shop" to our customers for the concentrates,
chemicals and supplies necessary to support a hemodialysis provider's
operation. Some of our competitors 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.
- Increasing Sales Through Ancillary Product Line Expansion. We believe
the market potential for ancillary products and supplies used by
hemodialysis providers is equivalent to or greater than the market for
dialysis concentrates. Our strategy is to offer cost effective ancillary
products that include ancillary products such as specialized kits, fistula
needles, chemicals, sterile dressings and blood tubing.
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Customers purchase many of these ancillary items based on price from
various suppliers. We believe that as we continue to gain market share, we
will increasingly be able to procure these ancillary items on a
cost-effective basis and will provide our customers with the convenience
of a single supply source and a highly competitive price level.
- Offering a Higher Level of Delivery/Customer Service. By using our own
delivery vehicles and drivers, we believe we can offer a higher level of
customer service to hemodialysis providers than we could if we relied
primarily on the use of common carriers to distribute our products. Our
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 our competitors generally use
common carriers for delivery of their products. We believe we offer a
higher distribution service level to our customers through the use of our
own delivery vehicles and drivers.
- Expanding Market Share in Target Regions. Because of the costs
associated with transporting and delivering hemodialysis concentrates, we
believe we have a cost advantage with respect to certain customers located
near our manufacturing facilities. Our long range strategy is to add
additional manufacturing facilities or distribution centers in locations
which will provide us with a competitive cost advantage and allow us to
provide customers with superior customer service levels due to our
proximity to them. We would expect to execute this strategy by leveraging
off of our existing customer relationships by serving those customers in
areas where we currently only have a minor or negligible presence. We
expect to add additional manufacturing or distribution capabilities.
PRODUCTS
We manufacture, sell, distribute and deliver hemodialysis concentrates as
well as a full line of ancillary hemodialysis products to hemodialysis providers
and distributors located in more than 33 states as well as several foreign
countries, primarily in the Far East, eastern Europe and Latin America.
Hemodialysis concentrates are comprised of two primary product types, which are
generally described as acidified dialysate concentrate, also known as, acid
concentrate and bicarbonate.
"ACID CONCENTRATE"
Acid concentrate generally contains sodium chloride, dextrose and
electrolyte additives such as magnesium, potassium, and calcium. Acid
concentrate products are manufactured in three basic series to reflect the
dilution ratios used in various types of dialysis machines. We supply all three
series and currently manufacture approximately 60 different liquid acid
concentrate formulations. We supply liquid acid concentrate in both 55 gallon
drums and in cases containing four one gallon containers.
"DRI-SATE(R) DRY ACID CONCENTRATE"
In June of 1998, we obtained 510(k) clearance from the FDA to manufacture
and market Dri-Sate Dry Acid Concentrate. This product line enhanced our
previous liquid acid concentrate product offerings. Since its introduction in
1999, our dry acid concentrate product line has grown to represent over 50% of
our acid concentrate sales.
Our 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 concentrate 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, reduced storage space requirements, reduced number of
deliveries and more flexibility in scheduling deliveries. In addition to the
advantages to our customers, the freight costs to us are lower for Dri-Sate Dry
Acid Concentrate than for acid concentrate in the liquid form. We can also
generate back-haul revenue because our trucks are available to haul freight on
the return trip rather than being used to return empty 55 gallon drums to our
facilities.
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"BICARBONATE"
Bicarbonate is generally sold in powder form and each clinic generally
mixes bicarbonate on site as required. We offer approximately 20 bicarbonate
products covering all three series of generally used bicarbonate dilution
ratios.
"STERILYTE(R) LIQUID BICARBONATE"
In June of 1997, we obtained 510(k) clearance from the FDA to manufacture
and market SteriLyte Liquid Bicarbonate. Our SteriLyte Liquid Bicarbonate is
mostly used in acute care settings. Our SteriLyte Liquid Bicarbonate offers the
dialysis community a high-quality product and provides the clinic a safe and
uninterrupted supply of bicarbonate.
"ANCILLARY PRODUCTS"
We offer a wide range of ancillary products including blood tubing, fistula
needles, specialized custom kits, dressings, cleaning agents, filtration salts
and other supplies used by hemodialysis providers.
"IRON SUPPLEMENTED DIALYSATE"
We have licensed the exclusive right to manufacture and sell a product that
we believe will substantially improve the treatment of dialysis patients with
iron deficiency. Iron deficiency is pervasive in the dialysis patient
population. Blood has several components including plasma which contains
electrolytes, proteins, nutrients, hormones and other substances, and white
blood cells, red blood cells and platelets. Red blood cells carry oxygen
throughout the body to nourish tissues and sustain life. The most important
constituent of red blood cells is hemoglobin, a complex molecule composed of
protein and iron, which is responsible for carrying oxygen to body tissues. Red
blood cells are produced in bone marrow. The body regulates the production of
red blood cells so that enough red blood cells are produced to carry oxygen, but
not so many that the blood becomes viscous or thick. A healthy kidney triggers
the release of a hormone, erythropoietin which acts in the bone marrow to
increase the production of red blood cells. The kidneys of patients with ESRD
are often deficient in the production of this hormone.
Anemia is characterized by an abnormally low number of red blood cells in
the circulatory system. Severe anemia associated with ESRD is mainly due to a
deficiency in erythropoietin, a hormone produced by healthy kidneys that
stimulates red blood cell production. Most dialysis patients receive replacement
therapy of recombinant human erythropoietin (Epoetin alfa). Treatment with this
drug therapy requires adequate amounts of iron for new hemoglobin synthesis and
new red blood cell formation. Dialysis patients being treated with Epoetin alfa
therapy require rapid mobilization of iron reserves in order to meet the demands
of new red blood cell growth. The demands of this therapy can outstrip the
body's ability to mobilize iron stores and iron deficiency can result. Iron
supplementation is required, not only to maintain proper iron balance, but to
ensure good therapeutic response.
The majority of dialysis patients also suffer from iron deficiency. Blood
loss from dialysis treatments and reduced dietary intake of iron are the key
reason for this deficiency in iron stores. The liver is the site of most stored
iron. Depletion of iron stores precedes impaired production of iron-containing
proteins, the most prominent of which is hemoglobin, a primary component of red
blood cells. Most dialysis patients receiving Epoetin alfa therapy also receive
iron supplement therapy in order to maintain sufficient iron stores and to
achieve the full benefit of Epoetin alfa treatments.
Current intravenous ("IV") parenteral iron compounds do not pass their iron
load directly to blood plasma to be carried to the bone marrow. Instead these IV
compounds deposit their iron load into the liver. The liver slowly processes
this iron deposit into a useable form. As a result of the time between a dosage
of IV iron and its availability to the body in useable form there can be
volatility in iron stores which can reduce the effectiveness of Epoetin alfa
treatments. Epoetin alfa is commonly administered as a large intravenous
injection on an intermittent basis which creates an unnatural strain on the iron
release process when the need for iron outstrips its rate of delivery, called
functional iron deficiency.
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Our iron supplemented dialysate has a distinct difference from IV iron
compounds in that our product transfers iron in a useable form directly from
dialysate into the blood plasma and is carried directly to the bone marrow for
the formation of new red blood cells. The kinetic properties of our iron
compound allows for the rapid uptake of iron in blood plasma by molecules that
transport iron called transferrin. The frequency and dosage of our iron
supplemented dialysate is designed and intended to maintain iron balance in a
steady state. We believe that this more direct method of iron delivery will be
more effective at maintaining iron balance in a steady state and to achieve
superior therapeutic response from Epoetin alfa treatments.
Iron supplemented dialysate has other benefits that we believe are
important. Iron administered by our product bypasses the liver altogether and
thereby avoids causing liver damage. In addition, we believe that clinics may
realize significant drug administration savings due to decreased nursing time
for administration and elimination of supplies necessary to administer IV iron
compounds.
We are currently in the process of seeking FDA approval of iron
supplemented dialysate. A Phase II clinical trial on one of our licensed iron
supplemented dialysate products under an Investigational New Drug (IND)
exemption was completed by one of our licensors. We plan to conduct further
product testing and clinical trials in order to obtain FDA approval for iron
supplemented dialysate. We currently expect that the scope, duration and cost of
this testing is likely to be greater than we initially anticipated. We now
estimate the cost to obtain FDA approval to be between $5-7 million. However,
this estimate may be modified as the approval process progresses. We plan to
conduct safety pharmacology testing and to conduct clinical trials. We will be
required to pay the cost of obtaining marketing approval of the product in order
to realize any benefit from commercialization of the product. In addition to
funding, safety pharmacology testing, clinical trials and patent maintenance
expenses, we are obligated to make certain milestone payments and to pay ongoing
royalties upon successful introduction of the product. The milestone payments
include a payment of $50,000 which will become due upon completion of Phase III
clinical trials, a payment of $100,000 which will become due upon FDA approval
of the product and a payment of $175,000 which will become due upon issuance of
a reimbursement code covering the product.
DISTRIBUTION AND DELIVERY OPERATIONS
The majority of our products are delivered by our subsidiary, Rockwell
Transportation, Inc. Rockwell Transportation, Inc. operates a fleet of 22 trucks
which are used to deliver products to our customers. A portion of our
deliveries, primarily to medical products distributors, is provided by common
carriers chosen by us based on rates.
Rockwell Transportation, Inc. currently employs 22 drivers to operate its
truck fleet and a fleet operations manager to manage its distribution
operations. We perform services for customers that are generally not available
from common carriers, such as stock rotation, non-loading-dock delivery and drum
pump-offs. Certain of our competitors use common carriers and/or do not perform
the same services upon delivery of their products. We believe we offer a higher
level of service to our customers because of the use of our own delivery
vehicles and drivers.
As we continue to grow our Dri-Sate Dry Acid Concentrate sales and migrate
our product mix from liquid acid dialysate in drums to Dri-Sate Dry Acid
Concentrate, we anticipate we will achieve improved distribution efficiencies
from our truck fleet as a result of reduced frequency of deliveries and
increased sales volume per truckload. As an example, a pallet containing four
drums of liquid acid concentrate contains 220 gallons of liquid acid
concentrate. On a pallet containing our Dri-Sate Dry Acid Concentrate, we can
ship the equivalent of 1,200 gallons of acid concentrate in powder form.
Our trucking operations are and will continue to be subject to various
state and federal regulations, which if changed or modified, could adversely
affect our business, financial condition and results of operations.
