rmti_Current_Folio_10Q_Taxonomy2019

Table of Contents

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 


 

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

or

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                              to                              

 

Commission File Number: 000-23661

 

ROCKWELL MEDICAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Michigan

38-3317208

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

30142 Wixom Road, Wixom, Michigan

48393

(Address of principal executive offices)

(Zip Code)

 

(248) 960-9009

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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    ☐  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒  Yes    ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐  Yes  ☒  No

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, no par value

 

RMTI

 

Nasdaq Global Market

 

 

The number of shares of common stock outstanding as of August 8, 2019 was 63,824,584.

 

 

 

 

 

 

Table of Contents

Rockwell Medical, Inc. and Subsidiaries

Index to Form 10-Q

 

 

 

 

Page

Part I — Financial Information (unaudited) 

 

 

 

Item 1 - Financial Statements  

 

 

 

Condensed Consolidated Balance Sheets as of June  30, 2019 and December 31, 2018 

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018 

5

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 

10

 

 

Notes to Condensed Consolidated Financial Statements 

11

 

 

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 

28

 

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk 

35

 

 

Item 4 - Controls and Procedures 

35

 

 

Part II — Other Information 

 

      

 

Item 1 -    Legal Proceedings 

36

 

 

Item 1A - Risk Factors 

36

 

 

Item 6 -    Exhibits 

38

 

 

Signatures 

39

 

 

 

 

 

2

Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

21,417,159

 

$

22,713,980

Investments Available-for -Sale

 

 

13,816,079

 

 

10,818,059

Accounts Receivable, net

 

 

5,388,858

 

 

6,979,514

Insurance Receivable

 

 

 —

 

 

371,217

Inventory

 

 

3,972,637

 

 

4,038,778

Prepaid and Other Current Assets

 

 

3,667,605

 

 

1,903,682

Total Current Assets

 

 

48,262,338

 

 

46,825,230

Property and Equipment, net

 

 

2,563,428

 

 

2,638,293

Inventory, Non-Current

 

 

1,445,000

 

 

1,637,000

Right of Use Assets, net

 

 

3,329,481

 

 

 —

Goodwill

 

 

920,745

 

 

920,745

Other Non-current Assets

 

 

555,222

 

 

536,516

Total Assets

 

$

57,076,214

 

$

52,557,784

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts Payable

 

$

4,065,302

 

$

4,492,071

Accrued Liabilities

 

 

4,071,341

 

 

5,129,761

Settlement Payable

 

 

430,000

 

 

416,668

Lease Liability - Current

 

 

1,637,481

 

 

 —

Deferred License Revenue - Current

 

 

2,243,256

 

 

2,252,868

Insurance Financing Note Payable

 

 

1,908,554

 

 

 —

Customer Deposits

 

 

128,654

 

 

63,143

Other Current Liability - Related Party

 

 

350,000

 

 

850,000

Total Current Liabilities

 

 

14,834,588

 

 

13,204,511

 

 

 

 

 

 

 

Lease Liability - Long-Term

 

 

1,690,310

 

 

 —

Deferred License Revenue - Long-Term

 

 

10,959,577

 

 

12,076,399

Total Liabilities

 

 

27,484,475

 

 

25,280,910

 

 

 

 

 

 

 

Commitments and Contingencies (See Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Preferred Shares, no par value, no shares issued and outstanding at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common Shares, no par value, 63,398,704 and 57,034,154 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

320,882,946

 

 

299,601,960

Accumulated Deficit

 

 

(291,358,764)

 

 

(272,388,234)

Accumulated Other Comprehensive Income

 

 

67,557

 

 

63,148

Total Shareholders’ Equity

 

 

29,591,739

 

 

27,276,874

Total Liabilities And Shareholders’ Equity

 

$

57,076,214

 

$

52,557,784

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended June 30, 2019

    

Three Months Ended June 30, 2018

    

Six Months Ended June 30, 2019

    

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

14,845,788

 

$

14,913,363

 

$

30,405,227

 

$

29,861,943

 

 

Cost of Sales

 

 

14,112,639

 

 

18,930,371

 

 

28,661,686

 

 

34,599,442

 

 

Gross Profit (Loss)

 

 

733,149

 

 

(4,017,008)

 

 

1,743,541

 

