ROCKWELL MEDICAL, INC. - Quarter Report: 2009 September (Form 10-Q)
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United States
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
or
o | 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.
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
(Registrants 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.
þ Yes o 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).
o Yes o 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 o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Class | Outstanding as of October 30, 2009 | |
Common Stock, no par value | 17,060,410 shares |
Rockwell Medical Technologies, Inc.
Index to Form 10-Q
Index to Form 10-Q
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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, 2009 and December 31, 2008
September 30, 2009 | December 31, | |||||||
(Unaudited) | 2008 | |||||||
ASSETS |
||||||||
Cash and Cash Equivalents |
$ | 2,767,950 | $ | 5,596,645 | ||||
Accounts Receivable, net of a reserve of $55,000 in
2009 and $97,000 in 2008 |
5,086,207 | 5,229,656 | ||||||
Inventory |
2,674,569 | 3,161,625 | ||||||
Other Current Assets |
520,583 | 440,765 | ||||||
Total Current Assets |
11,049,309 | 14,428,691 | ||||||
Property and Equipment, net |
3,491,495 | 3,249,003 | ||||||
Intangible Assets |
229,991 | 240,656 | ||||||
Goodwill |
920,745 | 920,745 | ||||||
Other Non-current Assets |
147,820 | 120,887 | ||||||
Total Assets |
$ | 15,839,360 | $ | 18,959,982 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Notes Payable & Capitalized Lease Obligations |
$ | 68,594 | $ | 176,850 | ||||
Accounts Payable |
4,219,095 | 5,210,972 | ||||||
Accrued Liabilities |
1,804,868 | 1,464,828 | ||||||
Customer Deposits |
923,086 | 245,186 | ||||||
Total Current Liabilities |
7,015,643 | 7,097,836 | ||||||
Long Term Notes Payable & Capitalized Lease Obligations |
26,464 | 41,203 | ||||||
Shareholders Equity: |
||||||||
Common Shares, no par value, 14,220,410 and 14,104,690
shares issued and outstanding |
36,378,500 | 34,799,093 | ||||||
Common Share Purchase Warrants, 2,154,169 and
2,114,169 warrants issued and outstanding |
3,726,758 | 3,378,398 | ||||||
Accumulated Deficit |
(31,308,005 | ) | (26,356,548 | ) | ||||
Total Shareholders Equity |
8,797,253 | 11,820,943 | ||||||
Total Liabilities and Shareholders Equity |
$ | 15,839,360 | $ | 18,959,982 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
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ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
For the three and nine months ended September 30, 2009 and September 30, 2008
(Unaudited)
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
Sept. 30, 2009 | Sept. 30, 2008 | Sept. 30, 2009 | Sept. 30, 2008 | |||||||||||||
Sales |
$ | 14,158,234 | $ | 13,533,986 | $ | 39,968,018 | $ | 38,128,359 | ||||||||
Cost of Sales |
11,751,499 | 12,893,377 | 34,508,410 | 35,798,671 | ||||||||||||
Gross Profit |
2,406,735 | 640,609 | 5,459,608 | 2,329,688 | ||||||||||||
Selling, General and Administrative |
1,946,570 | 2,176,188 | 5,078,073 | 4,785,675 | ||||||||||||
Research and Product Development |
1,977,618 | 993,262 | 5,312,499 | 2,557,718 | ||||||||||||
Operating (Loss) |
(1,517,453 | ) | (2,528,841 | ) | (4,930,964 | ) | (5,013,705 | ) | ||||||||
Interest Expense (Income), Net |
3,990 | (17,795 | ) | 20,493 | (182,482 | ) | ||||||||||
Net (Loss) |
$ | (1,521,443 | ) | $ | (2,511,046 | ) | $ | (4,951,457 | ) | $ | (4,831,223 | ) | ||||
Basic Earnings (Loss) per Share |
$ | (0.11 | ) | $ | (0.18 | ) | $ | (0.35 | ) | $ | (0.35 | ) | ||||
Diluted Earnings (Loss) per Share |
$ | (0.11 | ) | $ | (0.18 | ) | $ | (0.35 | ) | $ | (0.35 | ) |
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 CASH FLOWS
For the nine months ended September 30, 2009 and September 30, 2008
(Unaudited)
2009 | 2008 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net (Loss) |
$ | (4,951,457 | ) | $ | (4,831,223 | ) | ||
Adjustments
To Reconcile Net Loss To Net Cash Used In Operating Activities: |
||||||||
Depreciation and Amortization |
836,020 | 651,710 | ||||||
Loss (Gain) on Disposal of Assets |
20,403 | (7,534 | ) | |||||
Share Based Compensation Non-employee Warrants |
348,360 | 375,032 | ||||||
Share Based Compensation Employees |
1,394,410 | 740,783 | ||||||
Changes in Assets and Liabilities: |
||||||||
Decrease (Increase) in Accounts Receivable |
143,449 | (669,307 | ) | |||||
Decrease (Increase) in Inventory |
487,056 | (607,515 | ) | |||||
(Increase) in Other Assets |
(106,751 | ) | (224,047 | ) | ||||
Increase (Decrease) in Accounts Payable |
