SEC Form 10-Q filed by Rockwell Medical Inc.
$RMTI
Biotechnology: Pharmaceutical Preparations
Health Care
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 September 30, 2024
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (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 | ☐ | ||||||||
| ☒ | 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: | ||||||||||||
The number of shares of common stock outstanding as of November 8, 2024 was 32,318,806 .
Rockwell Medical, Inc. and Subsidiaries
Index to Form 10-Q
| Page | |||||
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Cash and Cash Equivalents | $ | $ | |||||||||
| Investments Available-for-Sale | |||||||||||
| Accounts Receivable, net | |||||||||||
| Inventory, net | |||||||||||
| Prepaid and Other Current Assets | |||||||||||
| Total Current Assets | |||||||||||
| Property and Equipment, net | |||||||||||
| Inventory, Non-Current | |||||||||||
| Right of Use Assets - Operating, net | |||||||||||
| Right of Use Assets - Financing, net | |||||||||||
| Intangible Assets, net | |||||||||||
| Goodwill | |||||||||||
| Other Non-Current Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Accounts Payable | $ | $ | |||||||||
| Accrued Liabilities | |||||||||||
| Deferred Consideration - Current | |||||||||||
| Lease Liabilities - Operating - Current | |||||||||||
| Lease Liabilities - Financing - Current | |||||||||||
| Deferred License Revenue - Current | |||||||||||
| Insurance Financing Note Payable | |||||||||||
| Customer Deposits | |||||||||||
| Total Current Liabilities | |||||||||||
| Lease Liabilities - Operating - Long-Term | |||||||||||
| Lease Liabilities - Financing - Long-Term | |||||||||||
| Term Loan - Long-Term, net of issuance costs | |||||||||||
| Deferred License Revenue - Long-Term | |||||||||||
| Deferred Consideration - Long-Term | |||||||||||
| Long Term Liability - Other | |||||||||||
| Total Liabilities | |||||||||||
3
| September 30, 2024 | December 31, 2023 | ||||||||||
| Stockholders’ Equity: | |||||||||||
Preferred Stock, $ | |||||||||||
Common Stock, $ | |||||||||||
| Additional Paid-in Capital | |||||||||||
| Accumulated Deficit | ( | ( | |||||||||
| Accumulated Other Comprehensive Income (Loss) | ( | ||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of Sales | |||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Research and Product Development | |||||||||||||||||||||||
| Selling and Marketing | |||||||||||||||||||||||
| General and Administrative | |||||||||||||||||||||||
| Operating Income (Loss) | ( | ( | |||||||||||||||||||||
| Other Expense: | |||||||||||||||||||||||
| Realized Gain on Available-for-Sale Investments | |||||||||||||||||||||||
| Interest Expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest Income | |||||||||||||||||||||||
| Total Other Expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Net Income (Loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Basic Net Income (Loss) per Share | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted Net Income (Loss) per Share | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Basic Weighted Average Shares Outstanding | |||||||||||||||||||||||
| Diluted Weighted Average Shares Outstanding | |||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||
| Net Income (Loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Reclassification of Realized Gain on Available-for-Sale Investments Included in Net Income | ( | ||||||||||||||||||||||
| Unrealized Gain (Loss) on Available-for-Sale Investments | ( | ( | |||||||||||||||||||||
| Foreign Currency Translation Adjustments | ( | ( | |||||||||||||||||||||
| Comprehensive Income (Loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
| PREFERRED STOCK | COMMON STOCK | ADDITIONAL PAID-IN CAPITAL | ACCUMULATED DEFICIT | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME | TOTAL STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||
| SHARES | AMOUNT | SHARES | AMOUNT | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized Gain on Available-for-Sale Investments | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock, net of offering costs/At-The-Market | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of Restricted Stock Units Issued, net of taxes withheld | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Issuance of Warrant in connection with the Third Amendment (Note 11) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Reclassification of Realized Gains on Available-for-Sale Debt Instrument Investments Included in Net Income | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock, net of offering costs/At-the-Market Offering | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of Restricted Stock Units Issued, net of taxes withheld | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Unrealized Gain on Available-for-Sale Investments | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock, net of offering costs/At-the-Market Offering | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock upon Exercise of Options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