 

(4,737,499)

 

 

Selling and Marketing

 

 

2,218,997

 

 

164,374

 

 

5,321,375

 

 

379,457

 

 

General and Administrative

 

 

5,496,670

 

 

5,526,575

 

 

11,717,169

 

 

8,643,449

 

 

Settlement Expense

 

 

430,000

 

 

1,030,000

 

 

430,000

 

 

1,030,000

 

 

Research and Product Development

 

 

2,958,276

 

 

1,558,946

 

 

3,455,552

 

 

3,225,302

 

 

Operating Loss

 

 

(10,370,794)

 

 

(12,296,903)

 

 

(19,180,555)

 

 

(18,015,707)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gain (Loss) on Investments

 

 

4,135

 

 

(122,095)

 

 

18,023

 

 

(124,987)

 

 

Interest Income

 

 

74,476

 

 

188,206

 

 

192,002

 

 

360,381

 

 

Total Other Income

 

 

78,611

 

 

66,111

 

 

210,025

 

 

235,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(10,292,183)

 

$

(12,230,792)

 

$

(18,970,530)

 

$

(17,780,313)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share

 

$

(0.18)

 

$

(0.24)

 

$

(0.33)

 

$

(0.35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding

 

 

58,216,066

 

 

51,288,424

 

 

57,660,947

 

 

51,288,424

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended June 30, 2019

    

Three Months Ended June 30, 2018

    

Six Months Ended June 30, 2019

    

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(10,292,183)

 

$

(12,230,792)

 

$

(18,970,530)

 

$

(17,780,313)

 

Unrealized Gain (Loss) on Available-for-Sale Debt Instrument Investments

 

 

11,426

 

 

142,454

 

 

4,265

 

 

(47,542)

 

Foreign Currency Translation Adjustments

 

 

236

 

 

(4,905)

 

 

144

 

 

(7,389)

 

Comprehensive Loss

 

$

(10,280,521)

 

$

(12,093,243)

 

$

(18,966,121)

 

$

(17,835,244)

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

5

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the three months ended June 30, 2019

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

INCOME

    

EQUITY

Balance as of April 1, 2019

 

57,128,327

 

$

301,171,733

 

$

(281,066,581)

 

$

55,895

 

$

20,161,047

Net Loss

 

 —

 

 

 —

 

 

(10,292,183)

 

 

 —

 

 

(10,292,183)

Unrealized Gain on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

11,426

 

 

11,426

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

236

 

 

236

Issuance of common stock, net of offering costs/Public offering

 

5,833,334

 

 

16,120,679

 

 

 —

 

 

 —

 

 

16,120,679

Issuance of common stock, net of offering costs/At-the-market offering

 

437,043

 

 

2,089,208

 

 

 —

 

 

 —

 

 

2,089,208

Stock-based Compensation

 

 —

 

 

1,501,326

 

 

 —

 

 

 —

 

 

1,501,326

Balance as of June 30, 2019

 

63,398,704

 

$

320,882,946

 

$

(291,358,764)

 

$

67,557

 

$

29,591,739

 

 

6

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the three months ended June 30, 2018

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

INCOME / (LOSS)

    

EQUITY

Balance as of April 1, 2018

 

51,768,424

 

$

273,656,910

 

$

(245,811,897)

 

$

(227,863)

 

$

27,617,150

Net Loss

 

 —

 

 

 —

 

 

(12,230,792)

 

 

 —

 

 

(12,230,792)

Unrealized Gain on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

142,454

 

 

142,454

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

(4,905)

 

 

(4,905)

Stock-based Compensation

 

 —

 

 

1,365,332

 

 

 —

 

 

 —

 

 

1,365,332

Balance as of June 30, 2018

 

51,768,424

 

$

275,022,242

 

$

(258,042,689)

 

$

(90,314)

 

$

16,889,239

 

 

7

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the six months ended June 30,  2019

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

INCOME

    

EQUITY

 

Balance as of January 1, 2019

 

57,034,154

 

$

299,601,960

 

$

(272,388,234)

 

$

63,148

 

$

27,276,874

 

Net Loss

 

 —

 

 

 —

 

 

(18,970,530)

 

 

 —

 

 

(18,970,530)

 

Unrealized Gain on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

4,265

 

