SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13187
NOVACON CORPORATION
(exact name of Registrant as specified in its charter)
Delaware 13-3074570
(state of incorporation) (IRS Employer ID Number)
5451 Hilltop Avenue
Lake Elmo, MN 55042
(address of principal executive offices)
(651) 704-9160
(Registrant's telephone number, including area code)
The number of shares outstanding of the Registrant's Common Stock, par value
$.0l, as of February 15, 2000 was 14,650,000 shares.
Indicate by check mark whether the Registrant (1) has filed all reports require
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 durin
the preceding 12 months, and (2) has been subject to such filing requirements
or the past 90 days.
[ ]Yes [X] No
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Following are the financial statements
(unaudited) of Novacon Corporation for the six months ended November 30, 1999
and 1998.
NOVACON CORPORATION
INDEX TO FINANCIAL STATEMENTS
For the Six Months Ended November 30, 1999 and 1998
(Unaudited)
Balance Sheet 1
Statement of Operations 2
Statement of Cash Flows 3
Selected Information 4
NOVACON CORPORATION
BALANCE SHEET
November 30, 1999 and 1998
(unaudited)
Assets
1999 1998
Current Assets
Cash 557 12,128
Accounts Receivable 3,437 16,305
Inventories 130,256 90,204
Other Current Assets 3,540 1,800
Total Current Assets 137,790 120,437
Property & Equipment 11,555 10,853
Total Assets 149,345 131,290
Liabilities &
Shareholders Equity
Current Liabilities
Accounts Payable 10,907 47,249
Accrued Compensation &
Payroll Taxes 228,643 172,711
Total Current Liabilities 239,550 219,960
Long-Term Liabilities
Notes Payable 118,169 46,631
Total Long-Term
Liabilities 118,169 46,631
Total Liabilities 357,719 266,591
Shareholders' Equity (Deficit)
Common Shares $.01 par value;
15,000,000 shares authorized;
14,650,000 shares issued,
and outstanding 146,500 107,229
Paid-in Capital 8,509,434 8,509,434
Retained Earnings (8,928,642) (8,792,005)
Net Income (62,550) (40,040)
Total Shareholders'
Equity (Def) (101,760) (99,613)
Total Liabilities &
Shareholders' Equity 149,345 131,290
(Deficit)
NOVACON CORPORATION
STATEMENT OF OPERATIONS
For the Three Months and Six Months Ended November 30, 1999 and 1998
(Unaudited)
For the Three For the Six
Months Ended Nov 30 Months Ended Nov 30
1999 1998 1999 1998
Net Sales 25,108 32,513 54,248 46,037
Cost of goods sold 6,715 20,086 16,713 11,176*
Gross Profit 18,393 12,427 37,535 34,861
General & admin expenses 41,823 34,642 100,085 74,901
Loss from operations (23,430) (22,215) (62,550) (40,040)
Net income (loss) (23,430) (22,215) (62,550) (40,040)
Per share data:
Income (loss) per share 0 0 0 0
Income (loss)
before extra item 0 0 0 0
Extraordinary item 0 0 0 0
Net income (loss)
per share 0.00 0.00 0.00 0.00
Weighted average
number of shares
outstanding 14,650,000 10,722,904 14,650,000 10,722,904
NOVACON CORPORATION
STATEMENT OF CASH FLOWS
For the Six Months Ended November 30, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net Income (Loss) (62,550) (40,040)
Adjustments to reconcile net income to net
cash used in operating activities:
Extraordinary item 0 0
Depreciation
Increase (decrease) in assets: 0 0
Accounts receivable 5,290 (3,330)
Inventory (46,319) 1,449
Other current assets 0 0
Increase (decrease) in liabilities:
Accounts payable (12,748) 7,661
Accrued liabilities 50,250 48,949
Total Adjustments (3,528) 54,729
Net cash used in operations (66,077) 14,689
Cash flows from investing activities:
Purchase of property & equipment (660) 0
Payments received on contract receivable 0
Net cash provided by investing activities (660) 0
Cash flows from financing activities:
Net issuance (repayment) of notes
payable-related parties 68,853 (3,081)
Net cash provided by financing activities 68,853 (3,081)
Increase in cash 1,315 11,417
Cash - beginning of period 758 (711)
Cash - end of period 557 12,127
NOVACON CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Six Months Ended November 30, 1999
(unaudited)
Basis of Presentation
The accompanying unaudited financial statements have been prepared by Novacon
Corporation ("Novacon" or the "Company") pursuant to the rules and regulations
of the Securities Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although management believes the
disclosures are adequate to avoid misleading information, it is suggested that
these interim financial statements be read in conjunction with the Company's
most recent Form 10-KSB and notes thereto for the period ended May 31, 1999.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash flows
for this interim period have been made. Operating results for the six months
ended November 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending May 31, 2000.
Inventories
Inventories consist of: November 30, 1999 November 30, 1998
Raw Materials $49,916 $23,970
Finished Goods $80,340 $66,234
Total $130,256 $90,204
Net Loss per Share
The Company's net loss per share amounts have been computed by dividing the
net loss by the weighted average number of outstanding shares of common stock.
The Company has no exercisable stock options outstanding and therefore does
not compute any diluted loss per share.
Item 2. Management's Discussion and Analysis
Overview
Novacon Corporation has been engaged in the manufacture and distribution of
disposable infusion balloon pumps designed for epidural, intravenous and
subcutaneous drug infusions for acute and chronic pain management, chemotherapy
and other drug regimens. The Company has a non-exclusive U.S. manufacturing
and marketing agreement with the Japanese developer of the proprietary
technology employed in the design of these medical devices.
On February 14, 2000, Novacon was notified the U.S. District Court, Central
District of California, granted I-Flow Corporation, through a default
judgment, a permanent injunction restraining Novacon from importing,
manufacturing, and selling its Dib Drug Infusion Balloon in the United States.
I-Flow Corporation claimed the Dib infusion pump design violated its patents
and was awarded damages, legal fees and costs in amounts to be determined.
Novacon denies the Dib design infringes any I-Flow patents and believes the
Dib patents protect its design. However, Novacon is financially unable to
respond to this lawsuit and therefore I-Flow was able to obtain a default
judgment. If the default judgment is not successfully overturned, Novacon
will be forced to immediately cease its infusion pump business. This
development will have a serious adverse impact on Novacon and may cause the
Company to go out of business.
Sales for the three month periods ended November 30, 1999 and 1998 were
$25,108 and $32,513, respectively, reflecting the continued U.S. clinical
evaluation of the Company's dibTM Drug Infusion Balloon. Sales for the six
month periods ended November 30, 1999 and 1998 were $54,248 and $46,037,
respectively. The Company is engaged in the development of an independent
distributor network in the United States marketplace. Approximately 33% of
the U.S. market was under distribution coverage at the end of this quarter.
The net loss was $23,430 and $22,215, respectively, for the three month periods
ended November 30, 1999 and 1998. The net loss for the six month periods ended
November 30, 1999 and 1998 was $62,550 and $40,040, respectively. Net operatin
losses for these periods were associated with sales revenue only and no
extraordinary items.
Operating expenses for the three month periods ended November 30, 1999 and 1998
were $41,823 and $34,642, respectively. For the six month periods ended
November 30, 1999 and 1998 operating expenses were $100,085 and $74,901,
respectively.
Cost of goods sold during the three month periods ended November 30, 1999 and
1998 were $6,715 and $20,086, respectively, representing 27% and 62% of sales,
respectively. For the six month periods ended November 30, 1999 and 1998, cost
of goods sold was $16,713 and $11,176, respectively, representing 31% and 24%
of sales, respectively. A credit for returned components valued at $13,986 was
recognized during the six months ended November 30, 1998.
For the three and six month periods ended November 30, 1999 and 1998, the
Company did not incur any expenses for research and development. Any future
modification to the current dibTM design may result in expenditures for research
and development.
Liquidity and Capital Resources
The Company's cash position did not improve during fiscal 1999. The Company had
a working capital deficit of $249,429 as of May 31, 1999, compared to a working
capital deficit on May 31, 1998 of $118,016. At November 30, 1999 the Company
had a working capital deficit of $101,760. As of November 30, 1999 the Company
had $557 in cash, compared to $1,282 at May 31, 1999.