SALES AND MARKETING
We primarily sell our products directly to domestic hemodialysis providers
through three independent sales representation companies and three direct
salespeople employed by us. Our President and Chief
5
Executive Officer leads and directs our sales efforts to our major accounts. We
also utilize several independent distributors in the United States. Our products
are sold to certain international customers through independent sales agents.
Our sales and marketing initiatives are directed at purchasing decision
makers at large for-profit national and regional hemodialysis chains and toward
independent hemodialysis service providers. Our marketing efforts include
advertising in trade publications, distribution of product literature and
attendance at industry trade shows and conferences. We target our sales and
marketing efforts to clinic administrators, purchasing professionals, nurses,
medical directors of clinics, hospital administrators and nephrologists.
COMPETITION
DIALYSIS CONCENTRATE AND SUPPLIES COMPETITION
We compete against larger more established competitors with substantially
greater financial, technical, manufacturing, marketing, research and development
and management resources than ours. We compete against three major competitors,
of which our two largest competitors are primarily in the business of operating
hemodialysis clinics. The two largest manufacturers of hemodialysis concentrates
are Fresenius Medical Care, Inc. ("Fresenius") and Gambro Healthcare, Inc.
("Gambro") who we believe also have, respectively, the first and third largest
ESRD patient base in the United States. Gambro recently announced its intention
to sell its clinic business to DaVita, Inc. These companies produce and sell a
more comprehensive line of dialysis equipment, supplies and services than we
sell.
Fresenius treats over 80,000 dialysis patients in North America and
operates in over 1,100 clinics. It also has a renal products business that
manufactures a broad array of equipment and supplies 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. We believe Fresenius manufactures its concentrate in its own
regional manufacturing facilities. Fresenius operates an extensive warehouse
network in the United States serving its captive customer base and other
independent clinics.
Gambro treats an estimated 42,500 dialysis patients in the United States
and operates approximately 580 clinics. Gambro manufactures and sells
hemodialysis machines, dialyzers and other ancillary supplies. Gambro sells its
concentrate solutions both to its own captive clinic base and to other clinic
chains and independent clinics. We believe Gambro operates one manufacturing
facility in Florida and additionally uses other manufacturers, including
Fresenius and a private label manufacturer in the eastern United States to
manufacture concentrate. Gambro also imports products from its European
manufacturing facilities. 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
manufacture a liquid bicarbonate product line nor does it manufacture a powder
acidified concentrate product line in the United States.
In December 2004, Gambro announced that it was going to sell its U.S.
clinic business to DaVita, Inc., our largest customer. This transaction is
pending government approval. Once completed it is not clear whether Gambro will
remain in the concentrate business or seek to alter its strategy in some way.
How this sale may impact our market or our results is not clear at this time. We
believe these events may prove beneficial in our business development efforts.
We also compete against Cantel Medical Corp.'s subsidiary, Minntech
Corporation ("Minntech"). Minntech's Renal Systems division primarily sells
dialysis concentrates and Renalin, a specialty reuse agent for sanitizing
dialyzers. We believe Minntech has one domestic manufacturing facility located
in Minnesota, a distribution center in Camp Hill, Pennsylvania and a
distribution center in Mississippi. We believe Minntech uses a private label
manufacturer to supply certain products in the northeastern United States to its
warehouse locations. We believe Minntech largely uses its own vehicles to
deliver its products to its customers.
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IRON MAINTENANCE THERAPY MARKET COMPETITION
We intend to enter the iron maintenance therapy market for the treatment of
dialysis patients with anemia. We must obtain FDA approval for our iron
supplemented dialysate to enter this market. The iron therapy market for IV iron
is serviced by two manufacturers and three products. We believe the market
leader is Watson Pharmaceutical, Inc. ("Watson"). Watson markets a product
called Ferrlecit(R) which is an injectable iron supplement made of sodium ferric
gluconate complex in sucrose, and also markets a product called IN-FeD(R) which
is an injectable iron supplement made of dextran and ferric hydroxide. Watson is
a large manufacturer of both generic and branded drugs. A second competitor in
the IV iron market is American Regent Laboratories, Inc which markets
Venofer(R), an injectable iron sucrose product. Both Watson and American Regent
Laboratories, Inc. have substantially greater resources than us.
The markets for our products are highly competitive. New products we are
developing 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, additional product introductions or developments by
others might render our products or technologies noncompetitive or obsolete. In
addition, pharmaceutical and medical device companies are largely dependent upon
health care providers being reimbursed by private insurers and government
agencies. Drugs approved by the FDA might not receive reimbursement from private
insurers or government agencies. Even if approved by the FDA, providers of
dialysate iron maintenance therapy might not obtain reimbursement from insurers
or government agencies. If providers do not receive reimbursement for dialysate
iron maintenance therapy, the commercial prospects and marketability of the
product would be severely diminished.
QUALITY ASSURANCE AND CONTROL
We place significant emphasis on providing quality products and services to
our customers. Quality management plays an essential role in determining and
meeting customer requirements, identifying, preventing and correcting variance
from specifications and improving our products. We have implemented quality
systems within Rockwell. These quality systems involve control procedures that
result in rigid specifications. Rockwell's quality systems also include
assessments of suppliers of raw materials, packaging components and finished
goods, and quality management reviews designed to inform management of key
issues that may affect the quality of products, to assess the effectiveness of
our quality systems and to identify areas for improvement.
Technically trained professionals at our production facilities develop and
implement our quality systems which include specific product testing procedures
and training of employees reinforcing our commitment to quality and promoting
continuous process improvements. To assure quality and consistency of our
concentrates, we conduct specific analytical tests during the manufacturing
process for each type of product that we manufacture. Our quality control
laboratory at each facility conducts analytical tests to verify that the
chemical properties of the concentrates comply with the specifications required
by industry standards. Upon verification that a batch meets those
specifications, we then package those concentrates. We also test package
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 after verification that all
product specifications have been met.
We use automated testing equipment in order to assure quality and
consistency in the manufacture of our concentrates. The equipment allows us 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. Our testing
equipment provides us with a high degree of accuracy and efficiency in
performing the necessary testing.
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GOVERNMENT REGULATION
The testing, manufacture and sale of our hemodialysis concentrates and the
ancillary products we distribute are subject to regulation by numerous
governmental authorities, principally the FDA and corresponding state and
foreign agencies. Under the Federal Food, Drug and Cosmetic Act (the "FDA Act"),
and FDA regulations, 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.
We plan to develop and commercialize selected drug candidates by ourselves
such as our iron supplemented dialysate product. The regulatory review and
approval process, which includes preclinical testing and clinical trials of each
product candidate, is lengthy and uncertain. Before marketing in the United
States, any pharmaceutical or therapeutic product must undergo rigorous
preclinical testing and clinical trials and an extensive regulatory approval
process implemented by the FDA under the Federal Food, Drug and Cosmetic Act.
Moreover, the FDA imposes substantial requirements on new product research
and the clinical development, manufacture and marketing of pharmaceutical
products, including testing and clinical trials to establish the safety and
effectiveness of these products.
MEDICAL DEVICE APPROVAL AND REGULATION
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 devices (general controls) or class II devices (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. We have been advised that it now usually
takes from three to six months from the date of submission to obtain 510(k)
clearance, but it can take substantially longer. Our 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 the 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 the
safety and effectiveness of the device to the FDA. The process of obtaining PMA
approval is expensive and uncertain. We have been advised that it usually takes
from one to three years after filing the request, 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.
8
Any devices manufactured or distributed by us pursuant to FDA clearances or
approvals are subject to pervasive and continuing regulation by the FDA and
certain state agencies. As a manufacturer of medical devices for marketing in
the United States we are required to adhere to regulations setting forth
detailed Good Manufacturing Practice ("GMP") requirements, which include
testing, control and documentation requirements. We must also comply with
Medical Device Reporting ("MDR") regulations which require that report to the
FDA any incident in which our products may have caused or contributed to a death
or serious injury, or in which our products 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.
We are subject to routine inspection by the FDA and certain state agencies
for compliance with GMP requirements and other applicable Quality System
regulations. We are also 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.
We have 510(k) clearance from the FDA to market hemodialysis concentrates
in both liquid and powder form. In addition, we have received 510(k) clearance
for our Dri-Sate Dry Acid Concentrate Mixer.
We must comply with the FDA Act and related laws and regulations including
GMP to retain 510(k) clearances. We cannot assure you that we will be able to
maintain our 510(k) clearances from the FDA to manufacture and distribute our
products. If we fail to maintain our 510(k) clearances, we may be required to
cease manufacturing and/or distributing our products, which would have a
material adverse effect on our business, financial condition and results of
operations. If any of our FDA clearances are denied or rescinded, sales of our
products in the United States would be prohibited during the period we do not
have such clearances.
In addition to the regulations for medical devices covering our current
dialysate products, our new product development efforts will be subject to the
regulations pertaining to pharmaceutical products. We have signed licensing
agreements for water soluble iron supplements to be included in our dialysate
products. Water soluble iron supplements when coupled with our dialysate will be
used as an iron maintenance therapy for dialysis patients, and we have been
advised that these water soluble iron supplements will be considered a
drug/device combination by the FDA. As a result, our iron maintenance therapy
product will be subject to the FDA regulations for pharmaceutical products, as
well.
DRUG APPROVAL AND REGULATION
The marketing of pharmaceutical products, such as our new iron maintenance
therapy product, 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 our
new iron maintenance therapy product and other pharmaceutical products. The
process of obtaining FDA approval for our 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
9
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 begin 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 are 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 our 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.
Manufacturing facilities are subject to periodic inspections for compliance
with regulations and each domestic drug manufacturing facility must be
registered with the FDA. Foreign regulatory authorities may also have similar
regulations. We 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 our business and results of
operations.
OTHER GOVERNMENT REGULATIONS
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, we cannot predict
what impact any reform proposal ultimately adopted may have on the
pharmaceutical and medical device industry or on our business or operating
results. Our 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.
10
PRODUCT LICENSE AGREEMENTS
We entered into two license agreements for iron supplemented dialysate
during 2001 and 2002, respectively. 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. The license agreements
continue for the duration of the underlying patents in each country, or
approximately 13 years in the United States, and may be extended thereafter.
The product license agreements require us to obtain FDA approval of iron
supplemented dialysate. A Phase II clinical trial on one such iron supplemented
dialysate under an Investigational New Drug (IND) exemption was completed by one
of our licensors. We plan to conduct product testing and clinical trials in
order to obtain FDA approval to market this product. We are currently evaluating
the cost, duration and scope of this product testing and clinical trials is
under evaluation. We will be required to pay the cost of obtaining approval from
the FDA to market the product in order to realize any benefit from
commercialization of the product which we estimate will take several years and
cost between $5 million and $7 million. In addition to funding clinical trials
and patent maintenance expenses, we are obligated to make certain milestone
payments and to pay ongoing royalties upon successful introduction of the
product as previously described.