| PREFERRED STOCK | COMMON STOCK | ADDITIONAL PAID-IN CAPITAL | ACCUMULATED DEFICIT | ACCUMULATED OTHER COMPREHENSIVE INCOME | TOTAL STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||
| SHARES | AMOUNT | SHARES | AMOUNT | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized Loss on Available-for-Sale Investments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock upon Exercise of Pre-Funded Warrants | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Warrants related to Debt Financing | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized Loss on Available-for-Sale Investments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock, net of offering costs/Public Offering | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of Restricted Stock Units Issued, net of taxes withheld | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized Loss on Available-for-Sale Investments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock in Connection with Exercise of the Prior Warrant and Pre-Funded Warrants, net of offering costs | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net Income (Loss) | $ | $ | ( | ||||||||
| Adjustments To Reconcile Net Income (Loss) To Net Cash Provided By (Used In) Operating Activities: | |||||||||||
| Depreciation and Amortization | |||||||||||
| Stock-based Compensation | |||||||||||
| Increase in Inventory Reserves | |||||||||||
| Non-cash Lease Expense from Right of Use Assets | |||||||||||
| Amortization of Debt Financing Costs and Accretion of Debt Discount and Premium | |||||||||||
| Loss on Disposal of Assets | |||||||||||
| Realized Gain on Sale of Investments | ( | ( | |||||||||
| Changes in Operating Assets and Liabilities: | |||||||||||
| Accounts Receivable | ( | ||||||||||
| Inventory | ( | ||||||||||
| Prepaid and Other Assets | |||||||||||
| Accounts Payable | ( | ( | |||||||||
| Lease Liabilities | ( | ( | |||||||||
| Accrued and Other Liabilities | ( | ( | |||||||||
| Deferred License Revenue | ( | ( | |||||||||
| Net Cash Provided By (Used In) Operating Activities | ( | ||||||||||
| Cash Flows From Investing Activities: | |||||||||||
| Purchase of Investments Available-for-Sale | ( | ( | |||||||||
| Sale of Investments Available-for-Sale | |||||||||||
| Purchase of Equipment | ( | ( | |||||||||
Cash Paid in Connection with Evoqua Asset Acquisition | ( | ||||||||||
| Net Cash Used In Investing Activities | ( | ( | |||||||||
| Cash Flows From Financing Activities: | |||||||||||
| Payments on Debt | ( | ||||||||||
| Payments on Insurance Financing Note Payable | ( | ( | |||||||||
| Payments on Financing Lease Liabilities | ( | ( | |||||||||
| Proceeds from Issuance of Common Stock | |||||||||||
| Offering Costs from Issuance of Common Stock | ( | ||||||||||
Deferred Consideration Paid in Connection with Evoqua Asset Acquisition | ( | ||||||||||
| Net Cash Provided By Financing Activities | |||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | ( | ( | |||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ||||||||||
| Cash and Cash Equivalents at Beginning of Period | |||||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash Paid for Interest | $ | $ | |||||||||
| Supplemental Disclosure of Non-cash Investing and Financing Activities: | |||||||||||
| Issuance of Warrant in connection with the Third Amendment as Debt Issuance Costs | $ | $ | |||||||||
| Right of Use Assets - Operating Obtained in Exchange for Lease Liabilities - Operating | $ | $ | |||||||||
| Change in Unrealized Gain (Loss) on Investments Available-for-Sale | $ | $ | ( | ||||||||
| Increase in Prepaid Assets from Insurance Financing Note Payable | $ | $ | |||||||||
| Proceeds from Issuance of Common Stock Upon Exercise of Options in Accounts Receivable, net | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Rockwell Medical, Inc. (the "Company", "Rockwell", "we", or "us") is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide.
Rockwell is the largest supplier of liquid bicarbonate concentrates and the second largest supplier of acid and dry bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is usually performed at freestanding outpatient dialysis centers, at hospital-based outpatient centers, at skilled nursing facilities, or in a patient’s home.
Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. Additionally, in July 2023, the Company purchased customer relationships, equipment and inventory from Evoqua Water Technologies LLC ("Evoqua") related to the manufacturing and sale of hemodialysis concentrates products, all of which are manufactured under a contract manufacturing agreement with a third-party organization in Minnesota.
Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers.
The Company operates in a single segment.
Rockwell was incorporated in the state of Michigan in 1996 and re-domiciled to the state of Delaware in 2019. Rockwell's headquarters is located at 30142 Wixom Road, Wixom, Michigan 48393.
2. Liquidity and Capital Resources
As of September 30, 2024, Rockwell had approximately $18.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $20.0 million. Net cash provided by operating activities for the nine months ended September 30, 2024 was approximately $3.3 million. Based on the currently available working capital along with the expectation of management of its ability to execute on its operational plans as discussed below, 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 continues to review its operational plans and execute on the acquisition of new customers, and has implemented cost containment activities. The Company may require additional capital to sustain its operations and make the investments it needs to execute its strategic plan. Additionally, the Company's operational plans include raising capital, if needed, by using the remaining $4.5 million available under its at-the-market ("ATM") facility or other methods or forms of financings, subject to existing limitations. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all.
The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus Life Sciences Lending Fund I, LP ("Innovatus"), which, on January 2, 2024, was amended to include, among other things, an interest-only period for 30 months, or up to 36 months if certain conditions are met, and to extend the maturity date to January 1, 2029 (See Note 15 for further detail). As of September 30, 2024, the Company is in compliance with all covenants.
In addition, the global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, recent bank failures in the United States, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the Middle East conflict and other political tensions, and the occurrence of natural disasters and public health crises. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects, if any, of this economic and political instability on its future operations.
Rockwell has utilized a range of financing methods to fund its operations in the past; however, current conditions in the financial and credit markets may limit the availability of funding or refinancing or increase the cost of funding. Due to the
rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future.
3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
The accompanying condensed consolidated financial statements have been prepared in accordance with 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 Rule 10-01 of Regulation S-X of the U. S. Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements.
The condensed consolidated balance sheet at September 30, 2024, and the condensed consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the three and nine months ended September 30, 2024 and 2023 are unaudited, but include all adjustments, consisting of normal recurring adjustments the Company considers necessary for a fair presentation of the financial position, operating results, and cash flows for the periods presented. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024 or for any future interim period. The condensed consolidated balance sheet at December 31, 2023 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 audited financial statements for the year ended December 31, 2023 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on March 21, 2024. The Company’s consolidated subsidiaries consist of its wholly-owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited.
The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income (Loss) Per Share
Basic and diluted net income (loss) per share for the three and nine months ended September 30, 2024 and 2023 was calculated as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except share and per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net Income (Loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Less: Undistributed Earnings to Participating Securities | ( | ( | |||||||||||||||||||||
| Net Income (Loss) Attributable to Common Stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic Weighted Average Number of Shares of Common Stock Outstanding | |||||||||||||||||||||||
| Incremental Shares Attributable to the Assumed Exercise of Outstanding Options to Purchase Common Stock | |||||||||||||||||||||||
| Incremental Shares Attributable to the Assumed Vesting of Unvested Restricted Stock Units | |||||||||||||||||||||||
| Incremental Shares Attributable to the Assumed Exercise of Warrants | |||||||||||||||||||||||
| Diluted Weighted Average Number of Shares of Common Stock Outstanding | |||||||||||||||||||||||
| Basic Net Income (Loss) per Share Attributable to Common Stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted Net Income (Loss) per Share Attributable to Common Stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Basic income (loss) per share (“EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, using the more dilutive of the two- class method and the if-converted method in the period of earnings. The two class method is an earnings allocation method that determines income (loss) per share (when there are earnings) for common stock and participating securities. The if-converted method assumes all convertible securities are converted into common stock. Diluted EPS excludes all dilutive potential shares of common stock if their effect is anti-dilutive.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Warrants to Purchase Common Stock | |||||||||||||||||||||||
| Options to Purchase Common Stock | |||||||||||||||||||||||
| Convertible Preferred Stock | |||||||||||||||||||||||
| Unvested Restricted Stock Units | |||||||||||||||||||||||
| Unvested Restricted Stock Awards | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
Adoption of Recent Accounting Pronouncements
The Company continually assesses new accounting pronouncements to determine their applicability. When it is determined 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 there are sufficient controls in place to ascertain the Company’s consolidated financial statements properly reflect the change.