During the six months ended November 30, 1999 the Company borrowed $74,128 from
a director on a long term note payable. The Company has no bank borrowings and
no lines of credit with any financial institutions.
Management believes that the Company's current level of cash and cash
equivalents are not sufficient to meet its needs for working capital and capital
expenditures for the next twelve months. The Company's recurring losses,
negative cash flow from operations, net working capital deficiency and the
default judgment in California, raise substantial doubt about its ability to
continue as a going concern without internal restructuring, successfully
overturning the default judgment and obtaining additional capital. The Company
has an accumulated deficit of $8,866,092 as of May 31, 1999 and has incurred
annual operating losses for the past five years. If the Company does not
achieve an operating profit during 2000, it may be unable to continue in
business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Risk Factors
Cautionary Factors That May Affect Future Results. Certain statements contained
in this Quarterly Report by Novacon do not relate strictly to historical or
current facts. As such, they are considered "forward-looking statements" which
provide current expectations or forecasts of future events. Such statements can
be identified by the use of terminology such as "anticipate," "believe,"
"estimate," "expect," "intend," "may," "could," "possible," "plan," "project,"
"will," "forecast" and similar words or expressions. Novacon's forward-looking
statements generally relate to its growth strategies, financial results, product
development and regulatory approval programs, and sales efforts, including the
proposed acquisition of Santerra Medical Technologies, Inc. One must carefully
consider forward-looking statements and understand that such statements involve
a variety of risks and uncertainties, known and unknown, and may be affected by
inaccurate assumptions. Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially. It is not possible to
foresee or identify all factors affecting Novacon's forward-looking statements
and investors therefore should not consider any list of such factors to be an
exhaustive statement of all risks, uncertainties or potentially inaccurate
assumptions. Novacon undertakes no obligation to update any forward-looking
statement.
Although it is not possible to create a comprehensive list of all factors
that may cause actual results to differ from Novacon's forward-looking
statements, such factors include, among others, (i) trends toward managed care,
healthcare cost containment and other changes in government and private sector
initiatives, in the U.S. and other countries in which Novacon does business,
that are placing increased emphasis on the delivery of more cost-effective
medical therapies; (ii) the trend of consolidation in the medical device
industry as well as among customers of medical device manufacturers, resulting
in more significant, complex and long-term contracts than in the past and
potentially greater pricing pressures; (iii) the difficulties and uncertainties
associated with the lengthy and costly new product development and foreign and
domestic regulatory approval processes, such as delays, difficulties or failures
in achieving acceptable clinical results or obtaining foreign or FDA marketing
clearances, which may result in lost market opportunities or postpone or
preclude product commercialization; (iv) efficacy or safety concerns with
respect to marketed products, whether scientifically justified or not, that may
lead to product recalls, withdrawals or declining sales; (v) changes in
governmental laws, regulations and accounting standards and the enforcement
thereof that may be adverse to Novacon; (vi) increased public interest in recent
years in product liability claims for implanted medical devices; (vii) other
legal factors including environmental concerns and patent disputes with
competitors; (viii) agency or government actions or investigations affecting the
industry in general or Novacon in particular; (ix) the development of new
products or technologies by competitors, technological obsolescence and other
changes in competitive factors; (x) risks associated with maintaining and
expanding international operations; (xi) business acquisitions, dispositions,
discontinuations or restructurings by Novacon; (xii) the integration of
businesses acquired by Novacon; and (xiii) economic factors over which Novacon
has no control, including changes in inflation, foreign currency rates and
interest rates. More detailed discussions of many of these factors are including
in the following sections.
Novacon notes these factors as permitted by the Private Securities Litigation
Reform Act of 1995.
Substantial, Continuing Operating Losses. Novacon has incurred losses for the
fiscal years ended May 31, 1999, 1998, 1997 and 1996 in the amounts of
approximately $100,566, $102,712, $132,526 and $95,229, respectively, and there
is no assurance that substantial operating losses will not continue
indefinitely. Novacon has incurred an accumulated deficit since its inception
of approximately $8,866,092 as of May 31, 1999. Santerra has yet to begin the
marketing and sales of its medical device products, and there is no assurance
that it will generate any revenues or contribute profits to its parent Novacon.
Consequently, there can be no assurance that Novacon will achieve profitable
operations. In the event Novacon is unable to eliminate continuing operating
losses and acquire substantial new working capital, Novacon's business
operations will cease and its stockholders will lose their entire investment.
Limited Financial Resources. Novacon has only limited financial resources.
Novacon's continuing business operations are dependent on implementation of the
Innovasive Devices (See Item 5: Other Information) supply agreement and the
acquisition of substantial new working capital.
Working Capital Deficit. As of the fiscal year ended May 31, 1999, Novacon had a
stockholders' deficit of approximately $(249,429). At that date, the company's
liabilities were approximately $361,387 and exceeded its assets of approximately
$111,958 by approximately $249,429. Approximately $228,643 of the company's
debt represents accrued salaries payable to David P. Lang and John D. Lang.
Novacon immediately requires substantial working capital for which there is no
assurance. In the event Novacon is unable to acquire substantial new working
capital, Novacon's business operations will cease and its stockholders will lose
their entire investment.
Government Regulation and Other Related Matters. Government and private sector
initiatives to limit the growth of health care costs, including price
regulation and competitive pricing, are continuing in many countries where
Novacon expects to conduct business, including the United States. These changes
are causing the marketplace to put increased emphasis on the delivery of more
cost-effective medical therapies. Although Novacon believes it is well
positioned to respond to changes resulting from this worldwide trend toward
cost containment, the uncertainty as to the outcome of any proposed legislation
or changes in the marketplace precludes Novacon from predicting the impact
these changes may have on future operating results.
In keeping with the increased emphasis on cost effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to
enhance purchasing power. The medical device industry has also been
consolidating rapidly, partly in order to offer a broader range of products
to large purchasers. As a result, transactions with customers are more
significant, more complex and tend to involve more long-term contracts than
in the past. This enhanced purchasing power may also increase the pressure
on product pricing, although management is unable to estimate the potential
impact at this time.
In the United States, the Food and Drug Administration (the "FDA"), among
other governmental agencies, is responsible for regulating the introduction
of new medical devices, including laboratory and manufacturing practices,
labeling and recordkeeping for medical devices, and review of manufacturers'
required reports of adverse experience to identify potential problems with
marketed medical devices. The FDA can ban certain medical devices, detain
or seize adulterated or misbranded medical devices, order repair, replacement,
or refund of such devices, and require notification of health professionals
and others with regard to medical devices that present unreasonable risks of
substantial harm to the public health. The FDA may also enjoin and restrain
certain violations of the Food, Drug and Cosmetic Act and the Safe Medical
Devices Act pertaining to medical devices, or initiate action for criminal
prosecution of such violations. Moreover, the FDA administers certain
controls over the export of such devices from the United States. All of the
medical devices that Novacon markets, or expects to market are in a category
for which the FDA has implemented stringent clinical investigation and pre-
market clearance requirements. Any delay or acceleration experienced by
Novacon in obtaining regulatory approvals to conduct clinical trials or in
obtaining required market clearances may affect Novacon's operations or the
market's expectations for the timing of such events and, consequently, the
market price for Novacon's common stock. Medical device laws are also in
effect in many of the countries in which Novacon will do business outside
the United States. These range from comprehensive device approval
requirements for some or all of Novacon's medical device products to requests
for product data or certifications. The number and scope of these
requirements are increasing.
In the early 1990's the review time by the FDA to clear medical devices for
commercial release lengthened and the number of clearances, both of 510(k)
submissions and pre-market approval applications ("PMA's"), decreased.
In response to public and congressional concern, the FDA Modernization Act
of 1997 was adopted with the intent of bringing better definition to the
clearance process. Although it is expected that the 1997 Act will result
in improved cycle times for product clearance, there can be no assurance
that the FDA review process will not involve delays or that clearances will
be granted on a timely basis.