TRADEMARKS & PATENTS
We have several trademarks and servicemarks used on our products and in our
advertising and promotion of our products, and we have applied for U.S.
registration of such marks. Most such registrations have now been issued.
We were issued a U.S. patent for our Dri-Sate Dry Acid Concentrate method
and apparatus for preparing liquid dialysate on May 28, 2002 which expires on
September 18, 2018. We have applied for corresponding international patents in
selected countries and these are pending at this time. We have no other patents.
SUPPLIERS
We believe the raw materials for our hemodialysis concentrates, the
components for our hemodialysis kits and the ancillary hemodialysis products
distributed by us are generally available from several potential suppliers. Our
principal suppliers include, Cargill, Inc., Roquette, Inc., Church & Dwight Co.
Inc., Morton Salt Company and Nipro Medical Corporation.
CUSTOMERS
We operate 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, 2004, two customers each accounted for more than 10% of our total
sales, representing 52% of total sales. For the year ended December 31, 2003,
three customers each accounted for more than 10% of our total sales,
representing 42% of total sales. Our accounts receivable from these customers
were $1,362,000 and $1,032,000 as of December 31, 2004 and 2003, respectively.
We are dependent on these customers and the loss of any of them would have a
material adverse effect on our business, financial condition and results of
operations. Our international sales aggregated slightly over 4% and 3% of
overall sales in 2004 and 2003, respectively.
EMPLOYEES
As of December 31, 2004, we had approximately 120 employees, all but one of
whom are full-time employees.
If our sales volumes continue to increase, we expect to add additional
production, distribution, sales and administrative personnel. Our arrangements
with our employees are not governed by any collective bargaining agreement. Our
employees are employed on an "at-will" basis.
11
Our employment agreements with Mr. Robert L. Chioini, our Chairman,
President and Chief Executive Officer and Mr. Thomas E. Klema, our Vice
President, Chief Financial Officer and Secretary have expired. Mr. Chioini and
Mr. Klema are continuing their employment without an employment agreement under
the same compensation terms.
RESEARCH & DEVELOPMENT
We have licensed an iron maintenance therapy product for the treatment of
iron deficiency in anemic dialysis patients which we refer to as iron
supplemented dialysate. We incurred expenses during 2004 and 2003 for product
development, to obtain regulatory approval and for regulatory maintenance of the
intellectual property underlying our licensing agreements. We engaged outside
consultants and legal counsel to assist us with product development and
obtaining regulatory approval. In addition, we incurred ongoing expenses related
to obtaining additional protection of the intellectual property underlying our
licensing agreements. In 2004 and 2003, we incurred expenses related to the
commercial development of our iron supplemented dialysate product aggregating
approximately $200,000 and $250,000, respectively.
We must undertake substantial testing to obtain FDA approval for our new
iron supplemented dialysate product. The cost of this testing including clinical
trials (which we estimate to be between $5 million and $7 million) will have a
material impact on us, and we will be required to seek additional sources of
financing to fund these costs. Should we be unable to fund new product
development efforts, we may have to abandon or postpone our efforts to obtain
FDA approval of our new iron maintenance therapy product. If we are unable to
obtain FDA approval of our new iron maintenance therapy product or to make
certain milestone payments we may forfeit our rights under our license
agreements.
Statements in this annual report 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 product testing and
clinical trials, and from submission of an application for market approval to a
final decision by a regulatory authority, varies significantly. We might not
have the financial resources necessary to complete all of the testing and the
clinical trials for this product, and even if we do, they might not be
successfully completed. We might not be able to obtain regulatory approval for
any such product, and even if we do, any approved product might not be produced
in commercial quantities, at reasonable costs, or successfully marketed.
Similarly, our competitors, most of whom have greater resources than us, might
develop and introduce products that will adversely affect our business and
results of operations.
OTHER
We do not expect any significant cost or impact from compliance with
environmental laws.
WHERE YOU CAN GET INFORMATION WE FILE WITH THE SEC
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can read and copy any materials we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website on
the internet that contains reports, proxy and information statements and other
information regarding issuers, such as us, that file electronically with the
SEC. The address of the SEC's Web site is http://www.sec.gov.
We also maintain a website at http://www.rockwellmed.com. We make available
free of charge on or through our website, our annual reports on form 10-KSB.
ITEM 2. DESCRIPTION OF PROPERTY.
We entered into a lease agreement in October 2000 to lease a new 51,000
square foot facility in Wixom, Michigan. We occupied the new facility in July
2001 under a seven year lease. Base rent for the facility is $31,786 per month.
In addition, we are responsible for all property taxes, insurance premiums and
maintenance costs.
12
On March 12, 2000 we entered into an agreement to lease a 51,000 square
foot facility in Grapevine, Texas through August 2005. Base monthly rent for the
facility is $17,521, and we are responsible for all property taxes, insurance
premiums and maintenance costs.
On February 23, 2005, we entered into short term lease agreement for a
61,000 square foot facility in Hodges, South Carolina. Monthly rent for the
facility is $17,500. We expect to commence operations from this facility by
April 2005.
We intend to use all of our facilities to manufacture and warehouse our
products. We also use the office space in Wixom, Michigan as our principal
administrative office. We believe these facilities are suitable and adequate to
meet our current production and distribution requirements. However, should our
business continue to expand, we may require additional office space,
manufacturing capacity and distribution facilities to meet our requirements.
ITEM 3. LEGAL PROCEEDINGS.
We 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. We agreed to
settle this action in the first quarter of 2005. We expect to receive gross
proceeds from this settlement of approximately $241,000. We received cash of
$130,000 during the first quarter of 2005. A portion of the cash received was
from the exercise of stock options by the defendant during the first quarter of
2005 which totaled $103,750. The balance of the settlement is due by April 29,
2005. As of December 31, 2004, we have not recognized income for any portion of
this settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We did not submit any matter to a vote of security holders during the
fourth quarter of 2004.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Our common shares are traded on The Nasdaq SmallCap Market under the symbol
RMTI.
It is a requirement for continued listing of our common shares on The
Nasdaq SmallCap Market that we either maintain a minimum of $2,500,000 in
shareholders' equity, have a $35,000,000 market capitalization or have earned
$500,000 in net income for two of our three most recently completed fiscal
years. We have relied on having shareholders' equity in excess of $2,500,000 to
meet this requirement. As of December 31, 2004, Rockwell had shareholders'
equity of $3,422,319. If the cost of our clinical trials exceeds the income
generated by our operations or if we otherwise incur losses and if we are unable
to raise sufficient equity to keep shareholders' equity at or above $2,500,000,
we may be subject to delisting from The Nasdaq SmallCap Market.
If our 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 more difficult to
buy or sell common shares or common share purchase warrants on the open market.
13
The prices below are the high and low bid prices as reported by The Nasdaq
SmallCap Market in each quarter during 2003 and 2004. The prices are
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, 2003.............................................. 1.56 0.41
June 30, 2003............................................... 2.05 1.00
September 30, 2003.......................................... 3.49 1.95
December 31, 2003........................................... 3.99 2.70
March 31, 2004.............................................. 4.50 3.45
June 30, 2004............................................... 4.25 2.52
September 30, 2004.......................................... 3.41 2.28
December 31, 2004........................................... 3.75 2.67
As of March 9, 2005, there were 56 record holders of our common shares.
DIVIDENDS
Our Board of Directors has discretion whether or not to pay dividends.
Among the factors our Board of Directors considers when determining whether or
not to pay dividends are our earnings, capital requirements, financial
condition, future business prospects and business conditions. We have never paid
any cash dividends on our common shares and do not anticipate paying dividends
in the foreseeable future. We intend to retain earnings, if any, to finance the
development and expansion of our operations.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes our compensation plans under which our
equity securities are authorized for issuance as of December 31, 2004:
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES REMAINING AVAILABLE
ISSUED UPON EXERCISE OF WEIGHTED AVERAGE EXERCISE FOR FUTURE ISSUANCE UNDER EQUITY
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, COMPENSATION PLANS (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORIES (A) (B) (C)
--------------- -------------------------- ----------------------------- ----------------------------------------
Equity compensation
plans approved by
security holders...... 2,707,717 $2.12 453,355
Equity compensation
plans not approved by
security holders...... -- -- --
Total................. 2,707,717 $2.12 453,355
ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Some of the statements in this report are forward-looking statements. These
forward-looking statements include statements relating to our performance in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations. In addition, we may make forward-looking statements in future
filings with the Securities and Exchange Commission and in written material,
press releases and oral statements issued by us or on our behalf.
Forward-looking statements include statements regarding the intent, belief, or
current expectations of us or our officers, including statements preceded by,
followed by or including forward-looking terminology such as "may", "might",
"will", "should", "believe", "expect", "anticipate", "estimate", "continue",
"predict", "forecast", "projected" or similar expressions, with respect to
various matters.
14
Our actual results might differ materially from those projected in the
forward-looking statements depending on various important factors. The important
factors include our history of losses, the cost of obtaining FDA approval to
market our new iron supplemented dialysate product, the challenges associated
with developing new products, the uncertainty of the acceptance of our products
by the hemodialysis community, competition in our markets, and other factors
discussed in this report and other filings, all of which constitute cautionary
statements identifying important factors with respect to forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
All forward-looking statements in this report are based on information
available to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this
report or otherwise.
OVERVIEW
We operate in a single business segment; the manufacture and distribution
of hemodialysis concentrates, dialysis kits and ancillary products used in the
dialysis process. We have gained market share each year since our inception in
1996. We increased sales of our concentrate product lines by over 30% this year,
allowing us to more fully utilize our facilities, equipment and staff, and
increasing our profitability. We believe that our core concentrate and supply
business can continue to be profitable.
The dialysis industry is highly concentrated with several large clinic
chains representing the majority of the industry. We expect that the
consolidation of large and regional dialysis service providers will continue in
the future. Our largest customer, DaVita, Inc., the second largest dialysis
treatment provider in the United States has announced its pending acquisition of
the dialysis clinic business of Gambro, the third largest dialysis treatment
provider in the United States. How this acquisition by DaVita may impact our
market or our results is not clear at this time. We believe these events may
prove beneficial in our business development efforts.
As a result of this industry concentration, the dialysis supply market is
very competitive. We compete against companies which have substantially greater
resources than we have. Our revenue is highly concentrated in a few customers
and the loss of any of those customers would adversely affect our results.
