Form 10-Q
Table of Contents

 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended September 30, 2011

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 TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Michigan   38-3317208

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  Yes    ¨  No

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of October 31, 2011

Common Stock, no par value   18,666,668 shares

 

 

 


Table of Contents

Rockwell Medical Technologies, Inc.

Index to Form 10-Q

 

     Page  

Part I – Financial Information (unaudited)

  

Item 1 - Financial Statements (unaudited)

  

Consolidated Balance Sheets

     3   

Consolidated Statements of Income

     4   

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss)

     5   

Consolidated Statements of Cash Flows

     6   

Notes to Consolidated Financial Statements

     7   

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

     9   

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

     13   

Item 4 - Controls and Procedures

     13   

Part II – Other Information

  

Item 1A - Risk Factors

     14   

Item 6 - Exhibits

     14   

Signatures

     15   

Exhibit Index

     16   

 

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

As of September 30, 2011 and December 31, 2010

 

    

September 30,

2011

    December 31,  
     (unaudited)     2010  
ASSETS     

Cash and Cash Equivalents

   $ 8,421,915      $ 12,263,449   

Investments Available for Sale

     11,813,813        11,938,098   

Accounts Receivable, net of a reserve of $27,000 in 2011 and $23,000 in 2010

     4,258,403        4,507,296   

Inventory

     2,234,685        2,936,878   

Other Current Assets

     1,373,083        1,020,647   
  

 

 

   

 

 

 

Total Current Assets

     28,101,899        32,666,368   

Property and Equipment, net

     2,458,987        3,049,513   

Intangible Assets

     839,676        166,657   

Goodwill

     920,745        920,745   

Other Non-current Assets

     2,269,158        163,624   
  

 

 

   

 

 

 

Total Assets

   $ 34,590,465      $ 36,966,907   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Capitalized Lease Obligations

   $ 8,662      $ 18,215   

Accounts Payable

     3,609,235        3,659,507   

Accrued Liabilities

     5,892,021        2,577,022   

Customer Deposits

     114,778        165,476   
  

 

 

   

 

 

 

Total Current Liabilities

     9,624,696        6,420,220   

Capitalized Lease Obligations

     3,078        8,750   

Shareholders’ Equity:

    

Common Shares, no par value, 18,502,901 and 17,513,608 shares issued and outstanding

     65,290,668        57,017,236   

Common Share Purchase Warrants, 2,707,440 and 3,338,569 warrants issued and outstanding

     7,067,924        8,275,509   

Accumulated Deficit

     (47,033,236     (34,541,185

Accumulated Other Comprehensive Loss

     (362,665     (213,623
  

 

 

   

 

 

 

Total Shareholders’ Equity

     24,962,691        30,537,937   
  

 

 

   

 

 

 

Total Liabilities And Shareholders’ Equity

   $ 34,590,465      $ 36,966,907   
  

 

 

   

 

 

 

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

 

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Table of Contents

ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED INCOME STATEMENTS

For the three and nine months ended September 30, 2011 and September 30, 2010

(Unaudited)

 

    

Three Months

Ended

    Three Months
Ended
    Nine Months
Ended
    Nine Months
Ended
 
     Sept. 30, 2011     Sept. 30, 2010     Sept. 30, 2011     Sept. 30, 2010  

Sales

   $ 11,976,329      $ 14,745,414      $ 37,069,423      $ 45,232,078   

Cost of Sales

     10,600,144        12,345,221        32,970,644        37,746,691   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     1,376,185        2,400,193        4,098,779        7,485,387   

Selling, General and Administrative

     2,271,350        2,431,367        6,890,500        6,847,606   

Research and Product Development

     4,221,118        727,978        9,937,476        1,686,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

     (5,116,283     (759,152     (12,729,197     (1,048,885

Interest and Dividend Income

     77,107        17,257        240,617        37,641   

Interest Expense

     408        1,462        1,513        8,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Income Taxes