Novacon is also subject to various environmental laws and regulations both
within and outside the United States. The operations of the company, like
those of other medical device companies, involve the use of substances
regulated under environmental laws, primarily in manufacturing and
sterilization processes. While it is difficult to quantify the potential
impact of compliance with environmental protection laws, management believes
that such compliance will not have a material impact on the company's
financial position, results of operations or liquidity.
Competition and Industry. Novacon sells therapeutic medical devices in the
United States and expects to sell around the world. In the product lines in
which Novacon competes, the company faces a mixture of competitors ranging from
large multi-national industrial manufacturers to national or regional
manufacturers that offer a limited selection of products. In addition, the
company faces competition from providers of alternative medical therapies such
as pharmaceutical companies. Important factors to Novacon's customers will
include product reliability and performance, product technology that provides
for improved patient benefits, product price, and breadth of product lines and
related product services provided by the manufacturer. Major shifts in industry
market share have occurred in connection with product problems, physician
advisories and safety alerts, reflecting the importance and risks of product
quality in the medical device industry.
Market complexity continues to intensify in the medical device industry. Factors
such as buyer groups, government reimbursement systems for health care costs,
relative patent portfolios, government regulation (including the regulatory
approval process for medical devices), a more rigorous enforcement climate at
the FDA, health care reform, product liability litigation and the rapid rate
of technological change are increasingly important considerations for existing
medical device manufacturers and any potential entrants to the industry such
as Novacon.
Litigation. The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. There can be no assurance that
MicroVal, Fii or Novacon will not become subject to patent infringement claims
or litigation or interference proceedings declared by the United States Patent
and Trademark Office ("USPTO") to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly and
time-consuming. Litigation may be necessary to enforce patents issued to
MicroVal and Fii to protect trade secrets or know-how owned by them or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings may result in expense to
Novacon and delay and/or adversely affect its marketing efforts with respect to
MicroVal or Fii medical device products. Any adverse determination in
litigation or interference proceedings to which Novacon may become a party could
subject it to significant liabilities to third parties, could prevent Novacon
from selling MicroVal and Fii medical device products, which would have a
material adverse effect on the company's business, financial condition and
results of operations.
Pending Patent Litigation. On July 23, 1999, Novacon was served with a complaint
filed in the United States District Court, Central District of California,
Santa Ana, California, by I-Flow Corporation alleging various causes of action
for patent interference against Novacon with respect to its elastomeric infusion
pump technology. On February 14, 2000, Novacon was notified the U.S. District
Court, Central District of California, granted I-Flow Corporation, through a
default judgment, a permanent injunction restraining Novacon from importing,
manufacturing, and selling its Dib Drug Infusion Balloon in the United States.
I-Flow Corporation claimed the Dib infusion pump design violated its patents
and was awarded damages, legal fees and costs in amounts to be determined.
Novacon denies the Dib design infringes any I-Flow patents and believes the
Dib patents protect its design. However, Novacon is financially unable to
respond to this lawsuit and therefore I-Flow was able to obtain a default
judgment. If the default judgment is not successfully overturned, Novacon
will be forced to immediately cease its infusion pump business. This
development will have a serious adverse impact on Novacon and may cause the
Company to go out of business.
Company Medical Device Products May Be Dependent On Third-Party Payor Approvals.
United States health care providers, including hospitals and physicians, that
purchase medical devices generally rely on third party payors, principally
federal Medicare, state Medicaid and private health care insurance plans, to
reimburse all or part of the costs and fees associated with the procedures
performed using these devices. Novacon's success will depend upon, among other
things, the ability of health care providers to obtain satisfactory
reimbursement from third party payors for medical procedures in which the
company's medical device products are used. Third party payors may deny
reimbursement if they determine that a prescribed device has not received
appropriate regulatory clearances or approvals, is not used in accordance with
cost-effective treatment methods as determined by the payor, or is experimental,
unnecessary or inappropriate. If FDA clearance or approval were received, third
party reimbursement would also depend upon decisions by the United States Health
Care Financing Administration for Medicare, as well as individual health
maintenance organizations, private insurers and other payors. Reimbursements in
international markets vary significantly by country and by region within some
countries, and reimbursement approvals may be obtained on a country-by-country
basis. Many international markets have government managed health care systems
that control reimbursement for new devices and procedures. In most markets,
there are private insurance systems as well as government managed systems.
There can be no assurance that reimbursement for Novacon's product lines will
be available or, if available, that such reimbursement will be available in
sufficient amounts in the United States or international markets under either
government or private reimbursement systems, or that physicians will support
and advocate reimbursement for procedures using the company's product lines.
Failure by hospitals and physicians and other users of Novacon's product lines
to obtain reimbursement from third party payors or changes in government and
private party payor policies toward reimbursement for procedures employing
Novacon's product lines would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, Novacon is
unable to predict what additional legislation or regulation, if any, relating
to the health care industry or third party coverage and reimbursement may be
enacted in the future, or what effect such legislation or regulation would
have on the Company.
Risks Associated with International Sales. International sales will account
for a substantial portion of Novacon's revenues in the foreseeable future.
A number of risks are inherent in international transactions. International
sales may be limited or disrupted by the imposition of government controls,
export license requirements, economic or political instability, trade
restrictions, changes in tariffs or difficulties in staffing and management.
Additionally, fluctuations in currency exchange rates as well as increases
in duty rates may adversely affect Novacon's business, financial condition
and results of operations and difficulties in obtaining export licenses.
The financial condition, expertise and performance of Novacon's future
international sub-distributors could affect sales of its product lines
internationally and could have a material adverse effect on Novacon's
business, financial condition and results of operations. The proposed
international nature of Novacon's business also subjects it and its
representatives, agents and sub-distributors to laws and regulations of
international jurisdictions in which they operate or in which Novacon's
product lines may be sold. The regulation of medical devices in a number
of such jurisdictions, particularly in the European Union, continues to
develop, and there can be no assurance that new laws or regulations will not
have an adverse effect on Novacon's business, financial condition and
results of operations. Foreign regulatory agencies often establish product
standards different from the United States and any inability to obtain
foreign regulatory approvals on timely basis could have a material adverse
effect on the company's international business and its financial condition
and results of operations.
Risks Associated with Growth of Business; Scale-up Risks. If Novacon's
line of medical products achieve commercial success, the growth of Novacon's
business, including its internal operations, will place significant demands
on the systems and management of the company. Such business growth will
result in additional personnel needs and an increased level of responsibility
for management personnel. To manage its growth effectively, Novacon will be
required to continue to expand and improve its internal operations and
systems (including logistics, management information systems, accounting
systems and sales and marketing) and to expand and manage its employee base.
Novacon will have to add key managers, and there is no assurance as to the
rate at which such managers will be effectively assimilated into its business
or operate effectively as a management team. Novacon will also be required
to effectively expand and manage the independent contractors that it may have
to use to distribute its medical device products in the future. Novacon's
inability to manage growth effectively could have a material adverse effect
on its operating results.
Certain Marketing and Sales Risks. Novacon may make arrangements with
its customers who will generally allow their customers, in the event of a
price decrease, credit equal to the difference between the price originally
paid for products and the new decreased price on products in the customers'
inventories on the date of the price decrease. When a price decrease is
anticipated, Novacon will be required to establish reserves for amounts
estimated to be reimbursed to qualifying customers. There can be no assurance
that these reserves will be sufficient or that any future returns or price
protection charges will not have a material adverse effect on Novacon's
results of operations, particularly because future results will be heavily
dependent on recently introduced products for which Novacon has little or no
pperating history. In addition, customers generally will have the right to
return excess inventory within specified time periods. Any build-up of
inventory at Novacon or in its distribution channels that does not sell
through to end-users could have a material adverse effect on its operating
results and financial condition.
Novacon from time to time may experience product defects and product returns.
There can be no assurance that Novacon will not experience quality or
reliability problems in the future that have an adverse effect on its
business or financial results.
Novacon expects to market its products through product distributors.
Novacon will grant credit to its customers, and a substantial portion of
outstanding accounts receivable will be due from time to time from distributors.
If any one or a group of these customers' receivable balances should be deemed
uncollectible, it would have a material adverse effect on Novacon's results of
operations and financial condition.