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of determining the effect this ASU will have on the disclosures contained in the notes to the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which updates income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is in the process of determining the effect this ASU will have on the disclosures contained in the notes to the consolidated financial statements.
In November 2024, the FASB issued ASC 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of operations. This new standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently assessing the impact this ASU will have on the consolidated financial statements and footnote disclosures.
4. Asset Acquisition
On July 10, 2023, the Company executed and consummated the transactions contemplated by an Asset Purchase Agreement (the “Purchase Agreement”) with Evoqua (the "Evoqua Acquisition"). Subject to the terms and conditions of the Purchase Agreement, at the closing of the transaction (the “Closing”), the Company purchased customer relationships, equipment and inventory from Evoqua, which were related to its manufacturing and selling of hemodialysis concentrates products, all of which are manufactured under a contract manufacturing agreement with a third-party organization.
Pursuant to the Purchase Agreement, total consideration was $17.4 million, comprising a cash payment at Closing of $12.4 million (inclusive of transaction costs) and two $2.5 million deferred payments. On July 12, 2024, the Company and Evoqua executed an amendment to the Purchase Agreement (the "First Amendment"), which stipulated that the first deferred payment would be partially offset by $0.3 million to reimburse the Company for certain expenses incurred following the close of the Evoqua Acquisition and split the first deferred payment into four quarterly installments to be paid through April 2025. The First Amendment also split the second deferred payment into four quarterly installments to be paid from July 2025 through April 2026. During the three and nine months ended September 30, 2024, the Company paid the first installment of the first deferred payment of $0.6 twelve months are included as Deferred Consideration - Current on the Company's condensed consolidated balance sheets.
The transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by Accounting Standards Codification ("ASC") 805, Business Combinations.
9
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The purchase price was allocated, on a relative fair value basis, to the assets acquired at the July 10, 2023 acquisition date as follows (table in thousands):
| Consideration | ||||||||
| Cash Payment | $ | |||||||
| Deferred Consideration | ||||||||
| Transaction Costs | ||||||||
| Total Consideration | $ | |||||||
| Assets Acquired | ||||||||
| Customer Relationships Intangible Asset | $ | |||||||
| Equipment | ||||||||
| Inventory | ||||||||
| Total Assets Acquired | $ | |||||||
The fair value of the customer relationships intangible asset was determined using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from the customer base. Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates. Customer relationships are being amortized over a period of 20 years. Given that the acquired equipment had been recently purchased and recorded at fair value, the Company determined the fair value of the equipment using a cost approach, which considered assumptions over the equipment's current replacement cost and useful life. Inventory was purchased directly from the contract manufacturer holding the inventory, which approximated fair value.
During the three and nine months ended September 30, 2024, the Company recorded amortization of its customer relationship intangible asset of $0.1 million and $0.4 million, respectively, resulting in a net intangible asset of $10.3 million as of September 30, 2024. During the three and nine months ended September 30, 2023, the Company recorded amortization of its customer relationship intangible asset of $0.1
Estimated future amortization expense on the Company's customer relationships intangible asset as of September 30, 2024 is as follows (table in thousands):
| Year ending December 31: | ||||||||
| 2024 (remainder of year) | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
5. Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers, issued by the FASB. The core principle of the 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
•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 Rockwell 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
Rockwell operates in one market segment, the hemodialysis market, which involves the manufacture, sale and distribution of hemodialysis products to hemodialysis clinics, including pharmaceutical, dialysis concentrates, dialysis kits and other ancillary products used in the dialysis process.
Rockwell's customer mix is diverse, with most customer sales concentrations under 10% and one customer, DaVita, Inc. ("DaVita"), at approximately 52 % and 50 % of total net product sales for the three months ended September 30, 2024 and 2023, respectively, and 47 % and 50 % of total net product sales for the nine months ended September 30, 2024 and 2023, respectively. Rockwell's accounts receivable from this customer were approximately 40
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.