 

4,265

 

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

144

 

 

144

 

Exercise of Employee Stock Options

 

30,000

 

 

147,900

 

 

 —

 

 

 —

 

 

147,900

 

Delivery of common stock underlying restricted stock units, net of tax

 

64,173

 

 

(95,429)

 

 

 —

 

 

 —

 

 

(95,429)

 

Issuance of common stock, net of offering costs/Public offering

 

5,833,334

 

 

16,120,679

 

 

 —

 

 

 —

 

 

16,120,679

 

Issuance of common stock, net of offering costs/At-the-market offering

 

437,043

 

 

2,089,208

 

 

 —

 

 

 —

 

 

2,089,208

 

Stock-based Compensation

 

 —

 

 

3,018,628

 

 

 —

 

 

 —

 

 

3,018,628

 

Balance as of June 30, 2019

 

63,398,704

 

$

320,882,946

 

$

(291,358,764)

 

$

67,557

 

$

29,591,739

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

8

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the six months ended June 30, 2018

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

(LOSS)

    

EQUITY

Balance as of January 1, 2018

 

51,768,424

 

$

273,210,907

 

$

(240,262,376)

 

$

(35,383)

 

$

32,913,148

Net Loss

 

 —

 

 

 —

 

 

(17,780,313)

 

 

 —

 

 

(17,780,313)

Unrealized Loss on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

(47,542)

 

 

(47,542)

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

(7,389)

 

 

(7,389)

Stock-based Compensation

 

 —

 

 

1,811,335

 

 

 —

 

 

 —

 

 

1,811,335

Balance as of June 30, 2018

 

51,768,424

 

$

275,022,242

 

$

(258,042,689)

 

$

(90,314)

 

$

16,889,239

 

 

 

 

 

 

 

 

 

9

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the six months ended June 30, 2019 and 2018

 

(Unaudited)

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net Loss

 

$

(18,970,530)

 

$

(17,780,313)

Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities:

 

 

 

 

 

 

Depreciation and Amortization

 

 

380,372

 

 

281,327

Stock-based Compensation

 

 

3,018,628

 

 

1,811,335

Increase in Inventory Reserves

 

 

192,000

 

 

5,927,793

Amortization of Right of Use Asset

 

 

975,947

 

 

 —

(Gain) Loss on Disposal of Assets

 

 

(300)

 

 

2,483

Realized (Gain) Loss on Sale of Investments Available-for-Sale

 

 

(18,023)

 

 

124,987

Foreign Currency Translation Adjustment

 

 

144

 

 

(7,389)

Changes in Assets and Liabilities:

 

 

 

 

 

 

Decrease in Accounts Receivable, net

 

 

1,590,656

 

 

1,001,160

Decrease (Increase) in Insurance Receivable

 

 

371,217

 

 

(500,000)

Decrease in Inventory

 

 

66,141

 

 

1,310,702

Decrease (Increase) in Other Assets

 

 

125,750

 

 

(691,139)

Decrease in Accounts Payable

 

 

(426,772)

 

 

(1,015,539)

Increase in Settlement Payable

 

 

13,332

 

 

1,530,000

Decrease in Lease Liability

 

 

(977,636)

 

 

 —

Decrease in Other Liabilities

 

 

(992,909)

 

 

(706,929)

Decrease in Deferred License Revenue

 

 

(1,126,434)

 

 

(1,145,418)

Changes in Assets and Liabilities

 

 

(1,356,655)

 

 

(217,163)

Cash Used In Operating Activities

 

 

(15,778,417)

 

 

(9,856,940)

Cash Flows From Investing Activities:

 

 

 

 

 

 

Purchase of Investments Available-for-Sale

 

 

(21,774,410)

 

 

(2,594,349)

Sale of Investments Available-for-Sale

 

 

18,798,678

 

 

6,133,307

Purchase of Equipment

 

 

(305,030)

 

 

(340,800)

Purchase of Research and Development Licenses (Related Party)

 

 

(500,000)

 

 

 —

Cash Provided By (Used In) Investing Activities

 

 

(3,780,762)

 

 

3,198,158

Cash Flows From Financing Activities:

 

 

 

 

 

 

Proceeds from the Issuance of Common Stock / Public Offering

 

 