Product Liability Claims. Novacon operates in an industry susceptible to
significant product liability claims. In recent years, there has been an
increased public interest in product liability claims for implanted medical
devices. These claims may be brought by individuals seeking relief for
themselves or, increasingly, by groups seeking to represent a class. Product
liability claims may be asserted against the company in the future relative to
events not known to management at the present time. Novacon presently maintains
no product liability insurance and there is no assurance that it will be able
to acquire product liability insurance with adequate coverage terms, if at all.
Consequently, any claims that may be asserted against Novacon would have a
material adverse effect on the company.
Dividends Not Likely. Novacon has not paid any dividends on its capital stock
since its incorporation and does not intend to pay any cash dividends in the
foreseeable future.
Dependence On Key Executive Management. Novacon's success will depend in large
part upon the services of David P. Lang and other key employees. The loss of
the services of one or more key executives, and particularly Mr. Lang, could
have a material adverse effect on Novacon. Novacon's success will also depend
in significant part upon its ability to attract and retain highly skilled
management, marketing and other personnel. Competition for such personnel
in the medical device industry is intense, and the company expects difficulty
in finding sufficient numbers of qualified professional and marketing personnel.
There can be no assurance that Novacon will be successful in attracting and
retaining the quantity and quality of personnel that it needs.
Novacon does not presently maintain key-man life insurance on its principal
executives; however, it intends to secure such insurance during 2000. However,
there is no assurance that the proceeds from such insurance, if any, would be
adequate to identify and employ a successor and to compensate Novacon for the
loss of such key executive.
Suspension Of Trading of Company Common Stock. Novacon suspended filing its
periodic reports required under the Securities Exchange Act of 1934, as
amended, since 1996 primarily because of its lack of financial resources.
The SEC may initiate investigation or commence enforcement proceedings
against the company and its management for violation of the periodic
reporting requirements. Any such action undertaken by the SEC could result
in the imposition of fines or suspension of trading of the company's
Common Stock.
Limited Public Trading Market And No Assurance Of Ability To Resell Company
Common Stock. There is no assurance that any public market for the company's
Common Stock will not be volatile. There have been periods of extreme
fluctuation in the stock markets that, in many cases, were unrelated to
the operating performance of, or announcements concerning, the issuers of
the affected securities. Securities of issuers having relatively limited
capitalization or securities recently offered in a public offering or being
publicly traded are particularly susceptible to change based on short-term
trading strategies of certain investors. Accordingly, there can be no
assurance that stockholders will be able to resell the shares of company
Common Stock at any price.
Although Novacon's Common Stock is eligible for public trading, it may be
relevant for company stockholders that Novacon's Common Stock be eligible
for inclusion on the NASDAQ Small-Cap Market(r). Under the current adopted
rules of the National Association of Securities Dealers, Inc. ("NASD"), in
order to qualify for initial quotation of securities on NASDAQ, a company,
among other things, must have at least $4,000,000 in total assets, 1,000,000
shares in the public float, $5,000,000 in market value of public float and a
minimum bid of $4.00 per share. For continued listing, a company, among other
things, must have $2,000,000 in total assets, 500,000 shares in the public
float, $1,000,000 in market value of public float and a minimum bid price of
$1.00 per share.
Generally, holders of securities not eligible for NASDAQ Small-Cap Market(r)
inclusion may have difficulty in selling their securities should they desire
to do so. In such event, due to the low price of the securities, many
brokerage firms will not effect transactions in such securities and it is
unlikely that any bank or financial institution will accept such securities
as collateral, which would have an adverse effect in developing or sustaining
any market for such securities.
The SEC has adopted regulations which generally define "penny stock" to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price less than $5.00 per share, subject to certain
exceptions. During periods when Novacon's Common Stock does not qualify for
inclusion on the NASDAQ Small-Cap Market or is removed therefrom, the Common
Stock may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving
a penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the SEC relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell Novacon's securities and may
affect the ability of company stockholders to sell such securities in the
secondary market.
Recently, the SEC has proposed regulations which, if adopted, will impose
additional sales practice requirements on broker-dealers who sell securities
whose issuers are not subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended. For transactions covered by these
proposed rules, the broker dealer must undertake special actions with respect
to the market of such stocks. Consequently, these proposed rules may restrict
the ability of broker-dealers to sell Novacon's securities and may affect the
ability of purchasers to sell their shares in the secondary market.
Year 2000. Novacon is aware of the issues that many computer systems will face
as the Year 2000 approaches. Novacon, however, believes that its internal
software and hardware will be Year 2000 compliant. Novacon believes that
any Year 2000 problems encountered by procurement agencies, hospitals and
other customers and vendors are not likely to have a material adverse effect
on its operations. There can be no assurance, however, that such problems
will not arise.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Pending Patent Litigation. On July 23, 1999, Novacon was served with a complaint
filed in the United States District Court, Central District of California,
Santa Ana, California, by I-Flow Corporation alleging various causes of action
for patent interference against Novacon with respect to its elastomeric infusion
pump technology. On February 14, 2000, Novacon was notified the U.S. District
Court, Central District of California, granted I-Flow Corporation, through a
default judgment, a permanent injunction restraining Novacon from importing,
manufacturing, and selling its Dib Drug Infusion Balloon in the United States.
I-Flow Corporation claimed the Dib infusion pump design violated its patents and
was awarded damages, legal fees and costs in amounts to be determined. Novacon
denies the Dib design infringes any I-Flow patents and believes the Dib patents
protect its design. However, Novacon is financially unable to respond to this
lawsuit and therefore I-Flow was able to obtain a default judgment. If the
default judgment is not successfully overturned, Novacon will be forced to
immediately cease its infusion pump business. This development will have a
serious adverse impact on Novacon and may cause the Company to go out of
business.
Item 2. Changes in Securities and Use of Proceeds
On November 25, 1999, Novacon sold 2,927,096 shares of its Common Stock to
David P. Lang for approximately $77,568 and 1,000,000 shares to John D. Lang for
$26,500, both in payment of accrued salaries. Upon completion of the
transaction, David P. Lang owned 3,976,827 shares, or approximately 27% of the
outstanding shares of Common Stock, and John D. Lang owned 1,090,000 shares, or
approximately 7% of the Common Stock of Novacon. Novacon relied upon Section
4(6) of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder, in effecting these sales of unregistered securities.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On May 31, 1999 Novacon entered into an exclusive three year Supply Agreement
with Innovasive Devices, Inc. to furnish its elastomeric infusion pumps for
Innovasive Device's post-operative Freedom(tm) Infusion System in the North,
Central and South American markets. The agreement is annually renewable after
its initial term. It requires Innovasive Devices, Inc. to purchase a minimum
of 10,000 infusion pumps in the first contract year, and annually thereafter an
increasing minimum number not less than 110 percent of the prior year's sales.
Innovasive Devices, Inc. develops, manufactures and markets medical devices for
orthopedic and sports medicine surgery.
Novacon and Innovasive devices were engaged in discussions leading to an
expansion of the exclusive territory to include the European Union. On
November 9, 1999 Innovasive Devices advised Novacon that it entered into an
agreement to be acquired by a wholly-owned subsidiary of the Johnson & Johnson
Company. As of November 30, 1999 Novacon has received no further information
from Innovasive Devices except that scheduled delivery of its elastomeric pumps
to Innovasive Devices has been indefinitely postponed.
On September 10, 1999, the FDA issued authorization to Novacon for full
commercial distribution of the Freedom(tm) Infusion System for percutaneous
infusion of medication directly into the surgical site, primarily following
arthroscopic surgery.
Pending Acquisition; New, Additional Business Operations. During November, 1999
Novacon entered into a preliminary agreement to acquire a recently organized,
international medical trading company, Santerra Medical Technology, Inc.
("Santerra"). Santerra is a development stage medical technology trading company
specializing in implantable and interventional medical device products. Primary
products include those for coronary and peripheral vascular disease, heart valve
replacement, orthopedic reconstruction, and minimally invasive surgery. These
products are manufactured by MicroVal, S.A. ("MicroVal") and Fabrique
d'Implants et d'Instruments Chirurgicaux ("Fii"), affiliates of Ste. Francaise
d'Etude et Realisation d'Outillage ("SFERO"), St. Etienne, France. Santerra
operates in a single industry segment --- providing medical device products.