However, we expect to continue to grow our business while executing our
strategic plan to expand our product lines, to expand our geographic reach and
to develop our proprietary technology which may include adding facilities and
personnel to support our growth. As we increase our business in certain markets
and regions, we may incur additional costs that are greater than the additional
revenue generated from these initiatives.
We are seeking to gain FDA approval for our iron supplemented dialysate
product. We believe our iron supplemented dialysate product has the potential to
compete in the iron maintenance therapy market. If we are successful in
introducing our dialysate iron product, we believe it is possible that we may
also increase our market share for the other products we sell. The cost to
obtain regulatory approval for a drug in the United States is expensive and we
expect that the development costs of our iron supplemented dialysate product
will require us to raise additional funds or collaborate with a strategic
partner. We expect to incur substantial costs to conduct required clinical
trials and to obtain marketing approval which may offset some or all of any
profits generated from sales of our existing products during the approval
process. We expect this process to take several years and we might not be
successful.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31,
2003
Sales
For the year ended December 31, 2004, our sales were $17.95 million as
compared to sales of $15 million for 2003, representing an increase of 19.9%. We
increased our sales to our key national and regional chain customers. Sales of
our concentrate product lines increased by over 30% while sales in our ancillary
product
15
lines decreased by $600,000. The decrease in our ancillary product sales was due
to a reduction in blood tubing sales to a single customer of $860,000 in 2004 as
compared to 2003.
Our core concentrate product lines which represent approximately 85% of our
total sales increased by over 30% in 2004 over 2003. Sales of our concentrate
product lines were up $3.6 million in 2004 over 2003. Demand increased for all
of our concentrate product lines with substantial growth in both powder and
liquid product lines. Both clinic chains and independent providers are attracted
to our Dri-Sate product line and its patented Dri-Sate (R)Dry Acid Concentrate
Mixing System. Our Dri-Sate Dry Acid Concentrate unit volumes increased 38% over
2003. Similarly, our gallon volume of liquid acid concentrate grew by 40%. Our
SteriLyte(R) Liquid Bicarbonate unit volume increased 52% in 2004 as compared to
2003. Powder bicarbonate unit volumes increased by 32%.
While our overall ancillary sales declined in 2004 as compared to 2003 due
to the reduction in blood tubing purchases by a single customer of $860,000, the
remainder of our ancillary products realized increases in sales volumes. We
realized additional blood tubing sales aggregating $150,000 and we experienced
an increase of $110,000 in specialty kit sales.
We also experienced a reduction in backhaul revenue from our transportation
fleet. Our backhaul revenue declined $67,000 in 2004 as compared to 2003 as a
result of a combination of factors including new driver regulations that reduced
the amount of driving time available and due to the significant business growth
we realized that resulted in greater utilization of our fleet to deliver our own
products. We do not expect backhaul revenue to be a material source of revenue
in the future.
Gross Profit
Gross profit was $2,805,000 and increased by $250,000 in 2004 as compared
to 2003. In 2004, we made a change to the relative allocation of certain costs
for facility, depreciation and other costs that increased the portion of those
costs included in cost of goods sold. As a result, we increased cost of sales by
$136,800 in 2004 as compared to 2003 or .8% of sales for this change in
allocations. Overall, our comparable gross profit margins between 2004 and 2003
decreased by .5 percentage points after adjusting for this change in
allocations. Despite higher sales volumes, our gross profit margins of 15.6%
decreased largely due to increased delivery costs for our products which more
than offset productivity improvements from higher production volumes.
We experienced substantially higher delivery costs throughout 2004 due to
several contributing factors including additional fleet resources added to
support new business growth, higher fuel costs to operate our fleet, increased
frequency of deliveries for certain customers and in the second half of 2004 a
higher growth rate in customers in territories beyond our traditional
distribution footprint. As a result of a combination of these factors, our
distribution costs were up approximately 3 percentage points to sales as
compared to 2003. We anticipate that the negative impact from some of these
factors may be mitigated in the future as we gain efficiencies from our fleet
additions, reduce delivery frequency for certain customers and optimize our
distribution efforts in certain markets. We have added a new facility in the
Southeast to address, on an interim basis, distribution of our products in that
region. We would expect that if the cost of fuel continues to increase that it
may offset any future distribution improvements and other productivity
improvements from higher sales volumes.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses were $2,396,000 and were 13.4%
of sales, an improvement of 2.4 percentage points compared to 2003. However, we
reduced the allocation of facility, depreciation and other costs charged to
selling, general and administrative expense by $136,800. Without this allocation
change, selling, general and administrative costs increased by $165,000, or 7%
compared to the 2003. The majority of the cost increase was due to additional
resources and expenses, including additional personnel costs, to handle
increased transaction activity associated with our 30% increase in concentrate
sales.
16
We made a considerable investment for research and product development of
dialysate iron in 2004 with aggregate spending of $200,000. We spent over
$250,000 for development of our iron supplemented dialysate product in 2003. We
expense these investments in the year they are incurred.
Operating Income
Our Operating Income in 2004 increased over our operating income in 2003 by
$221,000 or 118% to $409,000 or 2.3% of sales. This improvement resulted
primarily from our increased sales volumes.
Interest Expense
Interest expense increased by $14,600 in 2004 over 2003 due to higher
interest expense on new capitalized leases obligations. This increase was
partially offset by lower average borrowings under our line of credit.
Net Income
Net income in 2004 was $211,522, an improvement of $206,700 over 2003. Net
income to sales improved by 1.2 percentage points to sales compared to 2003. We
have substantial tax loss carryforwards from our earlier losses and the impact
of those carryforward losses offset the statutory tax liability for 2004. We
have not recorded a federal income tax benefit from our prior losses because we
might not realize the carryforward benefit of the remaining losses.
Basic earnings per share was $.02 which was a $.02 improvement in net
income per share in 2004 over 2003. Similarly, fully diluted earnings per share
of $.02 improved $.02 as compared to 2003.
FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31,
2002
Sales
For the year ended December 31, 2003, sales were $15 million as compared to
sales of $11.5 million for 2002 representing an increase of 30.2%. Our sales
increased largely because of unit volume growth across our key product lines
with the addition of new customers and increase in sales to existing customers.
Sales of our concentrate product lines which represented 79% of our sales in
2003 increased 24%. In addition, in 2002 we added blood tubing to the line of
ancillary products we sell, resulting in ancillary product line sales increasing
89% in 2003.
Sales of our concentrate product lines increased by $2.2 million or 24%
over 2002. We experienced increased demand across all of our concentrate product
lines. We added several significant regional dialysis providers as customers in
2003 and signed a large supply contract with a major provider during 2003. As a
result of the new business, we achieved significant growth in all of our product
lines. Both clinic chains and independent providers are attracted to our
Dri-Sate product line and its patented Dri-Sate (R)Dry Acid Concentrate Mixing
System. Our Dri-Sate Dry Acid Concentrate unit volumes increased 35% over 2002.
Similarly, our liquid acid concentrate unit volume grew by 15%. Our SteriLyte(R)
Liquid Bicarbonate unit volume increased 50% in 2003 as compared to 2002. Our
addition of a manufacturing facility in Texas has also allowed us to steadily
increase our sales in the southern United States.
We also increased our sales of ancillary products significantly during
2003. Our total ancillary product sales increased by $1.3 million or 89% in 2003
driven by a 180% increase in sales of blood tubing as compared to 2002. Sales in
our kit products grew by over $200,000, however our sales of fistula needles
declined by $275,000 due to one of our suppliers withdrawing its fistula needles
from the market during 2002.
Gross Profit
Our gross profit margins continued to improve throughout 2003 resulting
from substantially higher production volumes and greater capacity utilization in
both of our manufacturing facilities. Our gross profit margins improved each
quarter in 2003 with fourth quarter gross profit margins of 19.2%. Overall, 2003
gross
17
profit margins were 17.1% and were 4.4 percentage points higher than in 2002.
Our gross profit in 2003 was $2,555,600 which represents an increase of
$1,102,000 or 76% over 2002 with the improvement largely driven by higher sales
volume.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses were $2,368,000 and were 15.8%
of sales, an improvement of 4.4 percentage points compared to 2002. Overall,
Selling, General and Administrative costs increased $49,000 or 2.1% over 2002.
We were able to control our costs and add additional sales volume with limited
increases in expenses. In addition, we spent substantially more on research and
product development in 2003 with spending up $130,000 from the level in 2002.
Overall, we spent over $250,000 for development of our iron supplemented
dialysate product in 2003.
Interest Expense
Interest expense increased by $67,500 in 2003 over 2002 due to increased
borrowings under our line of credit and interest expense under a note payable
related to equipment we added to our new facilities in 2001 and 2002 coupled
with interest expense on capital lease obligations.
Net Income and Earnings Per Share
Net Income for 2003 was $4,853 as compared to a net loss of ($980,711)
representing over a 100% reduction in the 2002 net loss with a $985,000 net
profit improvement in 2003 over 2002. During the second half of 2003, we had a
net profit of $185,000. We have substantial tax loss carryforwards from our
earlier losses and the impact of those carryforward losses offset the statutory
tax liability for 2003. The Company has not recorded a federal income tax
benefit from its prior losses because it might not realize the carryforward
benefit of those losses.
Net Income per share was negligible in 2003 as compared to a net loss of
($.12) per share in 2002. The $.12 improvement in earnings per share in 2003 was
the result of higher sales, improved gross profit margins and tight expense
control.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our consolidated financial statements and accompanying notes are prepared
in accordance with accounting principles generally accepted in the United States
of America.
These accounting principles require us to make estimates, judgments and
assumptions that affect the reported amounts of revenues, expenses, assets,
liabilities, and contingencies.
All significant estimates, judgments and assumptions are developed based on
the best information available to us at the time made and are regularly reviewed
and updated when necessary. Actual results will generally differ from these
estimates. Changes in estimates are reflected in our financial statements in the
period of change based upon on-going actual experience, trends, or subsequent
realization depending on the nature and predictability of the estimates and
contingencies.
Interim changes in estimates are generally applied prospectively within
annual periods. Certain accounting estimates, including those concerning revenue
recognition and allowance for doubtful accounts, impairments and valuation
adjustments, and accounting for income taxes, are considered to be critical in
evaluating and understanding our financial results because they involve
inherently uncertain matters and their application requires the most difficult
and complex judgments and estimates.