17,500,002

 

 

 —

Offering Costs from the Issuance of Common Stock / Public Offering

 

 

(1,379,323)

 

 

 —

Proceeds from the Issuance of Common Stock / At-the Market Offering

 

 

2,296,235

 

 

 —

Offering Costs from the Issuance of Common Stock / At-the Market Offering

 

 

(207,027)

 

 

 —

Proceeds from the Exercise of Employee Stock Options

 

 

147,900

 

 

 —

Repurchase of Common Shares to Pay Employee Withholding Taxes

 

 

(95,429)

 

 

 —

Cash Provided By Financing Activities

 

 

18,262,358

 

 

 —

 

 

 

 

 

 

 

Decrease In Cash and Cash Equivalents

 

 

(1,296,821)

 

 

(6,658,782)

Cash At Beginning Of Period

 

 

22,713,980

 

 

8,406,917

Cash At End Of Period

 

$

21,417,159

 

$

1,748,135

 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Investing and Financing Activities:

 

 

 

 

 

 

Change in Unrealized Gain (Loss) on Marketable Securities Available-for-Sale

 

$

4,265

 

$

(47,542)

Insurance Financing Note Payable

 

$

1,908,554

 

$

 —

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

10

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.  Description of Business

 

Rockwell Medical, Inc. and subsidiaries (collectively, “we”, “our”, “us”, or the “Company”), is a specialty pharmaceutical company targeting end-stage renal disease and chronic kidney disease with products for the treatment of iron deficiency and hemodialysis.  We are also a manufacturer of hemodialysis concentrates for dialysis providers and distributors in the United States and abroad. We supply the domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim. Substantially, all of our sales have been concentrate products and ancillary items.

 

Our business strategy is developing unique, proprietary renal drug therapies that we can commercialize or out-license, while also expanding our dialysis products business. These renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy, while decreasing drug administration costs and improving patient convenience and outcome.

 

Triferic® is a registered trademark of Rockwell Medical, Inc.

 

2.  Liquidity and Capital Resources

 

As of June 30, 2019, the Company had approximately $21.4 million of cash and cash equivalents, $13.8 million of investments available-for-sale, working capital of $33.4 million and an accumulated deficit of $291.4 million. Net cash used in operating activities for the six months ended June 30, 2019 was approximately $15.8 million. On June 20, 2019, the Company closed a public offering of 5,833,334 shares of common stock at a price of $3.00 per share. The aggregate proceeds from this public offering (net of the underwriters’ commissions and offering expenses) were approximately $16.1 million. On July 9, 2019, the underwriters of the public offering partially exercised their over-allotment option and purchased an additional 425,800 shares of common stock at a price of $3.00 per share, which closed on July 11, 2019. The aggregate proceeds from the exercise of the over-allotment option (net of the underwriters’ discount and offering expenses) were approximately $1.2 million.

 

On March 22, 2019, the Company entered into a sales agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time shares of the Company’s common stock, no par value, through the Agent up to $40,000,000. We are not required to sell any shares at any time during the term of the facility.  Our ability to sell common stock under the facility may be limited by several factors including, among other things, the trading volume of our common stock and certain black-out periods that we may impose upon the facility, among other things.

 

Based on the capital raised from the June 20, 2019 offering and proceeds from the partial exercise of the over-allotment option on July 11, 2019, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report.

 

The Company will require additional capital to sustain its operations and make the investments it needs to execute upon its longer-term business plan, including the launch of Dialysate Triferic and I.V. Triferic. If the Company is unable to generate sufficient revenue from its existing long-term business plan, the Company will need to obtain additional equity or debt financing. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume that such financing will be available on favorable terms, if at all.

 

3.  Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all

11

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

 

The results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The condensed consolidated balance sheet at June 30, 2019 has been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements.  The condensed consolidated balance sheet at December 31, 2018 has been derived from audited financial statements, however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s annual report on Form 10-K filed on March 18, 2019.

The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

Certain reclassifications have been made to the 2018 financial statements and notes to conform to the 2019 presentation.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that may 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 expenses during the reporting period. Actual results could differ from those estimates.

 

Significant Accounting Policies

 

With the exception of the adoption of ASU 2016-02 relating to accounting for leases, there have been no material changes in the Company’s significant accounting policies as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Leases

 

Effective January 1, 2019, the Company accounts for its leases under Accounting Standards Codification (“ASC”) 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.