The company will operate worldwide distributing three primary product line
platforms---cardiovascular, orthopedic and general surgery in three primary
geographic areas---the Americas, Europe/Middle East/Africa, and Asia/Pacific.
Santerra's alliance with MicroVal and Fii provides for Santerra's exclusive
distribution of MicroVal's Carbilit(tm) Bileaflet Heart Valve, Effix(tm)
intravascular stents, GRF(r) Biological Glue, laparoscopic surgical instruments
and Fii's reconstructive orthopedic prosthetic implants. The distribution and
sub-assembly agreements provide for representation and distribution of all
current and future medical device products from Fii and MicroVal in the Americas
(United States, Canada, Mexico, Central America and South America) and Asia/
Pacific (Australia, Japan, China, India as well as smaller markets). These are
renewable, long-term agreements that include the rights of sub-distributor
appointments and product assembly and licensing rights under certain
circumstances. In addition, under certain circumstances Santerra has the right
to purchase Fii and MicroVal technology with respect to the medical devices and
to make capital investments in Fii and MicroVal. This mutually beneficial
alliance facilitates MicroVal and Fii's medical device product presence in the
lucrative Americas, Asia/Pacific and other international markets on the one
hand, and on the other hand Santerra will acquire distribution control over
innovative medical device products in these lucrative markets without expending
millions of dollars in research and product development. The Santerra/MicroVal/
Fii strategic alliance transcends a mere distribution relationship. Santerra
and MicroVal/Fii will jointly seek regulatory approvals in markets where
required; Santerra has the right to establish subdistribution channels and,
under certain conditions such as U.S.-origin requirements, Santerra is licensed
to assemble MicroVal/Fii manufactured components into completed medical devices.
The Santerra/MicroVal/Fii alliance agreements contemplate a long-term
relationship conditioned upon Santerra's annual performance. Additionally,
Santerra believes that if it evidences substantial market entry in its licensed
territories Micro Val/Fii may grant Santerra exclusive distribution rights in
the European Union territory, except France.
Santerra may resell the MicroVal and Fii cardiovascular, surgical and
interventional cardiology medical devices (Carbilit(tm) Bileaflet Heart Valve,
intravascular stent and the biological glue) in the Americas, Asia/Pacific and
other international markets under its own tradename in order to establish an
United States origin identified medical device which may be advantageous in
those markets. Generally, United States-based surgeons and physicians are more
inclined to employ U.S.-origin medical devices. In the event Santerra elects to
develop its independent brand with a U.S.-origin product designation it will be
required to make a significant input into the final medical device products.
Although Santerra presently has not considered what that input may be, at a
minimum it would include component assembly and sterile packaging at Santerra's
U.S.-based facilities.
Santerra has adopted a strategy for the initial introduction of certain of its
new medical device products and applications in selected foreign countries
because of potentially less extensive and less time-consuming governmental
regulatory procedures. Recently, Santerra entered into a preliminary
distribution agreement for its MicroVal and Fii medical device product lines
with Qinming Medical, Inc., Baoji, China, and Qinming Medical agreed to invest
$1,500,000 in Santerra.
Santerra does not intend to engage in research and development activities. It is
focused on two activities: medical device regulatory approvals and distribution.
Santerra has focused on the development and implementation of its alliance with
MicroVal and Fii since its inception in April, 1998. Since November, 1998 the
company has focused on the preparation, filing and prosecution of United States
and Canadian medical device approvals and the negotiation of distribution
alliances in the United States, Canada, Japan, China and India. Santerra will
continue to execute its business plan through developing marketing and
distribution alliances with major medical device companies and when appropriate,
sublicense its rights acquired under its MicroVal and Fii agreements.
Item 6. Exhibits and Reports on Form 8-K
Exhibit I: Supply Agreement between Innovasive Devices, Inc. and Novacon
Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVACON CORPORATION
February 15, 2000 David P. Lang
President & Chairman of the Board
Chief Financial Officer
Exhibit I:
SUPPLY AGREEMENT
THIS AGREEMENT (Agreement) is between Novacon Corporation, a Delaware
corporation, with its principal place of business at 5451 Hilltop Ave.,
Lake Elmo, Minnesota 55042, (Novacon) and Innovasive Devices, Inc., a
Massachusetts corporation, and its affiliates and subsidiaries
(collectively Innovasive) with offices at 734 Forest Street, Marlborough,
Massachusetts 01752, (Innovasive) effective as of the 31st day of May,
1999.
1. Agreement to Sell. Novacon hereby agrees to sell to Innovasive and
Innovasive agrees to buy from Novacon the DIB Balloon Infusion Pump
products described in Exhibit A, (Product or Products). This Agreement
grants Innovasive the exclusive right to sell and distribute the Product
exclusively in North, South & Central America, and Europe (eastern and
western) for all musculoskeletal orthopedic post?op pain applications
(the Specified Applications). During the term hereof, Innovasive may
sell the Products to customers who intend to resell the Products, if, and
only if, such customers agree not to resell the Products outside the
Territory. Innovasive may sub-contract distributorship of the Products to
any third party, entity, firm or agent. If any purchaser of the Products
from Innovasive resells or distributes the Products outside the Territory,
Innovasive shall cease selling the Products to such purchaser upon
learning of such sales outside the Territory, and shall (or permit Novacon
to) enforce the prohibition against such resale outside the Territory.
Without limiting the generality of this Section 1, Innovasive will not,
directly or indirectly, export or re-export any Products, technical data
associated with the Products, or the immediate products (including, but not
limited to, processes, services, data and reports) derived from use of the
Products from the Territory, without first obtaining the appropriate
license from the U.S. Office of Export Licensing or its successor.
2. Territory.
2.01 The territory covered by this Agreement shall be in the Americas
(North, South & Central) and Europe (eastern and western) and any new
area added thereto pursuant to Section 2.02 (together, the Territory).
2.02 In addition, if Innovasive continues to have the exclusive
distribution rights in the Territory, is not in breach of this Agreement
and neither party has given notice of termination under Section 14.01,
Innovasive shall have a first right of negotiation and first right of
refusal for the Specific Applications for all areas outside the Americas
(North, South & Central) and Europe (eastern and western). This right will
be exercisable by Innovasive by delivery of a written notice to Novacon
within fifteen (15) days after delivery by Novacon to Innovasive of a
proposed agreement for distribution of the Products outside of the Territory.
If Innovasive fails to deliver written notice to Novacon exercising the right
of first refusal within the fifteen (15) day period, Novacon will have the
right to proceed with the distribution of the Products under the terms of the
proposed agreement. If Innovasive exercises its right of first refusal, this
Agreement shall be modified to include the terms of the proposed agreement
with respect to the new area, except that the provisions of this Agreement
regarding termination shall be governed by the terms of Section 14 of this
Agreement, so that Innovasive's right to distribute the Products in the
Territory and all other areas will be coterminous. Novacon further agrees not
to offer more favorable terms to a third party under this section. If more
favorable terms are offered to a third party, Innovasive shall be given the
opportunity to exercise its right of first refusal pursuant to this section.
3. Novacon Representations and Warranties.
3.01 Novacon hereby agrees to supply its Product to Innovasive in accordance
with the terms set forth in this Agreement.
3.02 Novacon hereby agrees to supply all clinical data relevant to the DIB
Balloon Infusion Pump System to Innovasive.
3.03 Novacon will use its best efforts to make its Products available in
sufficient quantities to meet Innovasive's requirements; provided that,
shipment of all orders by Novacon shall be on a first in, first out basis,
and may be subject to delays due to transportation difficulties, government
regulations, inability to obtain new materials, and other circumstances beyond
Novacon's control.
3.04 Novacon will provide Innovasive with a Certification of Conformance to
Manufacturing, Certification of Conformance to Calibration, and Certification
of Conformance to Sterility with each lot it ships to Innovasive. If Novacon
materially fails to supply Innovasive's requirements for Product or is unable
to continue supplying Product to Innovasive during the term of this agreement,
it will provide Innovasive a detailed list all contacts for its supplies and
subcontractors utilized in the sourcing and manufacturing of the Products.