Revenue recognition and allowance for doubtful accounts
We recognize revenue at the time we transfer title to our products to our
customers consistent with generally accepted accounting principles. Our products
are generally sold domestically on a delivered basis and as a result we do not
recognize revenue until delivered to the customer with title transferring upon
completion
18
of the delivery. For our international sales, we generally transfer title to the
buyer when the container leaves our facility and therefore we recognize revenue
upon shipment to foreign customers. We also recognize revenue for delivery of
freight for third parties upon completion of the delivery service.
Accounts receivable are stated at invoice amounts. The carrying amount of
trade accounts receivable is reduced by an allowance for doubtful accounts that
reflects our best estimate of accounts that may not be collected. We review
outstanding trade account receivable balances and based on our assessment of
expected collections, we estimate the portion, if any, of the balance that may
not be collected as well as a general valuation allowance for other accounts
receivable based primarily based on historical experience. All accounts or
portions thereof deemed to be uncollectible are written off to the allowance for
doubtful accounts.
Impairments of long-lived assets
We account for impairment of long-lived assets, which include property and
equipment, amortizable intangible assets and goodwill, in accordance with the
provisions of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets or SFAS No. 142 Goodwill and Other Intangible Assets, as
applicable. An impairment review is performed annually or whenever a change in
condition occurs which indicates that the carrying amounts of assets may not be
recoverable. Such changes may include changes in our business strategies and
plans, changes to our customer contracts, changes to our product lines and
changes in our operating practices. We use a variety of factors to assess the
realizable value of long-lived assets depending on their nature and use.
We adopted Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is no longer
amortized; however, it must be tested for impairment at least annually. Goodwill
impairment is based on the fair market value of our common shares. Amortization
continues to be recorded for other intangible assets with definite lives over
the estimated useful lives. Intangible assets subject to amortization are
reviewed for potential impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable based on future cash flows.
Accounting for income taxes
We estimate our income tax provision to recognize our tax expense for the
current year and our deferred tax liabilities and assets for future tax
consequences of events that have been recognized in our financial statements
using current enacted tax laws. Deferred tax assets must be assessed based upon
the likelihood of recoverability from future taxable income and to the extent
that recovery is not likely, a valuation allowance is established. The allowance
is regularly reviewed and updated for changes in circumstances that would cause
a change in judgment about whether the related deferred tax asset may be
realized. These calculations and assessments involve complex estimates and
judgments because the ultimate tax outcome can be uncertain or future events
unpredictable.
LIQUIDITY AND CAPITAL RESOURCES
Our strategy is to expand our operations to serve dialysis providers
throughout the United States. We anticipate that, as a result of our existing
supply agreements, our customer relationships and our changing market dynamics,
we have the opportunity to capture substantial market share that will lead to
sustaining and increasing our profitable operations. We expect that we will
continue to realize substantial growth during 2005 and that we will require
additional working capital and capital expenditures to fund this growth. In
addition, over the next several years, we expect to make substantial investments
in our dialysate iron product in order to gain FDA approval to market dialysate
iron.
In 2004, we generated cash from our business operations and reinvested
those funds into the development and expansion of our business. Cash flow
generated from our business operations aggregated $840,000 in 2004 after
adjusting our earnings for non-cash charges against earnings for depreciation
and amortization. We realized substantial growth of over 30% in our core
concentrate business in 2004 and as a result we increased our accounts
receivable and inventory by over $430,000 to support this growth. Based on
current and prospective developments that we anticipate in our business in 2005,
we will require additional working capital
19
and capital expenditures to support our development plans. Positive cash flow
from operations is anticipated to provide a portion of the funding that we
anticipate that we may need to support future growth.
In addition to funding provided by operations, we intend to raise
additional capital. We continue to engage in discussions with potential
financing sources including potential lenders, strategic partners and investors.
We have a line of credit with GE Healthcare Finance with a $2.5 million
credit limit. We are permitted to borrow up to 80% of our eligible accounts
receivable and we are required to maintain a net worth of at least $750,000.
Borrowings under this line were $452,700 at December 31, 2004 and were $200,000
less than at the start of 2004. This credit line expires March 25, 2005.
In addressing our need for expanded working capital requirements, we have
received a commitment letter for a new line of credit with a financial
institution which expands our borrowing capacity. This credit line has a $2.75
million credit limit. We are permitted to borrow up to 80% of our eligible
accounts receivable and 40% of eligible inventory up to $600,000. This line of
credit is dependent upon certain conditions including satisfactory completion of
due diligence by the lender and completion of legal documentation.
We reached a financial settlement with the defendant in a legal action we
brought against the defendant. As a result, we expect to realize cash proceeds
in the first half of 2005 of approximately $225,000 after expenses.
We are seeking FDA approval for our dialysate iron drug product. The
development and approval of drugs can be expensive and take a long time. The
development and approval costs may offset some or all of our earnings during the
approval process. During 2004, we made cash investments of $250,000 in dialysate
iron which included $75,000 for licensing fees related to a patent issuance
which we capitalized. We estimate the cash required to fund approval of our new
iron supplemented dialysate product will be between $5,000,000 -- $7,000,000
over the next several years. We may raise these funds ourselves or if we do not
raise the capital to fund this project ourselves, we may decide to seek a
partner with greater technical and financial resources to facilitate approval of
this product.
We believe that we will be able to raise the capital required to expand our
operations and fund our new product development strategy through a combination
of cash flow from operations and licensing, debt or equity financing
arrangements; however we may not be successful.
If we are not successful in raising additional funds, we may be required to
alter our growth strategy, defer spending on business development, curtail
production expansion plans or take other measures to conserve our cash
resources.
In addition, the dialysis provider industry that we serve is becoming
increasingly concentrated. As a result, our business is predominantly with
national and regional dialysis chains. If we were to lose a significant portion
of our business with major national and regional dialysis chains, it could have
a substantial negative impact on our cash flow and results. If we were to lose a
substantial portion of our business, it may have a detrimental impact on our
ability to continue our operations in their current form or to continue to
execute our business strategy. If we lost a substantial portion of our business,
we would be required to take actions to conserve our cash resources and to
mitigate the impact of any such losses on our business operations.
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.
20
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
We carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of December 31, 2004. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective as of December 31, 2004 in ensuring that
information required to be disclosed by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified under the
Exchange Act rules and forms. There was no change in our internal control over
financial reporting identified in connection with such evaluation that occurred
during our fiscal quarter ended December 31, 2004 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls.
The Company maintains a system of internal controls that are designed to
provide reasonable assurance that its books and records accurately reflect the
Company's transactions and that its established policies and procedures are
followed. For the quarter ended December 31, 2004, there were no significant
changes to the Company's internal controls or in factors that could
significantly affect the Company's internal controls.
ITEM 8B. OTHER INFORMATION
None.
21
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 May 26, 2005.
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 May 26, 2005.
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 May 26, 2005.
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 May 26, 2005.
ITEMS 13. EXHIBITS.
(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.
22
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.
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 Act of 1934
incorporated by reference to the annual report on form
10-KSB filed April 1, 2002.
23
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 Act of 1934
incorporated by reference to the annual report on form
10-KSB filed April 1, 2002.
10.19 Supply Agreement between the Company and DaVita, Inc. dated
March 7, 2003 with certain portions of the exhibit deleted
under a request for confidential treatment under rule 24b-2
of the Securities Act of 1934 incorporated by reference to
the annual report on form 10-KSB filed March 28, 2003.
10.20 Amendment No. 1 to the Loan and Security Agreement dated
March 25, 2003 between the Company and Heller Healthcare
Finance, Inc. incorporated by reference to the annual report
on form 10-KSB filed March 28, 2003.
10.21 Supply Agreement between the Company and DaVita, Inc. dated
May 5, 2004 with certain portions of the exhibit deleted
under a request for confidential treatment under Rule 24b-2
of the Securities Exchange Act of 1934 incorporated by
reference to the quarterly report on Form 10-QSB filed on
May 17, 2004.
14.1 Rockwell Medical Technologies, Inc. Code of Ethics
incorporated by reference to the Definitive Proxy Statement
for our 2004 Annual Meeting of Shareholders filed April 23,
2004.
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.
23.1 Consent of Plante & Moran, PLLC.
31.1 Certifications of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certifications of Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certifications of the Chief Executive Officer and Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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 May 26, 2005.
24
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
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 March 22, 2005
-------------------------------------- and Director (Principal Executive
Robert L. Chioini Officer)
/s/ THOMAS E. KLEMA Vice President of Finance, Chief March 22, 2005
-------------------------------------- Financial Officer, Treasurer and
Thomas E. Klema Secretary (Principal Financial
Officer and Principal Accounting
Officer)
/s/ KENNETH L. HOLT Director March 22, 2005
--------------------------------------
Kenneth L. Holt
/s/ RONALD D. BOYD Director March 22, 2005
--------------------------------------
Ronald D. Boyd
25
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, 2004 and 2003............................ F-1
Consolidated Balance Sheets at December 31, 2004 and
December 31, 2003..................................... F-2
Consolidated Income Statement for the years ended
December 31, 2004 and 2003............................ F-3
Consolidated Statement of Changes in Shareholders'
Equity for the year ended December 31, 2004 and
2003.................................................. F-4
Consolidated Statements of Cash Flow for the years
ended December 31, 2004 and 2003...................... F-5
Notes to the Consolidated Financial Statements......... F-6 - F-16
26
PLANT2
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, 2004 and 2003 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2004 and 2003, 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.