(991,877 | ) | 994,422 | |||||
Increase in Other Liabilities |
1,017,940 | 1,123,167 | ||||||
Changes in Assets and Liabilities |
549,817 | 616,720 | ||||||
Cash (Used) In Operating Activities |
(1,802,447 | ) | (2,454,512 | ) | ||||
Cash Flows From Investing Activities: |
||||||||
Purchase of Equipment |
(1,080,495 | ) | (1,122,958 | ) | ||||
Proceeds on Sale of Assets |
5,120 | 9,555 | ||||||
Purchase of Intangible Assets |
(12,875 | ) | (903 | ) | ||||
Cash (Used ) In Investing Activities |
(1,088,250 | ) | (1,114,306 | ) | ||||
Cash Flows From Financing Activities: |
||||||||
Issuance of Common Shares and Purchase Warrants |
184,997 | 106,722 | ||||||
Payments on Notes Payable |
(122,995 | ) | (153,204 | ) | ||||
Cash Provided (Used) By Financing Activities |
62,002 | (46,482 | ) | |||||
(Decrease) In Cash |
(2,828,695 | ) | (3,615,300 | ) | ||||
Cash At Beginning Of Period |
5,596,645 | 11,097,092 | ||||||
Cash At End Of Period |
$ | 2,767,950 | $ | 7,481,792 | ||||
Supplemental Cash Flow disclosure
2009 | 2008 | |||||||
Interest Paid |
$ | 20,493 | $ | 41,523 |
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
We manufacture, sell and distribute hemodialysis concentrates and other ancillary medical
products and supplies used in the treatment of patients with End Stage Renal Disease, 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. References
in these Notes to the Company, we, our and us are references to Rockwell Medical
Technologies, Inc. and its subsidiaries.
We are regulated by the Federal Food and Drug Administration, or FDA, 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 and to sell
our Dri-Sate Dry Acid Concentrate product line and our Dri-Sate Mixer. We have also 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,
clinical 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 of our
wholly-owned subsidiary, Rockwell Transportation, Inc. All intercompany balances and
transactions have been eliminated. 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, 2008 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 month period ended
September 30, 2009 are not necessarily indicative of the results to be expected for the year
ending December 31, 2009. You should read our unaudited interim financial statements together
with the financial statements and related footnotes for the year ended December 31, 2008
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 includes a description
of our significant accounting policies.
In May 2009, the Financial Accounting Standards Board (FASB) issued authoritative
guidance regarding the disclosure of subsequent events. We have evaluated subsequent events
through the date of this filing and we do not believe there are any material subsequent events
which would require further disclosure other than those noted below.
Revenue Recognition
We recognize revenue at the time we transfer title to our products to our customers
consistent with GAAP. Generally, we recognize revenue when our products are delivered to our
customers location consistent with our terms of sale. We recognize revenue for international
shipments when title has transferred consistent with standard terms of sale.
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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, 2009 and December 31, 2008, we had customer deposits of $923,086 and $245,186,
respectively.
Research and Product Development
We recognize research and product development costs as expenses are incurred. We incurred
research and product development costs related to the commercial development, patent approval
and regulatory approval of new products, including iron supplemented dialysate (SFP),
aggregating approximately $5.3 million and $2.6 million in the first nine months of 2009 and
2008, respectively. We are conducting human clinical trials on SFP and we recognize the costs
of these clinical trials as the costs are incurred and services are 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 Sept. 30, | Nine months ended Sept. 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Basic Weighted Average Shares Outstanding |
14,060,533 | 13,834,953 | 14,010,366 | 13,826,208 | ||||||||||||
Effect of Dilutive Securities |
| | | | ||||||||||||
Diluted Weighted Average Shares
Outstanding |
14,060,533 | 13,834,953 | 14,010,366 | 13,826,208 | ||||||||||||
Reclassifications
The Company has reclassified certain expenses from Selling, General and Administrative Expense to
Cost of Sales in the 2008 consolidated income statement to conform with the current year
presentation. The impact of the change was not material.