For purposes of this section, the failure to supply at least 90% of
Innovasive's average requirements over a 90 day period shall be deemed a
material failure to supply Product hereunder.
3.05 Novacon will extend at its own cost and expense technical expertise to
Innovasive through its sales, design and manufacturing personnel as Innovasive
may reasonably request to assist in the marketing and sale of Products and for
the purpose of making improvements, or modifications to Products.
3.06 Novacon has or will have full title to and full right to manufacture the
Products sold to Innovasive, hereunder.
3.07 Novacon has or will have prior to the sale of the Products to Innovasive,
and will maintain at all times while this Agreement is in force, a product
liability insurance policy providing at least two million dollars ($2,000,000)
coverage per occurrence and five million dollars ($5,000,000) aggregate
coverage per policy year, which policy shall either name Innovasive as an
insured or shall, by endorsement or otherwise, provide such coverage to
Innovasive for any claim arising out of the sale of any Product by Innovasive
except to the extent those claims arise as a result of Innovasive negligence.
Novacon shall furnish Innovasive with acceptable certificates evidencing such
insurance coverage within thirty (30) days of the execution of this Agreement.
Such insurance certificates shall contain a provision that a thirty (30) day
advance written notice will be given to Innovasive prior to any material
change or cancellation of such insurance.
3.08 Novacon hereby agrees that there are presently no license or other
agreements relating to the Products that would affect Novacon's ability to
manufacture and deliver the Products or substantially equivalent products and
none are contemplated or anticipated by Novacon.
3.09 Novacon hereby agrees that the sale of Products by Innovasive will not
infringe any patents held by persons who are not parties to this Agreement.
Should any person assert a claim against Innovasive based on the alleged
infringement of a patent or other protected intellectual property right which
exists during the term of this Agreement, Innovasive shall notify Novacon
promptly and Novacon will defend, indemnify and hold Innovasive harmless.
3.10 Novacon hereby agrees that all necessary governmental approvals in the
United States for the Product have been obtained by Novacon, and will be
obtained by Novacon for domestic sales should the need arise in the future.
3.11 Novacon hereby agrees that all Products comprising each shipment or
other delivery made to Innovasive are and, at all times, will be as of the
date of such shipment or delivery in compliance with all federal, state and
local laws, as well as all regulations, rules, declarations, interpretations
and orders issued thereunder.
3.12 Novacon hereby agrees that no Product is and will not be:
3.12.1 in violation of any of the provisions of the Fair Packaging and
Labeling Act;
3.12.2 adulterated or misbranded within the meaning of the Federal Food,
Drug and Cosmetic Act, as amended, or within the meaning of any applicable
state or municipal law in which the definitions of adulteration and misbranding
are substantially identical with those contained in the Federal Food, Drug and
Cosmetic Act, or Articles which may not under the provisions of Sections 404,
505, 514 or 515 of said Act be introduced into interstate commerce or which
may not under substantially similar provisions of any state or municipal law
be introduced into commerce;
3.12.3 manufactured or sold in violation of the provisions of the Fair
Labor Standards Acts, as amended, and the Regulations and orders issued
thereunder;
3.12.4 manufactured or sold in violation of any applicable Equal
Employment Opportunity requirements, including those set forth in Section 202
of Executive Order 11246, as amended;
3.12.5 manufactured or sold in violation of The Occupational Safety and
Health Act of 1970 and all standards and regulations issued thereunder, or any
applicable state laws and regulations pertaining to job safety and health;
3.12.6 manufactured or sold in violation of the Food, Drug, and Cosmetic
Act or the regulations promulgated thereafter, including specifically Good
Manufacturing Practices.
3.13 Within 90 days of the execution of this agreement and achievement by
Innovasive of its quarterly sales forecast, Novacon agrees to establish a
reserve component inventory of mutually agreed pump models in a quantity equal
to three months of actual sales.
4. Innovasive's Representations and Warranties.
4.01 Innovasive hereby agrees to sell the Products through its marketing and
sales distribution network comprised of independent sales representatives
(the Distributors) and employees who specialize in geographical regions or
in designated professional fields.
4.02 Innovasive will actively promote the Products and will provide its
Distributors and employees with the following:
(1) Product samples
(2) Brochures
(3) Appropriate training related to Products
(4) Exposure of Products at training courses and conventions
4.03 In order to facilitate Novacon's scheduling of production of the
products, Innovasive shall submit to Novacon's rolling twelve(12) month
calendar forecast by product code upon Novacon's request. The initial forecast
will be supplied within thirty (30) days of the Agreement.
4.04 Innovasive retains the right to select its customers and to sell at such
prices and on such terms and conditions as it may elect.
4.05 Innovasive may return non?conforming defective Products to Novacon
pursuant to the provisions of Article 10.02 below.
4.06 Innovasive will attend and work diligently to market the Novacon Products.
Innovasive will be responsible for all costs of marketing the Products,
including but not limited to, the cost of samples, brochures and exhibiting at
appropriate conventions and trade shows unless otherwise agreed by Novacon
prior to such convention or trade show expenditure.
4.07 Innovasive shall at all times comply with all applicable laws, rules and
regulations in the sale and distribution of the Products.
4.08 Innovasive shall maintain customer records sufficient to permit Novacon
to respond to warranty, recall, regulatory and market concerns regarding the
Product and shall cooperate with Novacon as reasonably required in resolving
such concerns. Innovasive shall notify Novacon promptly of any warranty
claims, threatened investigations or complaints that Innovasive receives
regarding the Product.
4.09 Respond promptly to sales leads or referrals furnished by Novacon.
4.10 Innovasive shall fully cooperate Novacon regarding any requirements of
compliance with the United States Food and Drug Administration regulations.
4.11 Not obtain the Products for resale from any other party or actively seek
customers, establish a new branch or maintain any distribution depot for the
Products outside the Territory.
4.12 Innovasive will be responsible for seeking appropriate regulatory approval
for areas outside the U.S. to which Innovasive has been granted the right to
sell and distribute the Products.
5. Packaging, Labeling and Trademarks.
5.01 Innovasive shall sell and distribute the Products as packaged and labeled
by Novacon and shall not re-package or re-label the Products without Novacon's
prior written consent.
5.02 Novacon shall work with Innovasive to establish an outer label and a
label or pad print directly applied to the pump.
5.03 Subject to the terms and conditions of this Agreement, Novacon grants to
Innovasive a non-exclusive license to use in its sale and distribution of the
Products in the Territory all trademarks incorporated by Novacon in the
packaging or otherwise used by Novacon in connection with the Products. All
materials developed by Innovasive that use any Novacon trademarks shall be
subject to Novacon's prior written approval and shall be consistent with Product
specifications and reflect only the Specified Applications.
6. Prices to Innovasive.
6.01 Initial Prices to Innovasive for the Product shall be as set forth on
Appendix A. The unit prices for the Product shall be fixed through June 30,
2000, subject to adjustments authorized in Article 6.02. Novacon shall give
Innovasive at least three (3) months prior written notice of any price increase
which may not exceed 5% in any one calendar year and shall not exceed 15% over
the term of this Agreement. In the event any improvements or modifications are
made to the Product, the parties will jointly determine in good faith whether
any price adjustments are appropriate. Novacon agrees to work with Innovasive
on product improvements and further agrees that changes in cost as a result of
said improvements will be passed on to Innovasive at no more than 110% of the
direct labor and direct material increases.
6.02 Inasmuch as Novacon sources the Products from Japan and pays for such
components in the Japanese currency, Novacon shall be protected from U.S.
Dollar-Japanese Yen exchange rate fluctuations that exceed a 10% devaluation
of the U.S. dollar during any six month period of this agreement. Price
adjustments may occur only on June 1st and/or January 1st and will reflect the
actual percentage increase in the cost of the Products. The base exchange rate
for purposes of this agreement is U.S.$ 1 = Japanese Yen 105. The maximum
price increase for Innovasive under the terms of this Agreement due to any
cause shall be fifteen (15) percent.