 

In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

 

The Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.

 

 Loss Per Share

 

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”), with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if

12

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then sharing in the earnings of the entity.

 

Basic net loss per share of common stock excludes dilution and is computed by dividing the net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. The Company has only incurred losses, therefore, basic and diluted net loss per share is the same. Securities that could potentially dilute net income per share in the future that were not included in the computation of diluted loss per share were as follows:

 

 

 

 

 

 

 

As of June 30, 

 

2019

2018

Options to purchase common stock

 

8,187,161

 

6,806,001

Unvested restricted stock awards

 

146,800

 

480,000

Unvested restricted stock units

 

1,658,205

 

 -

Warrants to purchase common stock

 

2,770,781

 

 -

 

 

12,762,947

 

7,286,001

 

Adoption of Recent Accounting Pronouncements

 

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a review to determine the consequences of the change to its consolidated financial statements and assures that there are sufficient controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amended the guidance on accounting for leases. The FASB issued this update to increase transparency and comparability among organizations. This update requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The Company adopted this ASU effective January 1, 2019 using the additional (optional) approach by recording a right-of-use asset and a lease liability of approximately $3.5 million. Our adoption of this ASU had no effect on opening retained earnings, and the Company continues to account for leases in the prior period consolidated financial statements under ASC Topic 840. In adopting the new standard, the Company elected to apply the practical expedients regarding identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components.

 

       In June 2018, the FASB issued ASU 2018-17, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under ASU 2018-17, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company adopted this new standard on January 1, 2019 and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

 

 

 

4.  Revenue Recognition

 

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

 

·

Step 1: Identify the contract with the customer

·

Step 2: Identify the performance obligations in the contract

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Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

·

Step 3: Determine the transaction price

·

Step 4: Allocate the transaction price to the performance obligations in the contract

·

Step 5: Recognize revenue when the company satisfies a performance obligation

 

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

 

Shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer.

 

Nature of goods and services

 

The following is a description of principal activities from which the Company generates its revenue.

 

Product sales –The Company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost plus margin approach.

 

Drug and dialysis concentrate products are sold directly to dialysis clinics and to wholesale distributors in both domestic and international markets. Distribution and license agreements for which upfront fees are received are evaluated upon execution or modification of the agreement to determine if the agreement creates a separate performance obligation from the underlying product sales.  For all existing distribution and license agreements, the distribution and license agreement is not a distinct performance obligation from the product sales.  In instances where regulatory approval of the product has not been established and the Company does not have sufficient experience with the foreign regulatory body to conclude that regulatory approval is probable, the revenue for the performance obligation is recognized over the term of the license agreement (over time recognition). Conversely, when regulatory approval already exists or is probable, revenue is recognized at the point in time that control of the product transfers to the customer.

 

The Company received upfront fees under two distribution and license agreements that have been deferred as a contract liability.  The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) are recognized as revenue over the estimated term of the distribution and license agreement as regulatory approval was not received and the Company did not have sufficient experience in China to determine that regulatory approval was probable as of the execution of the agreement.  The amounts received from Baxter Healthcare Corporation (“Baxter”), are recognized as revenue at the point in time that the estimated product sales under the agreement occur. 

 

For the business under the Company’s distribution agreement with Baxter (the “Baxter Agreement”), and for the majority of the Company’s international customers, the Company recognizes revenue at the shipping point, which is generally the Company’s plant or warehouse. For other business, the Company recognizes revenue based on when the customer takes control or receipt of the product. The amount of revenue recognized is based on the purchase order less returns and adjusted for any rebates, discounts, chargebacks or other amounts paid to customers. There were no such adjustments for the periods reported. Customers typically pay for the product based on customary business practices with payment terms averaging 30 days, while distributor payment terms average 45 days.

 

14

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregation of revenue

 

Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In thousands of US dollars ($) 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

Products By Geographic Area

    Total

    

U.S.

    

Rest of World

 

    Total

    

U.S.