Plante & Moran, PLLC
Auburn Hills, Michigan
March 21, 2005
F-1
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(WHOLE DOLLARS)
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
Cash and Cash Equivalents................................... $ 166,195 $ 106,639
Restricted Cash Equivalents................................. 8,662 8,662
Accounts Receivable, net of a reserve of $44,500 in 2004 and
$34,500 in 2003........................................... 2,302,093 2,169,564
Inventory................................................... 1,652,457 1,350,291
Other Current Assets........................................ 111,630 103,971
----------- -----------
Total Current Assets................................... 4,241,037 3,739,127
Property and Equipment, net................................. 2,048,665 1,943,376
Intangible Assets........................................... 369,508 314,071
Goodwill.................................................... 920,745 920,745
Other Non-current Assets.................................... 120,597 127,467
----------- -----------
Total Assets........................................... $ 7,700,552 $ 7,044,786
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short Term Borrowings....................................... $ 452,682 $ 642,018
Notes Payable & Capitalized Lease Obligations............... 389,602 307,959
Accounts Payable............................................ 2,124,679 1,666,952
Accrued Liabilities......................................... 492,592 329,519
----------- -----------
Total Current Liabilities.............................. 3,459,555 2,946,448
Long Term Notes Payable & Capitalized Lease Obligations..... 818,678 926,230
Shareholders' Equity:
Common Share, no par value, 8,556,531 and 8,519,405 shares
issued and outstanding.................................... 11,870,909 11,832,220
Common Share Purchase Warrants, 3,761,071 and 3,766,071
shares issued and outstanding............................. 320,150 320,150
Accumulated Deficit......................................... (8,768,740) (8,980,262)
----------- -----------
Total Shareholders' Equity............................. 3,422,319 3,172,108
----------- -----------
Total Liabilities And Shareholders' Equity............. $ 7,700,552 $ 7,044,786
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(WHOLE DOLLARS)
2004 2003
----------- -----------
Sales...................................................... $17,944,710 $14,970,144
Cost of Sales.............................................. 15,139,215 12,414,462
----------- -----------
Gross Profit............................................. 2,805,495 2,555,682
Selling, General and Administrative........................ 2,396,315 2,367,773
----------- -----------
Operating Income......................................... 409,180 187,909
Interest Expense, net...................................... 197,658 183,056
----------- -----------
Income Before Income Taxes............................... 211,522 4,853
Income Tax Expense......................................... -- --
----------- -----------
Net Income............................................... $ 211,522 $ 4,853
=========== ===========
Basic And Diluted Earnings Per Share....................... $ .02 $ -0-
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(WHOLE DOLLARS)
COMMON SHARES PURCHASE WARRANTS TOTAL
----------------------- -------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT WARRANTS AMOUNT DEFICIT EQUITY
--------- ----------- --------- -------- ----------- -------------
Balance as of December 31,
2002...................... 8,488,283 $11,724,507 3,753,460 $306,108 $(8,985,115) $3,045,500
Issuance of Common Shares... 18,733 24,914 -- -- -- 24,914
Exercise of Purchase
Warrants.................. 12,389 12,799 (12,389) -- -- 12,799
Compensation Expense related
to Stock Options and
Purchase Warrants......... -- 70,000 25,000 14,042 -- 84,042
Net Income.................. 4,853 4,853
--------- ----------- --------- -------- ----------- ----------
Balance as of December 31,
2003...................... 8,519,405 $11,832,220 3,766,071 $320,150 $(8,980,262) $3,172,108
Issuance of Common Shares... 32,126 34,989 -- -- -- 34,989
Exercise of Purchase
Warrants.................. 5,000 3,700 (5,000) -- -- 3,700
Net Income.................. 211,522 211,522
--------- ----------- --------- -------- ----------- ----------
Balance as of December 31,
2004...................... 8,556,531 $11,870,909 3,761,071 $320,150 $(8,768,740) $3,422,319
========= =========== ========= ======== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(WHOLE DOLLARS)
2004 2003
------------ ------------
Cash Flows From Operating Activities:
Net Income................................................ $ 211,522 $ 4,853
Adjustments To Reconcile Net Income To Net Cash Used In
Operating Activities:
Depreciation and Amortization.......................... 629,697 453,926
Compensation Recognized For Stock Options & Purchase
Warrants............................................. -- 84,042
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable........... (132,529) (447,109)
(Increase) Decrease in Inventory..................... (302,166) 126,215
(Increase) Decrease in Other Assets.................. (789) 21,654
Increase (Decrease) in Accounts Payable.............. 457,727 (13,890)
Increase (Decrease) in Other Liabilities............. 163,073 (4,273)
------------ ------------
Changes in Assets and Liabilities................. 185,316 (317,403)
------------ ------------
Cash Provided By Operating Activities............. 1,026,535 225,418
Cash Flows From Investing Activities:
Purchase of Equipment..................................... (392,046) (164,626)
(Increase) Decrease in Restricted Cash Equivalents........ -- 5,303
Purchase of Intangible Assets............................. (83,095) (2,419)
------------ ------------
Cash Provided By (Used In) Investing Activities... (475,141) (161,742)
Cash Flows From Financing Activities:
Proceeds from Borrowings on Line of Credit................ 16,794,439 14,122,113
Payments on Line of Credit................................ (16,983,775) (13,897,349)
Issuance of Common Shares and Purchase Warrants........... 38,689 37,713
Payments on Notes Payable................................. (341,191) (219,647)
------------ ------------
Cash Provided (Used) By Financing Activities...... (491,838) 42,830
Increase In Cash............................................ 59,556 106,506
Cash At Beginning Of Period................................. 106,639 133
------------ ------------
Cash At End Of Period....................................... $ 166,195 $ 106,639
============ ============
Supplemental Cash Flow disclosure:
2004 2003
-------- --------
Interest Paid.......................................... $197,818 $183,616
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
We manufacture, sell and distribute hemodialysis concentrates and other
ancillary medical products and supplies used in the treatment of patients with
End Stage Renal Disease "ESRD". We supply our products to medical service
providers who treat patients with kidney disease. Our products are used to
cleanse patient's blood and replace nutrients lost during the kidney dialysis
process. We primarily sell our products in the United States.
We are 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. We have received 510(k) approval from the FDA to market hemodialysis
solutions and powders. We also have 510(k) approval to sell our Dri-Sate Dry
Acid Concentrate product line and our Dri-Sate Mixer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Our consolidated financial statements include our accounts and the accounts
for our wholly owned subsidiary, Rockwell Transportation, Inc.
All intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
We recognize revenue at the time we transfer title to our products to our
customers consistent with generally accepted accounting principles. Generally,
we recognize revenue when our products are delivered to our customer's location
consistent with our terms of sale. In most instances title for goods shipped
internationally transfers to the buyer once it leaves our facility and
therefore, we recognize revenue upon shipment to foreign customers.
SHIPPING AND HANDLING REVENUE AND COSTS
Our products are generally priced on a delivered basis with the price of
delivery included in the overall price of our products which is reported as
sales. Separately identified freight and handling charges are also included in
sales. Our trucks which deliver our products to our customers sometimes generate
backhaul revenue from hauling freight for other third parties. Revenue from
backhaul activity is recognized upon completion of the delivery service.
We include shipping and handling costs including expenses of Rockwell
Transportation, Inc. in cost of sales.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS
We consider cash on hand, unrestricted certificates of deposit and short
term marketable securities as cash and cash equivalents.
At December 31, 2004 and 2003, restricted cash equivalents consisted of a
certificate of deposit of $8,662 and $8,662, respectively, securing a letter of
credit.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at invoice amounts. The carrying amount of
trade accounts receivable is reduced by an allowance for doubtful accounts that
reflects our best estimate of accounts that may not be collected. We review
outstanding trade account receivable balances and based on our assessment of
expected collections, we estimate the portion, if any, of the balance that may
not be collected as well as a general
F-6
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
valuation allowance for other accounts receivable based primarily based on
historical experience. All accounts or portions thereof deemed to be
uncollectible are written off to the allowance for doubtful accounts.
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.
LICENSING FEES
License Fees related to the technology, intellectual property and marketing
rights for dialysate iron covered under certain issued patents have been
capitalized and are being amortized over the life of the related patents which
is generally 17 years.
GOODWILL, INTANGIBLE ASSETS AND LONG LIVED ASSETS
We adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill is not
amortized; however, it must be tested for impairment at least annually.
Amortization continues to be recorded for other intangible assets with definite
lives over their estimated useful lives. Intangible assets subject to
amortization are reviewed for potential impairment whenever events or
circumstances indicate that carrying amounts may not be recoverable.
An impairment review of goodwill, intangible assets, and property and
equipment is performed annually or whenever a change in condition occurs which
indicates that the carrying amounts of assets may not be recoverable. Such
changes may include changes in our business strategies and plans, changes to our
customer contracts, changes to our product lines and changes in our operating
practices. We use a variety of factors to assess the realizable value of
long-lived assets depending on their nature and use.
The recorded amounts of goodwill and other intangibles from prior business
combinations are based on management's best estimates of the fair values of
assets acquired and liabilities assumed at the date of acquisition. We assess
goodwill for impairment annually. The useful lives of other intangible assets
are based on management's best estimates of the period over which the assets are
expected to contribute directly or indirectly to our future cash flows.
Management annually evaluates the remaining useful lives of intangible assets
with finite useful lives to determine whether events and circumstances warrant a
revision to the remaining amortization periods. It is reasonably possible that
management's estimates of the carrying amount of goodwill and the remaining
useful lives of other intangible assets may change in the near term.
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.
F-7
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRODUCT DEVELOPMENT AND RESEARCH
We incurred product development and research costs related to the
commercial development, patent approval and regulatory approval of new products,
including iron supplemented dialysate, aggregating approximately $200,000 and
$250,000 in 2004 and 2003, respectively.
STOCK OPTIONS
Stock options granted to employees are accounted for using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees, as allowed under SFAS No. 123
Accounting for Stock-Based Compensation. Stock option grants to employees do not
result in an expense if the exercise price is at least equal to the market price
at the date of grant. Exercise prices on all options granted equal or exceed the
fair market value of the underlying stock at the applicable grant dates and,
accordingly, no compensation cost is recorded in the accompanying financial
statements as a result of stock options awarded under the plan to employees.
Stock options granted to non-employees are recorded at the fair value of the
awards at the date of the grant using the Black-Scholes model.
Our reported and pro forma information for the years ended December 31:
2004 2003
--------- ---------
As reported net income (loss) available to common
shareholders.............................................. $ 211,522 $ 4,853
Less: Stock based compensation expense determined under the
fair market value method, net of tax...................... 879,457 481,292
--------- ---------
Pro forma net income (loss)................................. $(667,935) $(476,439)
========= =========
As reported basic earnings per share and diluted earnings
per share................................................. $ .02 $ 0.00
Pro forma earnings (loss) per share and diluted earnings
(loss) per share.......................................... $ (0.08) $ (0.06)
NET EARNINGS PER SHARE
We computed our basic earnings (loss) per share using weighted average
shares outstanding for each respective period. Diluted earnings per share also
reflect the weighted average impact from the date of issuance of all potentially
dilutive securities, consisting of stock options and common share purchase
warrants, unless inclusion would have had an antidilutive effect. Actual
weighted average shares outstanding used in calculating basic and diluted
earnings per share were:
2004 2003
--------- ---------
Basic Weighted Average Shares Outstanding................... 8,546,302 8,495,134
Effect of Dilutive Securities............................... 758,821 734,620
--------- ---------
Diluted Weighted Average Shares Outstanding................. 9,305,123 9,229,754
========= =========
At December 31, 2004 potentially dilutive securities comprised 2,707,717
stock options exercisable at prices from $.55 to $4.05 per share, 3,625,000
common share purchase warrants exercisable at $4.50 per common share and 136,071
common share purchase warrants exercisable at various prices ranging from $.50
to $4.05.