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 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 estimated at the time of sale. Customers typically pay for the product based on customary business practices with payment terms averaging 30 days, while a small subset of customers have payment terms averaging 60 days.
Deferred License Revenue
The Company received upfront fees under five distribution and license agreements that have been deferred as a contract liability and presented on the accompanying condensed consolidated balance sheets as deferred license revenue. The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”), Sun Pharmaceutical Industries Ltd. ("Sun Pharma"), Jeil Pharmaceutical Co., Ltd. ("Jeil Pharma") and Drogsan Pharmaceuticals ("Drogsan Pharma") are recognized as revenue over the estimated term of the applicable distribution and license agreement as regulatory approval was not received and the Company did not have sufficient experience in China, India, South Korea and Turkey, respectively, to determine that regulatory approval was probable as of the execution of the agreement. The amounts received from Baxter Healthcare Corporation (“Baxter”) were deferred and recognized as revenue at the point in time the estimated product sales under the agreement occurred. During the
nine months ended September 30, 2023, all remaining deferred revenue relating to the Wanbang and Baxter agreements was recognized as revenue. For additional information related to the Company's deferred license revenue, see Note 10.
Product Purchase Agreements
On September 18, 2023, the Company and its long-time partner, DaVita, a leading provider of kidney care, entered into an Amended and Restated Products Purchase Agreement (the "Amended Agreement"), which amends and restates the Product Purchase Agreement, dated July 1, 2019, as amended, under which the Company supplies DaVita with certain dialysis concentrates. Under the Amended Agreement, the Company and DaVita agreed to an increase in product pricing, effective September 1, 2023 and a one-time payment of $0.4 million to Rockwell on or after December 1, 2023, which was recorded as revenue recognized during the fourth quarter of 2023. The term of the Amended Agreement will expire on December 31, 2024. While the Company received written notice from DaVita in September 2024 that notified the Company that DaVita extends the term of the Amended Agreement through December 31, 2025 ("Extension Term"), there can be no assurance of any further extensions. Product pricing will be increased for the Extension Term. DaVita has indicated to Rockwell that DaVita expects volumes to decline during the Extension Term. DaVita is required to provide a twelve-month binding forecast on or before December 15, 2024. In the event that DaVita does not meet its forecasts, it is required to pay the Company for the amount forecasted or purchase additional product; otherwise, the Company may terminate the Amended Agreement. Upon expiration or termination of the Amended Agreement, and upon request by DaVita, the Company has agreed it would provide transition services to DaVita during a transition period. As of the date of this filing, the Company has received no such notification.
Disaggregation of revenue
Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
| In thousands | Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||
| Products By Geographic Area | Total | U.S. | Rest of World | Total | U.S. | Rest of World | |||||||||||||||||||||||||||||
| Drug Revenues | |||||||||||||||||||||||||||||||||||
| License Fee – Over time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total Drug Products | |||||||||||||||||||||||||||||||||||
| Concentrate Products | |||||||||||||||||||||||||||||||||||
| Product Sales – Point-in-time | |||||||||||||||||||||||||||||||||||
| Total Concentrate Products | |||||||||||||||||||||||||||||||||||
| Net Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| In thousands | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||
| Products By Geographic Area | Total | U.S. | Rest of World | Total | U.S. | Rest of World | |||||||||||||||||||||||||||||
| Drug Revenues | |||||||||||||||||||||||||||||||||||
| License Fee – Over time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total Drug Products | |||||||||||||||||||||||||||||||||||
| Concentrate Products | |||||||||||||||||||||||||||||||||||
| Product Sales – Point-in-time | |||||||||||||||||||||||||||||||||||
| License Fee – Over time | |||||||||||||||||||||||||||||||||||
| Total Concentrate Products | |||||||||||||||||||||||||||||||||||
| Net Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Contract balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.
| In thousands | September 30, 2024 | December 31, 2023 | January 1, 2023 | ||||||||||||||
| Accounts Receivable, net | $ | $ | $ | ||||||||||||||
| Contract Liabilities, which are included in deferred license revenue | $ | $ | $ | ||||||||||||||
There were no no
The contract liabilities primarily relate to upfront fees under distribution and license agreements with Wanbang, Sun Pharma, Jeil Pharma, and Drogsan Pharma.