3. Inventory
Components of inventory as of September 30, 2009 and December 31, 2008 are as follows:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Raw Materials |
$ | 1,042,322 | $ | 1,316,875 | ||||
Work in Process |
177,362 | 291,937 | ||||||
Finished Goods |
1,454,885 | 1,552,813 | ||||||
Total |
$ | 2,674,569 | $ | 3,161,625 | ||||
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4. Recent Accounting Pronouncements
In June 2009, the FASB issued authoritative guidance codifying generally accepted accounting
principles in the United States (GAAP). While the guidance was not intended to change GAAP, it
did change the way the Company references these accounting principles in the Notes to the
Consolidated Financial Statements. This guidance was effective for interim and annual reporting
periods ending after September 15, 2009. There have been no changes to the content of our financial
statements or disclosures as a result of implementing the Codification during the quarter ended
September 30, 2009. However, as a result of implementation of the Codification, previous references
to new accounting standards and literature are no longer applicable.
5. Subsequent Events
On October 5, 2009, the Company realized $20.5 million in net proceeds from a registered
direct offering of its common shares and warrants. The Company issued 2,840,000 shares of
Rockwells common stock and warrants to purchase up to 1,079,200 shares of common stock. The
purchase price per unit was $7.75, consisting of one common share and a warrant to purchase
0.38 shares. The shares of common stock and warrants were immediately separable and were
issued separately. The warrants have a five-year term from the date of issuance and are
exercisable beginning six months after the date of issuance, and will be exercisable at a price
of $9.55 per share. The Company intends to use the net proceeds from the offering for general
corporate purposes, which may include funding of clinical trials and regulatory activities for
SFP and other research and development expenses, and general and administrative expenses.
Item 2. | Managements 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 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, 2008.
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| 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 flows. | |
| 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 it may not be successfully marketed. | |
| If prices of the key commodities we purchase change significantly, we may not be able to continue improving or sustain our current gross profit margins and our business may remain unprofitable. | |
| We depend on government funding of healthcare. | |
| 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. | |
| Health care reform could adversely affect our business. | |
| 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 flows 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
We currently operate in a single business segment, the manufacture and distribution of
hemodialysis concentrates and ancillary products used in the kidney dialysis process. We have
gained domestic market share each year since our inception in 1996 and we believe we currently
service a significant share of the dialysis market in the United
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States. Our strategy is to continue to develop and expand our dialysis products business while
at the same time developing new products, including pharmaceutical products for the end stage renal
disease market. We are primarily focused on the approval of the use of our lead drug candidate,
Soluble Ferric Pyrophosphate, or SFP, in dialysate but are also seeking to increase our pipeline of
products, including SFP extensions into other applications as well as other technologies. During
2009, in furtherance of this strategy, we added two key leadership positions to our specialty
pharmaceutical development team, a Chief Scientific Officer in the second quarter of 2009 and a
Vice President of Clinical Development and Medical Affairs in the first quarter of 2009.
We completed our Phase IIb human clinical trial of SFP in October 2009 We expect to spend
approximately $1.5-$2.0 million in the fourth quarter of 2009 related to our SFP clinical trial and
development efforts. We plan to seek FDA approval to commence a Phase III clinical trial after
obtaining the results of the Phase IIb trial.
Obtaining regulatory approval for a drug in the United States is expensive and can take
several years. We anticipate that costs to complete clinical trials and to obtain FDA approval to
market SFP from 2010 until such approval may total approximately $15 million depending on the
duration and size of the studies required.
In the first nine months of 2009, sales in our commercial business operations increased 4.8%
and our gross profit margins improved significantly following a decrease in gross profit margins in
2008. While we experienced substantial sales growth over the last several years, we also
experienced unprecedented increases in the costs for chemicals, packaging materials and fuel.
Price increases we implemented in response did not keep pace with the cost increases. As a result,
our gross profit and gross profit margins decreased significantly in 2008.
We took actions in the last quarter of 2008 that improved our margins during 2009, including
raising prices, changing vendors, changing our product mix and reducing operating costs. Softening
of commodity prices also contributed to the improvement of our gross profit margins during that
period.
The majority of our business is with domestic clinics who order routinely. Certain major
distributors of our products internationally have not ordered consistently, however, resulting in
variation in our sales from period to period. We anticipate that we will realize substantial
orders from time to time from our largest international distributors but we expect the size and
frequency of these orders to fluctuate from period to period. These orders may increase in future
periods or may not recur at all.