     (5,039,584     (743,357     (12,490,093     (1,020,120

Income Tax Expense

     1,958        —          1,958        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

   $ (5,041,542   $ (743,357   $ (12,492,051   $ (1,020,120
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Earnings (Loss) per Share

   ($ .28   ($ .04   ($ .71   ($ .06

Diluted Earnings (Loss) per Share

   ($ .28   ($ .04   ($ .71   ($ .06

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

 

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ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY &

COMPREHENSIVE INCOME (LOSS)

For The Nine Months Ended September 30, 2011

(Unaudited)

 

    COMMON SHARES     PURCHASE WARRANTS                    
    SHARES     AMOUNT     WARRANTS     AMOUNT     ACCUMULATED
DEFICIT
    ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
    TOTAL
SHAREHOLDER’S
EQUITY
 

Balance as of December 31, 2010

    17,513,608      $ 57,017,236        3,338,569      $ 8,275,509      $ (34,541,185   $  (213,623   $ 30,537,937   

Net Loss

    —          —          —          —          (12,492,051     —          (12,492,051

Unrealized Loss on Available-for-Sale Investments

              (149,042     (149,042
             

 

 

 

Comprehensive Loss

                (12,641,093

Issuance of Common Shares

    289,953        268,361        —          —          —          —          268,361   

Issuance of Purchase Warrants

    —          —          100,000        105,274        —          —          105,274   

Exercise of Purchase Warrants

    699,340        4,736,135        (731,129     (1,312,859     —          —          3,423,276   

Stock Option Based Expense

    —          2,564,437        —          —          —          —          2,564,437   

Restricted Stock Amortization

    —          460,210        —          —          —          —          460,210   

Additional Paid in Capital

    —          244,289        —          —          —          —          244,289   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2011

    18,502,901      $ 65,290,668        2,707,440      $ 7,067,924      $ (47,033,236   $ (362,665   $ 24,962,691   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2011 and September 30, 2010

(Unaudited)

 

     2011     2010  

Cash Flows From Operating Activities:

    

Net (Loss)

   $ (12,492,051   $ (1,020,120

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

    

Depreciation and Amortization

     928,208        1,047,077   

Loss on Disposal of Assets

     27,572        16,822   

Share Based Compensation – Non-employee Warrants

     105,274        588,201   

Share Based Compensation – Employees

     3,024,647        2,392,688   

Changes in Assets and Liabilities:

    

Decrease (Increase) in Accounts Receivable

     248,893        (1,143,912

Decrease in Inventory

     702,193        553,708   

(Increase) in Other Assets

     (2,457,970     (514,244

Decrease in Accounts Payable

     (50,272     (545,538

Increase (Decrease) in Other Liabilities

     2,714,301        (102,062
  

 

 

   

 

 

 

Changes in Assets and Liabilities

     1,157,145        (1,752,048
  

 

 

   

 

 

 

Cash Provided By (Used) In Operating Activities

     (7,249,205     1,272,620   

Cash Flows From Investing Activities:

    

Purchase of Equipment

     (344,250     (682,295

Proceeds on Sale of Assets

     —          800   

Purchase of Intangible Assets

     (144,023     —     

Purchase of Investments Available for Sale

     (24,757     —     
  

 

 

   

 

 

 

Cash Used In Investing Activities

     (513,030     (681,495

Cash Flows From Financing Activities:

    

Issuance of Common Shares and Exercise of Purchase Warrants

     3,935,926        54,948   

Payments on Notes Payable

     (15,225     (27,040
  

 

 

   

 

 

 

Cash Provided By (Used) In Financing Activities

     3,920,701        27,908   

Increase (Decrease) In Cash and Cash Equivalents

     (3,841,534     619,033   

Cash and Cash Equivalents at Beginning of Period

     12,263,449        23,038,095   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 8,421,915      $ 23,657,128   
  

 

 

   

 

 

 
Supplemental Cash Flow disclosure     
     2011     2010  

Interest Paid

   $ 1,513      $ 8,876   

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

 