Transaction price allocated to remaining performance obligations
For the nine months ended September 30, 2024 and 2023, the Company recognized an immaterial amount and $3.8 million as revenue from amounts classified as contract liabilities (i.e., deferred license revenue) as of December 31, 2023 and 2022, respectively.
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 $0.5 million as of September 30, 2024. 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 ASC 606, paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
6. Investments - Available-for-Sale
Investments available-for-sale consisted of the following as of September 30, 2024 and December 31, 2023 (table in thousands):
| September 30, 2024 | |||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Accrued Interest | Fair Value | |||||||||||||||||||||||||
| Available-for-Sale Securities | |||||||||||||||||||||||||||||
| Debt securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Accrued Interest | Fair Value | |||||||||||||||||||||||||
| Available-for-Sale Securities | |||||||||||||||||||||||||||||
| Debt securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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 a Level 1 measurement under ASC 820, Fair Value Measurements.
During the nine months ended September 30, 2024, the Company sold the investments outstanding as of December 31, 2023 for a realized gain of $0.1 million, which is included in realized gain on available-for-sale investments on the condensed consolidated statements of operations.
10
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. Inventory
Components of inventory, net of reserves, as of September 30, 2024 and December 31, 2023 were as follows (table in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Inventory - Current Portion | |||||||||||
| Raw Materials | $ | $ | |||||||||
| Work in Process | |||||||||||
| Finished Goods | |||||||||||
| Total Current Inventory | |||||||||||
Inventory - Long Term (1) | |||||||||||
| Total Inventory | $ | $ | |||||||||
As of September 30, 2024 and December 31, 2023, Rockwell had total current concentrate inventory aggregating $6.2 million and $5.9 million, respectively, against which Rockwell had reserved $0.3 million and $25,000 at September 30, 2024 and December 31, 2023, respectively.
8. Property and Equipment
As of September 30, 2024 and December 31, 2023, the Company’s property and equipment consisted of the following (table in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Machinery and Equipment | $ | $ | |||||||||
| Information Technology & Office Equipment | |||||||||||
| Leasehold Improvements | |||||||||||
| Laboratory Equipment | |||||||||||
| Total Property and Equipment | |||||||||||
| Accumulated Depreciation and Amortization | ( | ( | |||||||||
| Property and Equipment, net | $ | $ | |||||||||
Depreciation and amortization expense for each of the three months ended September 30, 2024 and 2023 was $0.4 1.2 million and $0.8 million, respectively.
11
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Accrued Liabilities
Accrued liabilities as of September 30, 2024 and December 31, 2023 consisted of the following (table in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Accrued Compensation and Benefits | $ | $ | |||||||||
| Accrued Unvouchered Receipts | |||||||||||
| Accrued Workers Compensation | |||||||||||
| Accrued Manufacturing Expense | |||||||||||
| Other Accrued Liabilities | |||||||||||
| Total Accrued Liabilities | $ | $ | |||||||||
10. Deferred License Revenue
In October 2014, the Company entered into an exclusive distribution agreement with Baxter, which had a term of and received an upfront fee of $20 million. Under the exclusive distribution agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all U.S. customers. The upfront fee was recorded as deferred license revenue and was being recognized based on the proportion of product shipments to Baxter in each period, compared with total expected sales volume over the term of the distribution agreement. On November 9, 2022, Rockwell incurred a fee to Baxter, which was reflected as a reduction to revenue on the consolidated statements of operations, and was payable in two equal installments on January 1, 2023 and April 1, 2023, to reacquire its distribution rights to its hemodialysis concentrates products from Baxter and terminated the distribution agreement. Exclusivity and other provisions associated with the distribution agreement terminated November 9, 2022 and the remaining operational elements of the agreement terminated December 31, 2022. To ensure that customer needs continued to be met after January 1, 2023, Rockwell agreed to provide certain services to a group of Baxter's customers until March 31, 2023, and Baxter and Rockwell worked together to transition customers’ purchases of Rockwell’s hemodialysis concentrates through that date. Following the reacquisition of these rights, Rockwell is now unrestricted in its ability to sell its hemodialysis concentrates products to dialysis clinics throughout the United States and around the world. The Company recognized the remaining revenue of $1.5 million during the nine months ended September 30, 2023.