At December 31, 2003 potentially dilutive securities comprised 1,918,927
stock options exercisable at prices from $.55 to $3.06 per share, 3,625,000
common share purchase warrants exercisable at $4.50 per common share and 141,071
common share purchase warrants exercisable at various prices ranging from $.50
to $2.70.
F-8
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING CHANGE
In 2004, we made a change to the relative allocation of certain costs for
facility, depreciation and other costs that increased the portion of those costs
included in cost of sales. As a result, we increased cost of sales and decreased
selling, general and administrative expenses by $136,800 in 2004 as compared to
2003 for this change in allocations.
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 of the financial
statements and reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
3. MANAGEMENT'S PLAN OF OPERATION
We have followed a strategy of developing market share through a
differentiated value proposition to our customers including new products,
superior delivery and customer service, and tailoring product line offerings to
match customer requirements, including offering a full range of formulations and
supplies. In 2004, our revenue increased by $2,974,566 or 19.9% over 2003. In
2003, our revenue increased by $3,474,000 or 30.2% over 2002.
Our strategy is to expand our operations to serve dialysis providers
throughout the United States and internationally on an export basis. We
anticipate that, as a result of our existing supply agreements, our customer
relationships and our changing market dynamics, we have the opportunity to
capture substantial market share that will lead to sustaining and increasing our
profitable operations. We expect that we will continue to realize substantial
growth during 2005 and that we will require additional working capital and
capital expenditures to fund this growth. In addition, over the next several
years, we expect to make substantial investments in our dialysate iron product
in order to gain FDA approval to market dialysate iron.
In 2004, we generated cash from our business operations and reinvested
those funds into the development and expansion of our business. Cash flow
generated from our business operations aggregated $840,000 in 2004 after
adjusting our earnings for non-cash charges against earnings for depreciation
and amortization. We realized substantial growth of over 30% in our core
concentrate business in 2004 and as a result we increased our accounts
receivable and inventory by over $430,000 to support this growth. Based on
current and prospective developments that we anticipate in our business in 2005,
we will require additional working capital and capital expenditures to support
our development plans. Positive cash flow from operations is anticipated to
provide a portion of the funding that we anticipate that we may need to support
future growth.
In addressing our need for expanded working capital requirements, we have
received a commitment letter for a new line of credit with a financial
institution which expands our borrowing capacity. This credit line has a $2.75
million credit limit. We are permitted to borrow up to 80% of our eligible
accounts receivable and 40% of eligible inventory up to $600,000. This line of
credit is dependent upon certain conditions including satisfactory completion of
due diligence by the lender and completion of legal documentation.
We are seeking FDA approval for our dialysate iron drug product. The
development and approval of drugs can be expensive and take a long time. The
development and approval costs may offset some or all of our earnings during the
approval process. We estimate the cash required to fund approval of our new iron
supplemented dialysate product will be between $5,000,000 -- $7,000,000 over the
next several years. We may raise these funds ourselves or if we do not raise the
capital to fund this project ourselves, we may decide to seek a partner with
greater technical and financial resources to facilitate approval of this
product.
F-9
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We believe that we will be able to raise the capital required to expand our
operations and fund our new product development strategy through a combination
of cash flow from operations and licensing, debt or equity financing
arrangements; however we may not be successful.
If we are not successful in raising additional funds, we may be required to
alter our growth strategy, defer spending on business development, curtail
production expansion plans or take other measures to conserve our cash
resources.
4. SIGNIFICANT MARKET SEGMENTS
We operate 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, 2004, two customers each accounted for more than 10% of our total
sales, representing 52% of total sales. For the year ended December 31, 2003,
three customers each accounted for more than 10% of our total sales,
representing 42% of total sales. Our accounts receivable from these customers
were $1,362,000 and $1,032,000 as of December 31, 2004 and 2003, respectively.
We are dependent on these customers and the loss of any of them would have a
material adverse effect on our business, financial condition and results of
operations. Our international sales aggregated slightly over 4% and 3% of
overall sales in 2004 and 2003, respectively.
5. INVENTORY
Components of inventory as of December 31, 2004 and 2003 are as follows:
2004 2003
---------- ----------
Raw Materials............................................... $ 399,455 $ 241,317
Finished Goods.............................................. 1,253,002 1,108,974
---------- ----------
Total.................................................. $1,652,457 $1,350,291
========== ==========
6. PROPERTY AND EQUIPMENT
Major classes of Property and Equipment, stated at cost, as of December 31,
2004 and 2003 are as follows:
2004 2003
----------- -----------
Leasehold Improvements..................................... $ 380,319 $ 379,244
Machinery and Equipment.................................... 2,652,899 2,337,726
Office Equipment and Furniture............................. 247,582 208,692
Laboratory Equipment....................................... 236,747 236,747
Transportation Equipment................................... 705,320 533,717
----------- -----------
4,222,867 3,696,126
Accumulated Depreciation................................. (2,174,202) (1,752,750)
----------- -----------
Net Property and Equipment................................. $ 2,048,665 $ 1,943,376
=========== ===========
Included in the table above are assets under capital lease obligations with
a cost of $873,628 and $523,345 and a net book value of $669,514 and $477,612,
as of December 31, 2004 and 2003, respectively.
Depreciation expense was $602,039 for 2004 and $429,377 for 2003.
F-10
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. GOODWILL AND INTANGIBLE ASSETS
Total goodwill was $920,745 at December 31, 2004 and 2003. We completed our
annual impairment tests as of November 30, 2004 and 2003 and determined that no
adjustment for impairment of goodwill was required.
We entered into a global licensing agreement in 2001 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. We entered into a second
licensing agreement in 2002 covering patents for a more specific form of iron
which may be delivered via dialysate. We intend to obtain FDA approval for this
product as a drug additive to our dialysate product line which upon approval
will be marketed as an iron maintenance therapy for dialysis patients.
We have capitalized the licensing fees paid for the rights to use this
patented technology as an intangible asset. As of December 31, 2004, we have
capitalized licensing fees of $450,214, net of accumulated amortization of
$80,705. As of December 31, 2003, we have capitalized licensing fees of
$314,071, net of accumulated amortization of $53,047. Our policy is to amortize
licensing fees over the life of the patents pertaining to the licensing
agreements. We recognized amortization expense of $27,658 in 2004 and $24,549 in
2003. Estimated amortization expense for licensing fees for 2005 through 2009 is
approximately $31,000 per year. One of the licensing agreements requires the
additional payments upon achievement of certain milestones.
8. LINE OF CREDIT
As of March 28, 2003, we renewed and expanded our credit facility under a
$2,500,000 revolving line of credit facility with a financial institution. The
two year loan facility is secured by our accounts receivable and other assets.
Borrowings under the facility are limited to 80% of eligible accounts
receivable. We are required to maintain a net worth of $750,000. We are
obligated to pay interest at the rate of two percentage points over the prime
rate, plus other fees aggregating .25% of the loan balance. Our outstanding
borrowings under this loan facility were $452,700 and $642,018 as of December
31, 2004 and 2003, respectively.
Subsequent to the end of the year, we received a commitment letter for a
new line of credit with a financial institution which expands our borrowing
capacity. This credit line has a $2.75 million credit limit with interest at
.75% over the prime rate. We are permitted to borrow up to 80% of our eligible
accounts receivable and 40% of eligible inventory up to $600,000. This line of
credit is dependent upon certain conditions including satisfactory completion of
due diligence by the lender and completion of legal documentation.
9. NOTES PAYABLE & CAPITAL LEASE OBLIGATIONS
NOTES PAYABLE
In August 2001, we entered into a financing agreement with a financial
institution to fund $1,000,000 of equipment capital expenditures for our
manufacturing facilities. The note payable requires monthly payments of
principal and interest aggregating $20,884 through June 2007. The note had a
balance of $561,637 and $754,541 at December 31, 2004 and 2003, respectively.
The note bears interest at a fixed rate of 8.65% and is collateralized by the
equipment acquired by the Company.
F-11
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future principal payments on notes payable are:
Year ending December 31, 2005............................... $210,258
Year ending December 31, 2006............................... 229,173
Year ending December 31, 2007............................... 122,206
--------
Total Notes Payable....................................... $561,637
========
CAPITAL LEASE OBLIGATIONS
During 2004, we entered into capital lease obligations primarily related to
equipment with an initial fair market value aggregating $315,282. In addition,
we have other capital lease obligations related to financing other equipment.
These capital lease obligations require even monthly installments over periods
ranging from 2005-2010 and interest rates on the leases range from 5%-17.0%.
These obligations under capital leases had outstanding balances of $646,643 and
$479,648 at December 31, 2004 and 2003, respectively.
Future minimum lease payments under capital lease obligations are:
Year ending December 31, 2005............................... $ 237,231
Year ending December 31, 2006............................... 214,304
Year ending December 31, 2007............................... 163,400
Year ending December 31, 2008............................... 95,992
Year ending December 31, 2009............................... 67,755
Thereafter.................................................. 5,159
---------
Total minimum payments on capital lease obligations....... 784,441
Interest.................................................... (137,798)
---------
Present value of minimum lease payments................... 646,643
Current portion of capital lease obligations................ (179,344)
---------
Long-term capital lease obligations....................... $ 467,299
=========
11. OPERATING LEASES
We lease our production facilities and administrative offices as well as
certain equipment used in our operations. The lease terms are three to seven
years. Lease payments under all operating leases were $651,642 and $810,105 for
the years ended December 31, 2004 and 2003, respectively.
We have leases on two buildings that approximate 51,000 square feet each
and that expire in August 2005 and July 2008, respectively.
Future minimum rental payments under these lease agreements are as follows:
Year ending December 31, 2005............................... $ 597,681
Year ending December 31, 2006............................... 444,139
Year ending December 31, 2007............................... 417,596
Year ending December 31, 2008............................... 216,294
Year ending December 31, 2009............................... 11,501
----------
Total..................................................... $1,687,211
==========
F-12
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
We recognized no income tax expense or benefit for the years ended December
31, 2004 and 2003. We earned a profit in both years and retained a valuation
allowance against our net deferred tax assets due to our limited history of
taxable income.