    

Rest of World

Drug Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Product Sales – Point-in-time

$

15

 

$

15

 

$

 —

 

$

15

 

$

15

 

$

 —

    License Fee – Over time

 

68

 

 

 —

 

 

68

 

 

136

 

 

 —

 

 

136

    Total Drug Products

 

83

 

 

15

 

 

68

 

 

151

 

 

15

 

 

136

Concentrate Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Product Sales – Point-in-time

 

14,268

 

 

12,822

 

 

1,446

 

 

29,264

 

 

25,746

 

 

3,518

    License Fee – Over time

 

495

 

 

495

 

 

 —

 

 

990

 

 

990

 

 

 —

    Total Concentrate Products

 

14,763

 

 

13,317

 

 

1,446

 

 

30,254

 

 

26,736

 

 

3,518

Net Revenue

$

14,846

 

$

13,332

 

$

1,514

 

$

30,405

 

$

26,751

 

$

3,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

Products By Geographic Area

 

Total

 

 

U.S.

 

 

Rest of World

 

 

Total

 

 

U.S.

 

 

Rest of World

Drug Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    License Fee – Over time

$

68

 

 

 —

 

$

68

 

$

136

 

 

 —

 

$

136

Concentrate Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Product Sales – Point-in-time

 

14,340

 

 

12,856

 

 

1,484

 

 

28,717

 

 

25,329

 

 

3,388

    License Fee – Over time

 

505

 

 

505

 

 

 —

 

 

1,009

 

 

1,009

 

 

 —

    Total Concentrate Products

 

14,845

 

 

13,361

 

 

1,484

 

 

29,726

 

 

26,338

 

 

3,388

Net Revenue

$

14,913

 

$

13,361

 

$

1,552

 

$

29,862

 

$

26,338

 

$

3,524

 

Contract balances

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

 

 

 

 

 

 

 

 

In thousands of US dollars ($)

    

June 30, 2019

    

December 31, 2018

Receivables, which are included in "Trade and other receivables"

 

$

5,389

 

$

6,980

Contract liabilities

 

$

13,203

 

$

14,329

 

There were no impairment losses recognized related to any receivables arising from the Company’s contracts with customers for the three and six months ended June 30, 2019 and 2018.

 

For the three and six months ended June 30, 2019 and June 30, 2018, the Company did not recognize material bad-debt expense and there were no material contract assets recorded on the condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018.  The Company does not generally accept returns of its concentrate products and no reserve for returns of concentrate products was established as of June 30, 2019 or December 31, 2018. 

 

The contract liabilities primarily relate to upfront payments and consideration received from customers that are received in advance of the customer assuming control of the related products. 

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Transaction price allocated to remaining performance obligations

 

For the three and six months ended June 30, 2019, revenue recognized from performance obligations related to prior periods was not material.

 

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, totaled $13.2 million as of June 30, 2019. The amount relates primarily to upfront payments and consideration received from customers that are received in advance of the customer assuming control of the related products. The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The Baxter Agreement includes minimum commitments of product sales over the duration of the agreement. Unfulfilled performance obligations related to the Baxter Agreement are product sales of $10.1 million, which will be amortized through expiration of the agreement on October 2, 2024.

 

5.  Investments - Available-for-Sale

 

Investments available-for-sale consisted of the following as of June 30, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

Amortized Cost

 

Unrealized Gain

 

Unrealized Loss

 

Fair Value

Available-for-Sale Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

13,797,120

 

$

21,759

 

$

(2,800)

 

$

13,816,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Amortized Cost

 

Unrealized Gain

 

Unrealized Loss

 

Fair Value

Available-for-Sale Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

10,801,836

 

$

17,415

 

$

(1,192)

 

$

10,818,059

 

The fair value of investments available-for-sale are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date and are classified as Level 1, as described in Note 3, Fair Value Measurement to our condensed consolidated financial statements.

As of June 30, 2019 and December 31, 2018, the amortized cost and estimated fair value of our available-for-sale securities were due in one year or less.

6.  Inventory

 

Components of inventory, net of reserves as of June 30, 2019 and December 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Raw Materials

 

$

3,361,556

 

$

3,621,548

Work in Process

 

 

244,743

 

 

256,129

Finished Goods

 

 

1,811,338

 

 

1,798,101

Total

 

$

5,417,637

 

$

5,675,778

 

As of June 30, 20192019, we classified $1.4 million and $1.6 million, respectively, of inventory as n