The remaining agreements with Sun Pharma, Jeil Pharmaceutical, and Drogsan Pharmaceuticals comprise the current and long-term portions of deferred license revenue on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.
11. Stockholders’ Equity
Preferred Stock
On April 6, 2022, the Company and DaVita entered into the Securities Purchase Agreement (the "SPA"), which provided for the issuance by the Company of up to $15 million of preferred stock to DaVita. On April 6, 2022, the Company issued 7,500 shares of Series X Preferred Stock for gross proceeds of $7.5 million. On June 16, 2022, the Company issued an additional 7,500 shares of the Series X Preferred Stock to DaVita for gross proceeds of $7.5 million.
The Series X Preferred Stock was issued for a price of $1,000 per share (the "Face Amount"), subject to accretion at a rate of 1 % per annum, compounded annually. If the Company’s common stock trades above $22.00 for a period of 30 calendar days, the accretion will thereafter cease. As of September 30, 2024, the Series X Preferred Stock accreted a total of $0.3 million.
The Series X Convertible Preferred Stock is convertible to common stock at a rate equal to the Face Amount, divided by a conversion price of $11.00 per share (subject to adjustment for future stock splits, reverse stock splits and similar recapitalization events). As a result, each share of Series X Preferred Stock will initially convert into approximately 91 shares of common stock. DaVita’s right to convert to common stock is subject to a beneficial ownership limitation, which is initially set at 9.9 % of the outstanding common stock, which limitation may be reset (not to exceed 19.9 %) at DaVita’s option and upon providing prior written notice to the Company. In addition, any debt financing is limited by the terms of our SPA with DaVita. Specifically, until DaVita owns less than 50 % of its investment, the Company may only incur additional debt in the form of a purchase money loan, a working capital line of up to $5 million, or refinance existing debt, unless DaVita consents.
Additionally, the Series X Preferred Stock has a deemed liquidation event and redemption clause which could be triggered if the sale of all or substantially all of the Company's assets relating to the Company's dialysis concentrates business line. Since the Series X Preferred Stock may be redeemed if certain assets are sold at the option of the holder, but is not mandatorily redeemable and the sale of the assets that would allow for redemption is within the control of the Company, the preferred stock has been classified as permanent equity and initially recognized at fair value of $15 million (the proceeds on the date of issuance) less issuance costs of $0.1 million, resulting in an initial value of $14.9 million. The Company will assess at each reporting period whether conditions have changed to now meet the mandatory redemption definition which could trigger liability classification.
As of each of September 30, 2024 and December 31, 2023, there were 2,000,000 0.0001 15,000
Common Stock
As of September 30, 2024 and 2023, the Company reserved for issuance the following shares of common stock related to the potential exercise of employee stock options, unvested restricted stock, convertible preferred stock, pre-funded warrants and all other warrants (collectively, "common stock equivalents"):
| As of September 30, | |||||||||||
| Common Stock and Common Stock Equivalents: | 2024 | 2023 | |||||||||
| Common Stock | |||||||||||
| Common Stock Issuable upon Exercise of Pre-funded Warrants | |||||||||||
| Common Stock and Pre-funded Stock Warrants | |||||||||||
| Options to Purchase Common Stock | |||||||||||
| Unvested Restricted Stock Awards | |||||||||||
| Unvested Restricted Stock Units | |||||||||||
| Convertible Preferred Stock | |||||||||||
| Warrants to Purchase Common Stock | |||||||||||
| Total | |||||||||||
During the three months ended September 30, 2024 and 2023, nil and 1,793,000 Pre-Funded Warrants were exercised, respectively. During the nine months ended September 30, 2024 and 2023, nil and 6,300,000 Pre-Funded Warrants were exercised, respectively.
Controlled Equity Offering
On April 8, 2022, the Company entered into the Sales Agreement (the "ATM facility") with Cantor Fitzgerald & Co. as Agent, pursuant to which the Company may offer and sell from time to time up to $12.2 million of shares of Company’s common stock through the Agent. The offering and sale of such shares has been registered under the Securities Act of 1933, as amended.