A reconciliation of income tax expense at the statutory rate to income tax
expense at our effective tax rate is as follows:
2004 2003
-------- -------
Tax Expense Computed at 34% of Pretax Income................ $ 72,000 $ 1,600
Effect of Permanent Differences Principally Related to
Non-deductible expenses................................ -- --
Effect of Change in Valuation Allowance................... (72,000) (1,600)
-------- -------
Total Income Tax Benefit.................................. $ -0- $ -0-
======== =======
The details of the net deferred tax asset are as follows:
2004 2003
----------- -----------
Total Deferred Tax Assets.................................. $ 2,721,400 $ 2,793,400
Total Deferred Tax Liabilities............................. (45,000) (45,000)
Valuation Allowance Recognized for Deferred Tax Assets..... (2,676,400) (2,748,400)
----------- -----------
Net Deferred Tax Asset..................................... $ -0- $ -0-
=========== ===========
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, we
have net operating loss carryforwards of approximately $7,700,000 that expire
between 2012 and 2024.
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 will be realized upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Due to our
history of operating losses, management has placed a full valuation allowance
against the net deferred tax assets as of December 31, 2004 and 2003.
13. CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 common shares, no par
value per share, of which 8,556,531 shares were outstanding at December 31, 2004
and 8,519,405 shares were outstanding at December 31, 2003; 2,000,000 preferred
shares, none issued or outstanding, and 1,416,664 of 8.5% non-voting cumulative
redeemable Series A Preferred Shares, $1.00 par value, of which none were
outstanding at either December 31, 2004 or December 31, 2003.
During 2004, we issued 32,126 common shares as a result of the exercise of
stock options by employees and realized proceeds of $34,989 or $1.09 per share
on average. We also issued 5,000 common shares upon the exercise of warrants to
investors in our private placement. We realized proceeds of $3,700 or $.74 per
share on average. Investors exercising these private placement warrants received
unregistered common shares which may not be resold for a period of one year
following the date they were acquired.
During 2003, we issued 18,733 common shares as a result of the exercise of
stock options by employees and realized proceeds of $24,914 or $1.33 per share
on average. We also issued 12,389 common shares upon the exercise of warrants to
investors in our private placement. We realized proceeds of $12,800 or $1.03 per
F-13
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share on average. Investors exercising these private placement warrants received
unregistered common shares which may not be resold for a period of one year
following the date they were acquired.
COMMON SHARES
Holders of the common shares are entitled to one vote per share on all
matters submitted to a vote of our shareholders 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
We have both publicly traded common share purchase warrants ("Public
Warrants") issued in 1998 and common share purchase warrants ("Private
Warrants") issued in conjunction with a private placement of our common shares
in 2002 and other investment banking activities.
Holders of the Public 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 Board of Directors approved
extending the expiration date of these warrants until January 26, 2006 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. There were 3,625,000 Public Warrants issued and
outstanding at both December 31, 2004 and 2003.
Under certain conditions, the Public Warrants may be redeemed by the
Company at a redemption price of $.10 per Public Warrant upon not less than 30
days prior written notice to the holders of such Public Warrants; provided the
closing bid price of the common shares has been at least $7.00 per common share
for 20 consecutive trading days ending on the third day prior to the date the
notice of redemption is given.
Holders of the Private Warrants issued in conjunction with subscriptions to
private placement offerings of common shares in 2002 are entitled to purchase
one common share at a stated price. The Private Warrants have a three year term
expiring between May 2005 and October 2005. The common shares underlying these
Private Warrants have not been registered. Investors exercising these Private
Warrants would receive unregistered common shares which may not be resold for a
period of one year following the date they are acquired. In 2003, we issued
25,000 Private Warrants to an investment banker with an exercise price of $2.50
per common share. In 2002, we issued 128,460 Private Warrants to investors and
investment bankers with exercise prices ranging from $.50 per common share to
$2.70 per common share.
14. 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. Currently the Stock Option
Committee consists of our entire Board of Directors. On May 27, 2004, our
shareholders adopted an amendment to the stock option plan to increase the
number of options available to be granted to 3,900,000 from 2,900,000. Under the
amendment to the stock option plan, we may grant up to 3,900,000 options to
purchase common shares. Exercise prices, subject to certain plan limitations,
are at the discretion of the Stock Option Committee of the Board of Directors.
Options granted normally expire 10 years from the date of grant or upon
termination of employment. The Stock Option Committee of the Board of Directors
determines vesting rights on the date of grant. Employee options typically vest
over a three year period from the date of grant.
F-14
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2002............................ 1,215,160 $1.38
Granted................................................... 728,000 1.99
Exercised................................................. (18,733) 1.33
Cancelled................................................. (6,000) 1.10
---------
Outstanding at December 31, 2003............................ 1,918,927 1.51
Granted................................................... 858,000 3.17
Exercised................................................. (32,126) 1.09
Cancelled................................................. (37,084) 1.56
---------
Outstanding at December 31, 2004............................ 2,707,717 2.12
=========
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING --------------------
---------------------------------------------------- WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- --------- ------------ -------- --------- --------
$ .55 to $1.50 700,467 2.6-8.0 yrs. $0.76 641,300 $ .78
$1.81 to $2.79 1,487,250 4.1-10 yrs. $2.25 811,750 $2.10
$3.00 to
$4.05....... 520,000 2.6-9.0 yrs. $3.56 297,500 $3.27
--------- ---------
Total 2,707,717 7.7 yrs..... $2.12 1,750,550 $1.81
The per share weighted average fair values at the date of grant for the
options granted to employees during the years ended December 31, 2004 and 2003
were $3.17 and $1.43 respectively. For the period ended December 31, 2004, 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 rates
of 1.6-3.2 percent, volatility of 94% and expected lives of 2.0-3.0 years. For
the period ended December 31, 2003 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 1.6-2.1 percent, volatility of 123% and
expected lives of 3.0 years.
As of December 31, 2004, the remaining number of stock options available
for future grants was 453,355.
NON-EMPLOYEE STOCK OPTIONS AND PURCHASE WARRANTS
In 2003, we issued warrants to purchase 25,000 common shares at an exercise
price of $2.50 to an investment banker in consideration for investment banking
services. These warrants had a fair market value of $14,025 on the date of
grant. Upon exercise of these warrants, the investment banker would receive
unregistered common shares which may not be resold for a period of one year
following the date they were acquired.
Our policy is to amortize the fair market value of options and warrants
granted to non-employees to expense over the term of the related consulting
agreement. There was no expense recognized for the year ended December 31, 2004.
We recognized $84,042 of amortization expense for the year ended December 31,
2003.
F-15
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2004 and 2003, we had revenue from
companies in which our outside directors held an equity interest. Mr. Ronald D.
Boyd, a director of the Company as of March 14, 2000 , held an equity interest
in certain customers of our products. Revenue from these entities was $15,000
and $101,000 in 2004 and 2003, respectively. Mr. Kenneth L. Holt, a director of
the Company as of March 14, 2000, holds an equity interest in certain other
customers of ours. Revenue from these entities was $119,000 and $156,000 in 2004
and 2003, respectively.
16. SUPPLEMENTAL CASH FLOW INFORMATION
We entered into non-cash transactions described below during the years
ended December 31, 2004 and 2003 which have not been included in the
Consolidated Statement of Cash Flows.
We entered into capital leases on equipment with a cost of $315,282 and
$477,533 for the years ended December 31, 2004 and 2003, respectively, and
financed those with capital lease obligations.
17. SUBSEQUENT EVENT -- LITIGATION SETTLEMENT
We were the plaintiff in certain litigation that was settled in the first
quarter of 2005. We expect to receive gross proceeds from this settlement of
approximately $241,000. We received cash of $130,000 during the first quarter of
2005. A portion of the cash received was from the exercise of stock options by
the defendant during the first quarter of 2005 which totaled $103,750. The
balance of the settlement is due by April 29, 2005. As of December 31, 2004, we
have not recognized income for any portion of this settlement.
18. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R ("SFAS 123R"), a revision to Statement No. 123, "Accounting
for Stock-Based Compensation." This standard requires the Company to measure the
cost of employee services received in exchange for equity awards, including
stock options, based on the grant date fair value of the awards. The cost will
be recognized as compensation expense over the vesting period of the awards. The
Company is required to adopt SFAS 123R beginning January 1, 2006. The standard
provides for a prospective application. Under this method, the Company will
begin recognizing compensation cost for equity based compensation for all new or
modified grants after the date of adoption. In addition, the Company will
recognize the unvested portion of the grant date fair value of awards issued
prior to adoption based on the fair values previously calculated for disclosure
purposes. At December 31, 2004, the aggregate value of unvested options, as
determined using a Black-Scholes option valuation model, was $1,413,000. Upon
adoption of SFAS 123R, approximately $750,000 of this amount will be recognized
over the remaining vesting period of these options.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS
151"). SFAS 151 requires that abnormal amounts of idle facility expense,
freight, handling costs, and spoilage, be charged to expense in the period they
are incurred rather than capitalized as a component of inventory costs.
Statement 151 is effective for inventory costs incurred after January 1, 2006.
The Company is currently evaluating the impact this new standard will have on
its financial statements.
F-16
EXHIBIT INDEX
EXHIBIT 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.
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.
EXHIBIT DESCRIPTION
------- -----------
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 Act of 1934
incorporated by reference to the annual report on form
10-KSB filed April 1, 2002.
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 Act of 1934
incorporated by reference to the annual report on form
10-KSB filed April 1, 2002.
10.19 Supply Agreement between the Company and DaVita, Inc. dated
March 7, 2003 with certain portions of the exhibit deleted
under a request for confidential treatment under rule 24b-2
of the Securities Act of 1934 incorporated by reference to
the annual report on form 10-KSB filed March 28, 2003.
10.20 Amendment No. 1 to the Loan and Security Agreement dated
March 25, 2003 between the Company and Heller Healthcare
Finance, Inc. incorporated by reference to the annual report
on form 10-KSB filed March 28, 2003.
10.21 Supply Agreement between the Company and DaVita, Inc. dated
May 5, 2004 with certain portions of the exhibit deleted
under a request for confidential treatment under Rule 24b-2
of the Securities Exchange Act of 1934 incorporated by
reference to the quarterly report on Form 10-QSB filed on
May 17, 2004.
14.1 Rockwell Medical Technologies, Inc. Code of Ethics
incorporated by reference to the Definitive Proxy Statement
for our 2004 Annual Meeting of Shareholders filed April 23,
2004.
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.
23.1 Consent of Plante & Moran, PLLC.
31.1 Certifications of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
EXHIBIT DESCRIPTION
------- -----------
31.2 Certifications of Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certifications of the Chief Executive Officer and Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.