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Rockwell Medical Technologies, Inc. and Subsidiary

Notes to Consolidated Financial Statements

1. Description of Business

Rockwell Medical Technologies, Inc. and Subsidiary (collectively, “we”, “our”, “us”, or the “Company”) manufacture, sell and distribute hemodialysis concentrates and other ancillary medical products and supplies used in the treatment of patients with End Stage Renal Disease, or “ESRD”. We supply our products to medical service providers who treat patients with kidney disease. Our products are used to cleanse patients’ blood and replace nutrients lost during the kidney dialysis process. We primarily sell our products in the United States.

We are regulated by the Federal Food and Drug Administration under the Federal Drug and Cosmetics Act, as well as by other federal, state and local agencies. We have received 510(k) approval from the FDA to market hemodialysis solutions and powders. We also have 510(k) approval to sell our Dri-Sate Dry Acid Concentrate product line and our Dri-Sate Mixer.

We have obtained global licenses for certain dialysis related drugs which we are developing and for which we are seeking FDA approval to market. We plan to devote substantial resources to the development, testing and FDA approval of our lead drug candidate.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our consolidated financial statements include our accounts and the accounts for our wholly owned subsidiary, Rockwell Transportation, Inc. All intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America, or “GAAP,” and with the instructions to Form 10-Q and Securities and Exchange Commission Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of our management, all adjustments have been included which are necessary to make the financial statements not misleading. All of these adjustments that are material are of a normal and recurring nature. Our operating results for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011. You should read our unaudited interim financial statements together with the financial statements and related footnotes for the year ended December 31, 2010 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 includes a description of our significant accounting policies.

Revenue Recognition

We recognize revenue at the time we transfer title to our products to our customers consistent with generally accepted accounting principles. Generally, we recognize revenue when our products are delivered to our customer’s location consistent with our terms of sale. We recognize revenue for international shipments when title has transferred consistent with standard terms of sale.

We require certain customers, mostly international customers, to pay for product prior to the transfer of title to the customer. Deposits received from customers and payments in advance for orders are recorded as liabilities under Customer Deposits until such time as orders are filled and title transfers to the customer consistent with our terms of sale. At September 30, 2011 and December 31, 2010 we had customer deposits of $114,778 and $165,476, respectively.

 

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Cash and Cash Equivalents

We consider cash on hand, money market funds, unrestricted certificates of deposit and short term marketable securities with an original maturity of 90 days or less as cash and cash equivalents.

Investments Available for Sale

Investments Available for Sale are short-term investments, consisting principally of investments in short term duration bond funds, and are stated at fair value based upon observed market prices (Level 1 in the fair value hierarchy). Unrealized holding gains or losses on these securities are included in accumulated other comprehensive income (loss). Realized gains and losses, including declines in value judged to be other-than-temporary on available-for-sale securities are included as a component of other income or expense. There were no such realized gains or losses during the three and nine months ended September 30, 2011 and September 30, 2010.

Research and Product Development

We recognize research and product development expenses as incurred. We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products, including iron supplemented dialysate, aggregating approximately $4.2 million and $9.9 million for the three and nine months ended September 30, 2011, respectively, and approximately $0.7 million and $1.7 million for the three and nine months ended September 30, 2010, respectively.

We are conducting human clinical trials on iron supplemented dialysate and we recognize the costs of the human clinical trials as the costs are incurred and services performed over the duration of the trials.