Results of Operations for the Three and Nine Months Ended September 30, 2009 and September 30, 2008
Sales
Sales in the third quarter of 2009 were $14.2 million, an increase of $0.6 million or 4.6%
over the third quarter of 2008. For the third quarter of 2009, our international sales increased
by $0.2 million and our domestic sales increased by $0.4 million compared to the third quarter of
2008. Sales in the first nine months of 2009 increased $1.8 million or 4.8% compared to the first
nine months of 2008 with domestic sales increasing $1.6 million and international sales accounting
for the remainder of the increase. Price increases on maturing contracts accounted for most of the
sales increases, with the remainder attributable to increased unit volumes primarily in our
Dri-Sate dry acid concentrate.
Gross Profit
Gross profit in the third quarter and first nine months of 2009 was $2.4 million and $5.5
million, respectively, compared to $0.6 million and $2.3 million in the third quarter and first
nine months of 2008, respectively. Gross profit margins increased to 17.0% in the third quarter of
2009 from 4.7% in 2008 and to 13.7% in the first nine months of 2009 compared to 6.1% in 2008.
Substantial changes in product and customer mix in the third quarter and first nine months of 2009
compared to the comparable periods of 2008 were the primary contributors to improved gross profit
margins. Domestic sales migrated toward our Dri-Sate dry acid concentrate products, which provide
a cost effective alternative to higher cost per treatment liquid products and cost us less to
deliver than liquid products. Our Dri-Sate unit volumes increased by 44.9% and 35.9% compared to
the third quarter and first nine months of
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2008. Customers also migrated toward lower cost formulations, which improved margins while
not increasing costs to our customers. The increase in gross profit was also due to reductions in
material costs, fuel costs and operating expenses. In early 2009, we entered into new supply
contracts and made certain vendor changes, and also benefitted from reductions in costs for certain
chemicals and fuel as well as management actions to gain efficiencies and reduce operating costs.
We reclassified certain quality assurance and operations management expenses totaling $138,000
to cost of sales from selling, general and administrative expense for the third quarter of 2008 and
$398,000 for the first nine months of 2008 to maintain comparability of prior year results with the
current year presentation.
Selling, General and Administrative Expense
Selling, general and administrative expense, or SG&A, during the third quarter of 2009 was
$1.9 million compared to $2.1 million in the third quarter of 2008, a decrease of $0.2 million or
10.6%. The decrease in third quarter 2009 SG&A expenses was due to a third quarter 2008 litigation
settlement of $0.75 million which did not recur in 2009. The effect of the 2008 settlement was
partially offset by an increase in non-cash charges for equity compensation to $0.7 million in the
third quarter of 2009 compared to $0.4 million in the third quarter of 2008. In addition,
personnel costs increased approximately $0.1 million as a result of increased headcount in support
of our business growth and routine wage increases.
SG&A during the first nine months of 2009 was $5.1 million compared to $4.8 million in the
first nine months of 2008, an increase of $0.3 million or 6%. The increase was primarily due to a
$0.6 million increase in non-cash charges for equity compensation, $0.4 million in higher personnel
costs, and $0.1 million in information technology related expenses. The increases were partially
offset by a $0.15 million reduction in legal expenses and the effect of the aforementioned $0.75
million legal settlement in the third quarter of 2008.
Research and Development
Research and development costs were $2.0 million and $5.3 million in the third quarter and
first nine months of 2009, respectively, compared to $1.0 million and $2.6 million in the
comparable periods of 2008, respectively. While spending in both years was primarily devoted to
development and approval of SFP, the increases in research and development costs in 2009 were
primarily due to significantly increased activity relating to the conduct of the Phase IIb clinical
trial, which was completed in the fourth quarter of 2009. We anticipate fourth quarter 2009
research and development costs to be approximately $1.5 to $2.0 million.
Interest Income, Net
Our net interest expense was $4,000 in the third quarter of 2009 compared to net interest
income of $18,000 in the third quarter of 2008. Interest expense in the first nine months of 2009
was $20,500 compared to $182,500 in net interest income in the first nine months of 2008. The
changes were due to fewer funds available for investment and our decision to hold funds in the form
of cash due to substantially lower market interest rates compared to 2008. The investment of the
proceeds of the October 2009 equity offering in short term investments is not expected to cause
interest income to increase significantly due to the very low short term interest rate environment.
Liquidity and Capital Resources
We have two major areas of strategic focus in our business: development of our dialysis
products business and expansion of our product offering to include drugs, vitamins and therapeutic
products administered to dialysis patients. We expect to expend substantial amounts in support of
our clinical development plan and regulatory
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approval of SFP and its extensions. Each of these initiatives will require investments of
substantial amounts of capital.