6.03 In the event that Innovasive's average selling price (ASP) for its pain
pump kit (including pain pump, epidural catheter kit, syringe, epidural
catheter introducer, etc.) for any calendar quarter is greater than $xxxx,
and the transfer price from Novacon to Innovasive for the Product is no
greater than 110% of the price listed in the Appendix A, then Innovasive shall
within 45 days of the close of said quarter issue to Novacon payment equal to
0.5 times the (ASP-$xxxx) times the number of units sold in the quarter.
The purchase prices and other amounts specified in this Agreement do include
sales, use or other applicable taxes, unless expressly stated to the contrary.
Innovasive will pay all such taxes.
7. Ordering. Notwithstanding any forecast supplied by Innovasive,
Innovasive's firm purchase commitment will be made on Innovasive Purchase
Order forms, which shall be submitted at the time of submission of each
forecast under Section 4.03 to cover not less than the quantity of Products
specified in the portion of the forecast that becomes binding. Innovasive
shall place its purchase orders throughout the term of this Agreement in
accordance with the terms specified in Section 4.03 herein. Novacon will ship
Product pursuant to such purchase orders within sixty (60) days of the receipt
and approval by Novacon of Innovasive's purchase order.
8. Payment. Payment of all invoices shall be made by check or other form
of payment agreed upon by the parties and shall be due within forty-five (45)
days of receipt by Innovasive of Novacon's invoice. Novacon may, at its
discretion, refuse orders, require payment in full, ship C.O.D. or halt
shipments in transmit if (i) all prior invoices are not paid in full, or (ii)
Novacon reasonably deems such steps necessary to secure payment. Failure to
pay per the terms of sale can result in the termination of this Agreement
subject to the termination provisions outlined in Section 14. In addition,
any payment not made when due shall bear interest at the lower of (x) twelve
percent (12%) per annum, or (y) the highest rate permitted by applicable law.
9. Shipping. Novacon shall deliver Products ordered by Innovasive to a
common or contract carrier for ground transportation F.O.B. Novacon's facility,
Minneapolis, Minnesota, or directly from its sterilization facility in
Schaumburg, Il, and all risk or loss of or damage or casualty to, such Products
will pass to Innovasive upon delivery. Innovasive will pay all costs of
transportation and shipping by ground transportation or such method requested.
10. Warranty.
10.01 Novacon warrants for 24 months from the date of shipment that the Products
conform to the specifications, have no defects in material, calibration,
sterility or workmanship and are fit for the ordinary use described in the
descriptions, instructions and documents accompanying the Products or issued or
circulated from time-to-time by Novacon. No other warranties, verbal or
written, expressed or implied, of any kind, whether of merchantability or
otherwise are made or provided to Innovasive or the user of the Product. Any
alteration or removal of the instructions accompanying the Product will void
this warranty.
10.02 Novacon shall replace defective Products at no cost to Innovasive while
under warranty. Replacement of such defective Products includes payment of
Innovasive's reasonable shipping costs, both from and to Novacon. Innovasive
shall advise Novacon regarding defective products within thirty (30) days of the
discovery of any defect and Novacon shall issue, within thirty (30) days after
verification of the defect, return authorization relating to such defective
Products or issue other instructions for the refund of the purchase price or
replacement of the defective Product.
10.03 Innovasive shall not make or extend on behalf of Novacon any written
or oral warranty in respect of any of the Products except as may be contained in
sales literature or brochures that are published or approved in writing by
Novacon. Innovasive shall not advise, perform or demonstrate any use or
application of any Products that are not specifically approved in writing by
Novacon. Innovasive shall defend, indemnify and hold harmless Novacon from any
claims, actions and proceedings and any damages, liability, losses, costs and
expenses (including, but not limited to, attorneys' fees) arising out of or
related to any breach of this paragraph by Innovasive.
11. Legal Relationship and Indemnification.
11.01 Innovasive is an independent contractor and the relationship between
Novacon and Innovasive is that of Vender and Supplier. Nothing herein is
intended or shall be construed, either express or implied, to authorize either
to create or assume any liability or obligation of any kind for or on behalf of
the other party. Neither party is the agent or legal representative of the
other party for any purpose whatsoever.
11.02 The parties hereto are each responsible for their own acts or alleged
acts and respectively agree to protect, indemnify, defend and hold harmless
each other and any affiliate from and against any and all claims, losses,
demands and liabilities, including attorneys' fees and court costs, which may
arise therefrom. Novacon agrees to indemnify and hold harmless Innovasive from
any loss, claim or judgment, including reasonable costs and expenses of
defending same, arising out of bodily injury, property damage or any other
damage or injury which is directly caused by a Product.
12. Assignment. This Agreement may not be assigned, in whole or in part,
directly, by operation of law, or otherwise, by any party hereto without the
prior written consent of the other party, except that either party may assign
its rights under this Agreement to any corporation controlling, controlled by
or under common control with it. No assignment by either party, with or without
the other's consent, will relieve a party from any of its obligations under this
Agreement.
13. Applicable Law/Costs of Enforcement.
13.01 Matters related to action to enforce rights or obligations granted under
this Agreement within the United States shall be governed by the laws of the
State of Massachusetts. If any portion of this Agreement itself is contrary to
law, the remaining provisions shall remain valid.
13.02 In the event either party commences legal action to enforce its rights
under this Agreement, the prevailing party in such action shall be entitled to
recover from the other party all of its costs and expenses in connection
therewith, including reasonable attorneys' fees.
13.03 Matters relating to patent and intellectual property rights shall be
governed by the laws of the country or jurisdiction in which the patent or
intellectual property rights are filed or recorded.
13.04 Matters related to action to enforce rights or obligations granted under
this Agreement within North America (except the United States), Central America
and South America and Europe shall be governed by the laws of the State of
Massachusetts, without regard to conflicts of law provisions and not including
the provisions of the 1980 U.N. Convention in Contracts for the International
Sale of Goods.
14. Duration and Termination of Agreement.
14.01 This Agreement shall be for an initial term beginning as of the date
hereof and ending on September 30, 2002. This Agreement will automatically
be renewed for successive one(1) year periods ending on September 30 of each
year thereafter if both parties are satisfying their obligations under the
Agreement and Innovasive has met or exceeded the minimum requirements.
14.02 This Agreement will be automatically terminated if a party files a
voluntary petition for bankruptcy or reorganization, is the subject of an
involuntary partition for bankruptcy, has its affairs placed in the hands of
a receiver, enters into a composition for the benefit of creditors, or is
deemed insolvent by a court of competent jurisdiction.
14.03 Should either party be in material breach of or noncompliance with any
of the terms of this Agreement, the other party (in addition to its other
rights and remedies available at law or in equity) may terminate this Agreement
by giving written notice of such breach. If the breach is not corrected or
compliance not made within thirty (30) days of the date of such notice, this
Agreement may be terminated immediately at the end of such thirty (30) day
period. The failure of either party at any time to require performance by
the other party of any provision hereof shall not affect in any way the full
right to require such performance at any time thereafter. Nor shall the
waiver by either party of a breach of any provision hereof be taken or held
to be a waiver of the provision itself.
15. Exclusivity.
15.01 During the term of this Agreement and while Innovasive is not in breach
of the terms hereof, Innovasive will have exclusive rights in the Territory to
sell and distribute the Products identified in Appendix A for the Specified
Applications as long as Innovasive purchases the minimum quantity mutually
agreed upon with Novacon. The first contract year's minimum will be for
Innovasive to purchase 10,000 units from Novacon. For each forthcoming contract
year's minimum, Innovasive and Novacon will mutually agree on the goal minimums
at least ninety (90) days prior to the end of each calendar year. The parties
agree that future year's minimums will be at least 110% of the previous year's
total actual unit sales of the Products by Innovasive.
15.02 No purchase exceeding the minimum purchase requirement in any contract
year shall be used to offset the minimum purchase requirement for any other
year. If the minimum is not met in any contract year. Novacon can exercise
the right to convert Innovasive's right to sell Products in the Territory under
this Agreement to a non?exclusive right and Innovasive shall no longer have the
rights under Section 2.02. In the event that the reimbursement for the
Products changes significantly, the parties agree to establish new mutually
agreeable minimums for any contract year.