Net Earnings Per Share

We computed our basic earnings (loss) per share using weighted average shares outstanding for each respective period. Diluted earnings per share also reflect the weighted average impact from the date of issuance of all potentially dilutive securities, consisting of stock options and common share purchase warrants, unless inclusion would have had an anti-dilutive effect. Actual weighted average shares outstanding used in calculating basic and diluted earnings per share were:

 

     Three months ended      Nine months ended  
     September 30,      September 30,  
     2011      2010      2011      2010  

Basic Weighted Average Shares Outstanding

     17,862,573         17,136,119         17,582,833         17,091,733   

Effect of Dilutive Securities

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Weighted Average Shares Outstanding

     17,862,573         17,136,119         17,582,833         17,091,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

3. Inventory

Components of inventory as of September 30, 2011 and December 31, 2010 are as follows:

 

     September 30,      December 31,  
     2011      2010  

Raw Materials

   $ 877,410       $ 1,082,807   

Work in Process

     159,756         148,712   

Finished Goods

     1,197,519         1,705,359   
  

 

 

    

 

 

 

Total

   $ 2,234,685       $ 2,936,878   
  

 

 

    

 

 

 

 

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4. Other Current Assets

Other current assets includes amounts advanced to a contract services provider. These advances will offset future liabilities incurred with this service provider for services and travel related to our clinical trials. As of September 30, 2011, the amount included in other current assets was $0.6 million.

5. Other Non-Current Assets

Other Non-current assets includes amounts advanced to a contract services provider. These advances will offset future liabilities incurred with this service provider for services and travel related to our clinical trials. As of September 30, 2011, the amount included in other non-current assets was $1.9 million.

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

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this report. References in this report to “we,” “our” and “us” are references to Rockwell Medical Technologies, Inc. and its subsidiaries.

Forward-Looking Statements

We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission, or SEC. We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our expectations and possible or assumed future results of our operations. When we use words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “predict,” “forecast,” “projected,” “intend,” or similar expressions, or make statements regarding our intent, belief, or current expectations, we are making forward-looking statements. Our forward looking statements also include, without limitation, statements about our competitors, statements regarding the timing and costs of obtaining FDA approval of our new Soluble Ferric Pyrophosphate or SFP product and statements regarding our anticipated future financial condition, operating results, cash flows and business plans.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which are based on information available to us on the date of this report or, if made elsewhere, as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed below and elsewhere in this report, and from time to time in our other reports filed with the Securities and Exchange Commission, including, without limitation, in “Item 1A — Risk Factors” in our Form 10-K for the year ended December 31, 2010.

 

   

The dialysis provider market is highly concentrated in national and regional dialysis chains that account for the majority of our domestic revenue. Our business is substantially dependent on one of our customers that accounts for a significant portion of our sales. The loss of this customer would have a material adverse effect on our results of operations and cash flow.

 

   

We operate in a very competitive market against substantially larger competitors with greater resources.

 

   

Our new drug product requires FDA approval and expensive clinical trials before it can be marketed.

 

   

Even if our new drug product is approved by the FDA we may not be able to market it successfully.

 

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We may not be successful in maintaining our gross profit margins.

 

   

We depend on government funding of healthcare.

 

   

Health care reform could adversely affect our business.

 

   

Orders from our international distributors may not result in recurring revenue.

 

   

We depend on key personnel.

 

   

Our business is highly regulated.

 

   

We depend on contract research organizations and consultants to manage and conduct our clinical trials and if they fail to follow our protocol or meet FDA regulatory requirements our clinical trial data and results could be compromised causing us to delay our development plans or have to do more testing than planned.

 

   

Foreign approvals to market our new drug products may be difficult to obtain.

 

   

We may not have sufficient products liability insurance.

 

   

Our Board of Directors is subject to potential deadlock.

 

   

Shares eligible for future sale may affect the market price of our common shares.

 

   

The market price of our securities may be volatile.

 

   

Voting control and anti-takeover provisions reduce the likelihood that you will receive a takeover premium.

 

   

We do not anticipate paying dividends in the foreseeable future.

Other factors not currently anticipated may also materially and adversely affect our results of operations, cash flow and financial position. There can be no assurance that future results will meet expectations. We do not undertake, and expressly disclaim, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Overview and Recent Developments

Rockwell Medical operates in a single business segment as a specialty pharmaceutical company offering innovative products targeting end-stage renal disease, chronic kidney disease, and iron deficiency anemia. As an established manufacturer delivering high-quality hemodialysis concentrates to dialysis providers and distributors in the U.S. and abroad, we provide products used to maintain human life, remove toxins and replace critical nutrients in the dialysis patient's bloodstream.