Upon completion of our Phase IIb clinical trial, we will seek FDA approval to conduct Phase
III clinical trials for SFP. We anticipate that the cost to fund our Phase III clinical trials and
to obtain FDA approval to market SFP will cost as much as $15 million from 2010 until approval.
We closed a financing transaction in early October 2009 raising approximately $20.5 million
net of offering expenses. We intend to fund the remaining clinical development plan for SFP from
the funds we raised and from cash generated from operations. Our cash balance as of the end of
September 2009 was approximately $2.7 million before the inclusion of the net proceeds of the
October 2009 equity offering.
In the first nine months of 2009, we used $2.8 million in cash, compared to $3.6 million in
the first nine months of 2008 largely due to a reduction in cash used in operations to $1.8 million
in the first nine months of 2009 from $2.5 million in the first nine months of 2008. The decrease
in cash used in operations during 2009 was primarily the result of a decrease in the loss from
business operations before research and development expenses of $2.1 million offset by a $2.75
million increase in research and development expenditures compared to 2008. Included in the
improved business operations cash flow was a reduction in working capital of $0.55 million.
Non-cash charges against operating results were $2.6 million in the first nine months of 2009.
We expect to generate positive cash flow from operations during the year ahead, excluding our
research and development expenses, assuming our improved operating results and continued stability
in the markets for our key commodity materials. We believe that our current sources of capital and
continued positive cash flow generation from our business operations, excluding research and
development expenses, should provide adequate sources of liquidity and capital resources to execute
our business plan.
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, 2009, we had no short term investments. However,
following the completion of our equity offering on October 5, 2009 in which we raised $20.5
million, we anticipate having short term liquid investments in the future.
A hypothetical 100 basis point increase in market interest rates for short term liquid
investments would increase our annualized interest income by approximately $0.2 million, assuming
we invested $20 million in cash and that level remained constant for the year. We did not perform
an analysis of a 100 point decrease in market interest rates as such an analysis would be
meaningless.
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.
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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 Commissions rules and forms, and that such
information is accumulated and communicated to our management, 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, 2009 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 2008 Annual Report on Form 10-K. There have been no material changes to the risk factors
described in such Form 10-K except as set forth below.
Due to the completion of the equity offering in October 2009, we believe the risk that we will
not have sufficient cash to fund future growth or SFP development is no longer material to
investors. As a result, the risk factor in Item 1A of our Form 10-K for the year ended December
31, 2008 entitled We may not have sufficient cash to fund future growth or SFP development.
should be disregarded.
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 6, 2009 | /s/ ROBERT L. CHIOINI | |||
Robert L. Chioini | ||||
President and Chief Executive Officer (principal executive officer) (duly authorized officer) |
||||
Date: November 6, 2009 | /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 | |
4.3
|
Form of Investor Warrant to Purchase Common Stock issuable by the Company to the investor signatories to the Subscription Agreement, filed as exhibit F to the Placement Agency Agreement which was filed as an exhibit to the Current Report on Form 8-K filed September 30, 2009 and incorporated herein by reference | |
4.4
|
Form of Placement Agent Warrant issuable by the Company to JMP Securities LLC and Wedbush Securities Inc., filed as an exhibit to the Current Report on Form 8-K filed September 30, 2009 and incorporated herein by reference | |
4.5
|
Warrant issued to RJ Aubrey IR Services LLC as of September 30, 2008, filed as an exhibit to the registration statement on Form S-3 (file no. 333-160710) and incorporated herein by reference | |
4.6
|
Warrant issued to Lions Gate Capital as of October 3, 2007, filed as an exhibit to the registration statement on Form S-3 (file no. 333-160710) and incorporated herein by reference | |
4.7
|
Warrant issued to Capitol Securities Management, Inc. as of May 28, 2008, filed as an exhibit to the registration statement on Form S-3 (file no. 333-160710) and incorporated herein by reference | |
4.8
|
Warrant issued to Emerald Asset Advisors, LLC, filed as an exhibit to the registration statement on Form S-3 (file no. 333-160710) and incorporated herein by reference | |
4.9
|
Form of Warrant issued to Messrs. Rick, Pizzirusso, Ries, Meyers and Pace as of July 17, 2009, filed as an exhibit to the registration statement on Form S-3 (file no. 333-160710) and incorporated herein by reference | |
10.33
|
Placement Agency Agreement with JMP Securities LLC and Wedbush Securities Inc. dated September 29, 2009 (including the form of Subscription Agreement included as exhibit A thereto), filed as an exhibit to the Companys Current Report of Form 8-K dated September 30, 2009 and incorporated herein by reference. | |
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 |
15