15.03 Innovasive shall not and will use commercially reasonable efforts to
ensure its distributors do not actively sell, distribute or market the Products
outside of the Territory or for any application other than the Specified
Applications.
15.04 In consideration for the grant to Innovasive of the exclusive rights
to sell and distribute the Products described in Section 15.01, Innovasive
shall not sell or distribute any competing products during the term of this
Agreement. Novacon agrees that it will not supply, sell, or sell through any
third party the products or any product that competes with the products sold
by Innovasive in its territory.
16. Obligations Upon Termination.
16.01 Upon termination of this Agreement by Novacon or Innovasive, Innovasive
will be permitted to sell through its remaining inventory.
16.02 Upon termination, Novacon may, at its option, ship to Innovasive all
unused packaging paper, boxes and cases privately labeled for Innovasive.
Innovasive will reimburse Novacon for the above at Novacon's cost. However,
Innovasive's maximum obligation relating to the return of these materials will
not, under any circumstance, exceed $10,000.
17. Complete Agreement. This Agreement constitutes the entire agreement
between Innovasive and Novacon. No modifications of this Agreement shall be
binding on either party unless made in writing and signed by both parties, and
this Agreement supersedes and cancels any and all previous contracts,
arrangements or understandings that may be existed or may exist between the
parties, whether written or verbal. There are no understandings,
representations or warranties of any such kind, expressed or implied, that are
not expressly set forth herein. The language of this Agreement shall for all
purposes be construed as a whole, according to its fair meaning, not strictly
for or against either party, and without regard to identity or status of any
person who drafted all or any part of it.
18. Confidentiality. Each of Novacon and Innovasive and its officers,
employees, and agents (the Receiving Party) shall, during the Agreement Term
and for a period of three (3) years thereafter, maintain in strictest
confidence any and all confidential or proprietary information or data of the
other party (the Disclosing Party) or any of the Disclosing Party's
Affiliates, or any information, data, or trade secrets of the Disclosing Party
designated by the Disclosing Party orally, in writing, or via any other medium
as confidential or proprietary (originals and all copies thereof, collectively,
the Confidential Information). The Receiving Party shall not disclose or
reveal any confidential Information of the Disclosing Party to any third party,
including without limitation its own Affiliates, without the prior written
consent of the Disclosing Party, and shall use such Confidential Information
solely to perform its obligations under this Agreement and for no other
purpose. Confidential Information shall not include any information that
(i) was lawfully known to the Receiving Party prior to the time of receipt of
such information from the Disclosing Party (as evidenced by written or other
recorded records); (ii) is lawfully disclosed to the Receiving Party by a
third party having the right to disclose such information; (iii) is or becomes
known to the public other than through the unauthorized acts or omissions of
the Receiving Party or its Affiliates; (iv) was or is independently developed
by the Receiving Party (as evidenced by written or other recorded records); or
(v) must be disclosed under operation of law (in which case the Receiving Party
shall give reasonable Notice to the Disclosing Party so as to afford the
Disclosing Party the opportunity to contest the order in whole or in part).
19. Notices. All notices required under this Agreement shall be sent
registered mail, return receipt requested, or by other means of verified
delivery, or by personal delivery, as follows:
If to Novacon: Novacon Corporation
5451 Hilltop Ave.
Lake Elmo, MN 55042
If to: Innovasive Devices, Inc.
734 Forest Street
Marlboro, Massachusetts 01752
Either party may change its address for notice purposes by notifying the other
party of such change of address, such notice to be as required herein. Notice
is effective when actually received by the addressee or when the addressee
refuses delivery.
19. Intellectual Property Ownership; Proprietary Rights.
(a) Innovasive acknowledges that:
(i) the Products involve valuable patent, copyright, trade secret, trade name,
trademark and other proprietary rights of Novacon;
(ii) no title to or ownership of such proprietary rights is transferred to
Innovasive under this Agreement or by use of any trademark, patent or other
proprietary right; and
(iii) Novacon reserves all such proprietary rights.
(b) Innovasive will not infringe or violate any proprietary rights described
in this Section 19.
(c) Without limiting the generality of the foregoing, Innovasive will not
register or attempt to register, directly or indirectly, within the Territory
or elsewhere, any such patents, copyrights, trade names, trademarks or other
proprietary rights without Novacon's express written permission.
Innovasive will immediately notify Novacon of any infringement of Novacon's
proprietary rights, especially any such infringement relating to the
activities of Innovative or any of its employees, agents, representatives or
customers. Novacon may, at its option, and at its expense, undertake or assume
control of any legal proceeding relating to such infringement. Novacon will
have exclusive control over the prosecution and settlement of any such legal
proceeding, and Innovasive will provide such assistance related to any such
legal proceeding as Novacon may reasonably request. Also, Innovasive will assist
Novacon in enforcing any settlement or order made in connection with any such
legal proceeding.
20. Trademarks and Trade Names. Novacon hereby grants Innovasive the royalty-
free right to use the trademarks and trade names identified on attached
Exhibit B (the "Novacon Trademarks") in the Territory during the term hereof
solely for the purpose of identifying the Products in conjunction with
Innovasive's marketing and sale of the Products under this Agreement, and
solely in accordance with the Products quality and other standards issued from
time to time by Novacon. Except as permitted under this paragraph, Novacon
reserves all rights in the Novacon Trademarks. Innovasive shall not use the
Novacon Trademarks for any purpose other than as permitted under this paragraph.
Innovasive shall properly identify and accurately describe all of the Products
as a product of Novacon, only as required by law. Innovasive shall not alter,
remove, deface or obscure any notice of trademark, trade name, patent,
copyright, proprietary right or trade secret on a Product and shall not add to
a Product any other additional trademark or trade name, provided that
Innovasive may use a trademark of Innovasive (the "Innovasive Trademarks") in
connection with the marketing and sale of the Products.
21. Nonwaiver. The failure of either party to insist upon or enforce strict
performance of any of the provisions of this Agreement or to exercise any
rights or remedies under this Agreement will not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provisions, rights or remedies in that or any other instance; rather, the
same will be and remain in full force and effect.
22. Interpretation. Section and Paragraph captions are for convenience of
reference and do not alter or limit the terms of this Agreement.
23. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be deemed an original, but all of which shall constitute
but one and the same instrument.
24. Partial Invalidity. The invalidity or unenforceability of any particular
provision of this Agreement shall not effect the other provisions hereof, all
of which shall remain enforceable according to their terms. Should any of the
obligations hereunder be found to be illegal or unenforceable as being too
broad with respect to the duration, scope or subject matter thereof, such
obligations shall be deemed and construed to be reduced to the minimum duration,
scope or subject matter allowed by law.
25. Exhibits. All Exhibits attached to this Agreement are incorporated
herein by reference.
26. Force Majeure. Neither party will be liable for, or considered to be in
breach of or default under this Agreement on account of any delay or failure to
perform as required by this Agreement (other than for payment under Section 8)
as a result of any cause or condition beyond such party's reasonable control.
An event of force majeure beyond either party's control shall be considered,
but not limited to, the following occurrences: fire, flood, tornado,
earthquake, lightning, typhoon, and other natural disasters, and war,
insurrection and similar military actions and political events such as trade
embargos.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of the date and year first written.
NOVACON PORATION
David P. Lang, President
INNOVASIVE DEVICES, INC.
Richard D. Randall, President/CEO
EXHIBIT A: PRODUCTS
MUSCULOSKELETAL POSTOPERATIVE PAIN MANAGEMENT PUMP PRICING:
SINGLE PACKED
ITEM STERILE DOUBLE BAGGED DEMO UNIT NON-STERILE
50 ml x 1 ml/HR DIB PUMP* xxxxx xxxxxx
100 ml x 2 ml/HR DIB PUMP* xxxxx xxxxxx
150 ml x 2 ml/HR DIB PUMP* xxxxx xxxxxx
*Includes single packaged sterile-double bagged pumps including Innovasive
labeling on pump & package, calibrator and hard outer shell.
Products defined for purposes of this Agreement will include improvements
and enhancements to the specific products listed above and all future
mechanical infusion post-op pumps.
EXHIBIT B: TRADEMARKS
Dib
Dib-RA
Ranger