We are currently developing unique, proprietary renal drug therapies. These exclusive 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. In July 2011, we acquired the right to manufacture and market in the United States a generic version of an injectable form of Vitamin -D (Calcitriol) for cash. We anticipate obtaining regulatory approval to begin marketing this drug later in 2012. Our initial focus will be on marketing this drug to our current customers. We are not yet able to assess the potential impact on sales of this drug on our results of operations. Regulatory approval and payment of the remaining cash purchase price is not expected to have a material impact on our liquidity or capital resources.

 

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Our principal strategy is to develop high potential drug candidates while also expanding our dialysis products business. Our lead drug candidate SFP is a late-stage investigational drug designed to treat hemodialysis patients suffering from iron loss. SFP appears to provide clinical benefits compared to current treatment options and if approved for marketing has the potential to compete in the iron therapy market.

We could experience changes in our customer and product mix in future quarters that could impact gross profit, since we sell a wide range of products with varying profit margins and to customers with varying order patterns. These changes in mix have caused our gross profit and our gross profit margins to vary period to period. During 2011, we have experienced higher prices in certain key commodities used in the production and distribution of our products including the cost of diesel fuel. These higher prices, along with competitive pricing pressures in the renal market have resulted in lower margins in 2011 compared to last year.

The majority of our business is with domestic clinics who order routinely. The renewal of our supply arrangement with our largest customer in the first quarter of 2011 had no material impact on our results for the nine months ended September 30, 2011 in comparison with the same period of the prior year.

Certain major distributors of our products internationally have not ordered consistently resulting in significant fluctuation in our international sales from period to period. These international orders may increase in future periods or may not recur at all. Orders for our largest international market that occurred in 2010 have not recurred since the first quarter of 2011 and are not expected to recur in 2011. As a result our international sales have decreased in 2011 compared to 2010.

Results of Operations for the Three and Nine Months Ended September 30, 2011 and September 30, 2010

Sales

Sales in the third quarter of 2011 were $12.0 million compared to $14.7 million in the third quarter of 2010. Sales decreased $2.7 million or 18.8% largely due to reduced purchase volumes from one international distributor of $1.8 million with lower domestic sales accounting for the remainder. Domestic sales were down $1.0 million due to changes in product mix as well as due to the loss of certain smaller chain accounts that were acquired by other customers for whom we do not supply products. Over the last year, customers have continued to convert to our Dri-Sate Dry Acid concentrate product line, which lowers providers’ cost per treatment and reduces our sales, but improves our gross profit margins due to a reduction in shipping costs.

Sales for the first nine months of 2011 decreased $8.2 million or 18.0 % to $37.1 million compared to $45.3 million in the first nine months of 2010. International sales during the period decreased $6.0 million or 55.1 % to $4.9 million, with reduced purchase volumes from a single distributor accounting for $5.7 million of the decrease.

Domestic sales decreased $2.2 million or 6.3% in the first nine months of 2011, primarily due to the change in product mix. Our Dri-Sate dry acid concentrate gallons increased to 57% of acid concentrate equivalent gallons from 46% in the first nine months of 2010. To a lesser extent, we also experienced some downward pricing pressure with the implementation of the bundled reimbursement program by Medicare in 2011. Domestic sales also declined by $1.0 million due to the loss of certain smaller chain accounts that were acquired by other customers for whom we do not supply products.

Gross Profit

Gross profit in the third quarter of 2011 decreased $1.0 million to $1.4 million compared to $2.4 million in the third quarter of 2010. About $0.6 million of the decrease was due to reduced sales volumes generally and another $0.2 million was due to reduced sales volumes as a result of incentives and changes to product mix. Cost increases for fuel, materials and labor, net of a reduction in operating costs accounted for the remainder of the decrease . Gross profit margin decreased to 11.5% compared to 16.3% in the third quarter of 2010.

 

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Gross profit in the first nine months of 2011 decreased $3.4 million to $4.1 million compared to $7.5 million in the first nine months of 2010. Approximately $2.1 million of the decrease was due to the lower sales volumes generally and another $0.6 million was due to reduced sales volumes as a result of incentives and changes to product mix. Cost increases for fuel, material and labor net of operating expense decreases accounted for the remainder. Gross profit margins in the first nine months of 2011 were 11.1% compared to 16.5% for the first nine months of 2010.

Selling, General and Administrative Expense

Selling, general and administrative expense (“SG&A”) during the third quarter of 2011 was $2.3 million, a decrease of $0.1 million or 6.6% compared to the third quarter of 2010. The decrease was due to lower charges for non-cash equity compensation.

SG&A expense was relatively unchanged in the first nine months of 2011 compared to the first nine months of 2010.

Research and Development

Research and development costs were $4.2 million and $0.7 million in the third quarter of 2011 and 2010, respectively. Research and development spending in the first nine months of 2011 was $9.9 million compared to $1.7 million in the first nine months of 2010. Spending in both years was primarily for development and approval of SFP, with the increase in 2011 due to the commencement of our Phase III clinical trials related to SFP.

Interest Income, Net

Our net interest income was $77,000 in the third quarter of 2011 compared to net interest income of $16,000 in the third quarter of 2010. For the nine months ending September 30, 2011, our net interest income was $239,000 compared to $29,000 in the first nine months of 2011. These increases in net interest income were the result of higher yields on our investments due to the shift from money market investments to short term bond funds.

Liquidity and Capital Resources

Our strategy is centered on obtaining regulatory approval to market SFP and developing other high potential drug candidates, while also expanding our dialysis products business. We expect to expend substantial amounts in support of our clinical development plan and regulatory approval of SFP and its extensions and other product development opportunities. These initiatives will require the expenditure of substantial cash resources. We expect our cash needs for research and development to continue to increase as clinical development and patient testing activities increase for our Phase III clinical testing program for SFP. The timing and magnitude of such spending is largely dependent upon the initiation and pace of execution of the Phase III clinical program. We will invest in our Phase III clinical development program as well as other development initiatives over the next several years.

Our cash resources include cash generated from our business operations and the proceeds from our equity offering in 2009. Our cash position as of September 30, 2011 was $20.2 million including cash and short term investments. In the first nine months of 2011, our cash position decreased $4.0 million from December 31, 2010. We used $7.2 million in cash to fund operations in the first nine months of 2011, which was largely to fund our research and development expenditures. Our current business operation excluding research and development activities continues to generate positive cash flow to mitigate these expenditures. Our inventory levels and accounts receivable decreased, providing approximately $1.0 million in cash. We advanced funds to research and development service providers for future clinical testing related expenses and as of September 30, 2011, such advances aggregated $2.5 million.

In the first nine months of 2011, we used approximately $0.5 million in cash for investing activities including the addition of fixed assets totaling $0.3 million and in-licensing intellectual property $0.1 million. We realized $3.9

 

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million from the issuance of common shares that were primarily from the exercise of warrants in the first nine months of 2011.

We believe our current and prospective sources of cash resources will be sufficient to complete the SFP testing and FDA approval process and to fund our other anticipated research and development activities and ordinary course operating cash requirements in 2012. We expect to continue generating positive cash flow from operations in 2011, excluding the effect of our research and development expenses. In addition, we may continue to realize substantial cash proceeds from warrants over the next year.

The cost to obtain regulatory approval for a drug in the United States is expensive and such approval can take several years to obtain. Under a variety of circumstances, such as if we do more testing than currently expected, or if the assumptions underlying our cash flow projections prove to be incorrect and our core business does not generate cash flow as we anticipate, or if we pursue opportunities to expand our business, we may need to obtain additional cash, such as through equity financing, debt financing of capital expenditures or a line of credit, to supplement our working capital. We explore opportunities from time to time to increase our cash resources, to reduce our liquidity risk and to have resources available to permit us to pursue expansion opportunities. Alternatively, we may seek to enter into product development arrangements with an international partner in order to fully execute our strategic plan. We may also evaluate alternative sources of business development funding, licensing agreements with international marketing partners, sub-licensing of certain products for certain markets and other potential funding sources.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our current exposure to interest rate risk is limited to changes in interest rates on short term investments of cash. As of September 30, 2011, we had $11.8 million invested in short term bond funds which typically yield higher returns than the interest realized in money market funds. While these funds hold bonds of short term duration, their market value is affected by changes in interest rates. Increases in interest rates will reduce the market value of bonds held in these funds and we may incur unrealized losses from the reduction in market value of the fund. If we liquidate our position in these funds, those unrealized losses may result in realized losses which may or may not exceed the interest and dividends earned from those funds. However, due to the short duration of these short term bond fund portfolios, we do not believe that a hypothetical 100 basis point increase or decrease in interest rates will have a material impact on the value of our investment portfolio.

Foreign Currency Exchange Rate Risk

Our international business is conducted in U.S. dollars. It has not been our practice to hedge the risk of appreciation of the U.S. dollar against the predominant currencies of our trading partners. We have no significant foreign currency exposure to foreign supplied materials, and an immediate 10% strengthening or weakening of the U.S. dollar would not have a material impact on our shareholders’ equity or net income.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15 of the Securities Exchange Act of 1934, as amended, that are designed to ensure that material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management,

 

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including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

No changes were made to our internal control over financial reporting (as defined in Rule 13a-15 under the Exchange Act) during the fiscal quarter ended September 30, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

For information regarding risk factors affecting us, see “Risk Factors” in Item 1A of Part I of our 2010 Annual Report on Form 10-K. There have been no material changes to the risk factors described in such Form 10-K.

Item 6. Exhibits

See Exhibit Index following the signature page, which is incorporated herein by reference.

 

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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.

 

      ROCKWELL MEDICAL TECHNOLOGIES, INC.
      (Registrant)

Date: November 4, 2011

     

/s/ ROBERT L. CHIOINI

          Robert L. Chioini
      President and Chief Executive Officer
      (principal executive officer) (duly authorized officer)

Date: November 4, 2011

     

/s/ THOMAS E. KLEMA

          Thomas E. Klema
      Vice President and Chief Financial Officer
      (principal financial officer and principal accounting officer)

 

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10-Q EXHIBIT INDEX

 

Exhibit

No.

  

Description

  31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
  31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
  32.1    Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934
101. INS *    XBRL Instance Document
101. SCH *    XBRL Taxonomy Extension Schema
101.CAL *    XBRL Taxonomy Extension Calculation Linkbase
101.DEF *    XBRL Taxonomy Extension Definition Database
101.LAB *    XBRL Taxonomy Extension Label Linkbase
101.PRE *    XBRL Taxonomy Extension Presentation Linkbase

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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Exhibit 31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)

I, Robert L. Chioini, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rockwell Medical Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

 

 

/s/ Robert L. Chioini

 

Robert L. Chioini

 

President and Chief Executive Officer

 

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Exhibit 31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)

I, Thomas E. Klema, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rockwell Medical Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

 

 

/s/ Thomas E. Klema

 

Thomas E. Klema

 

Vice President and Chief Financial Officer

 

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Exhibit 32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rockwell Medical Technologies, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Robert L. Chioini, Chief Executive Officer of the Company and I, Thomas E. Klema, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: November 4, 2011      

/s/ Robert L. Chioini

      Robert L. Chioini
      President and Chief Executive Officer
Dated: November 4, 2011      

/s/ Thomas E. Klema

      Thomas E. Klema
      Vice President and Chief Financial Officer

 

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