During the nine months ended September 30, 2024, 2,990,925 shares were sold pursuant to the Sales Agreement for net proceeds of $6.4 million. Approximately $4.5 million remains available for sale under the ATM facility.
Private Placement
On July 10, 2023, the Company entered into a letter agreement (the “Letter Agreement”) with Armistice Capital Master Fund Ltd. (“Armistice”), which held a warrant (the “Prior Warrant”) to purchase 9,900,990 shares of common stock of the Company (the “Common Stock”) with an exercise price of $1.39 per share, offering Armistice the opportunity to exercise the Prior Warrant for cash, provided the Prior Warrant was exercised for cash on or prior to 5:00 P.M. Eastern Time on July 10, 2028 (the “End Date”). In addition, Armistice would receive a “reload” warrant (the “Reload Warrant”) to purchase 3,750,000 shares of Common Stock with an exercise price of $5.13 per share, the closing price as reported by the Nasdaq Capital Market
on July 7, 2023. The Reload Warrant may be exercised at all times prior to the 54 months' anniversary of its issuance date. The Prior Warrant and the Reload Warrant both provide that a holder (together with its affiliates) may not exercise any portion of the Prior Warrant or the Reload Warrant to the extent that the holder would own more than 9.99 % of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of such warrant. To the extent the exercise of the Prior Warrant would result in Armistice holding more than 9.99 % of the Company’s outstanding Common Stock, such shares of Common Stock in excess of 9.99 % will be held in abeyance.
Armistice exercised the Prior Warrant on July 10, 2023, and the Company received gross proceeds of approximately $13.8 million.
Third Amendment
In connection with the execution of the Third Amendment, as defined and described in Note 15, on January 2, 2024, the Company issued to Innovatus a warrant to purchase 191,096 shares of the Company’s common stock with an exercise price of $1.83 per share. The warrant may be exercised on a cashless basis, and is immediately exercisable through January 2, 2029. The number of shares of common stock for which the warrant is exercisable and the exercise price are subject to certain proportional adjustments as set forth in the Third Amendment. The warrant is equity-classified with a fair value of approximately $0.2 million at issuance, which was treated as a debt issuance cost and will be amortized through interest expense over the remaining contractual term of the Term Loan.
The fair value of the warrant at the issuance date was calculated using the Black-Scholes pricing model and include the following assumptions:
| Expected Stock Price Volatility | |||||
| Risk-free Interest Rate | |||||
| Term (years) | |||||
| Dividend Yield | |||||
12. Stock-Based Compensation
The Company recognized total stock-based compensation expense during the three and nine months ended September 30, 2024 and 2023 as follows (table in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Service-based awards: | |||||||||||||||||||||||
| Restricted Stock Units | $ | $ | $ | $ | |||||||||||||||||||
| Stock Option Awards | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Performance Based Restricted Stock Awards
A summary of the Company’s performance based restricted stock awards during the nine months ended September 30, 2024 is as follows:
| Performance Based Restricted Stock Awards | Number of Shares | Weighted Average Grant-Date Fair Value | |||||||||
| Unvested at January 1, 2024 | $ | ||||||||||
| Unvested at September 30, 2024 | $ | ||||||||||
12
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Performance-based restricted stock awards are measured based on their fair value on the date of grant and amortized over the vesting period of 20 months. As of September 30, 2024, there is no unrecognized stock-based compensation expense related to performance based restricted stock awards.
Service Based Restricted Stock Units
A summary of the Company’s service-based restricted stock units during the nine months ended September 30, 2024 is as follows:
| Service Based Restricted Stock Units | Number of Shares | Weighted Average Grant-Date Fair Value | |||||||||
| Unvested at January 1, 2024 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Unvested at September 30, 2024 | $ | ||||||||||
The fair value of service based restricted stock units are measured based on their fair value on the date of grant and amortized over the vesting period. The vesting periods range from 1 to 3 years. As of September 30, 2024, the unrecognized stock-based compensation expense was $0.5 million, which is expected to be recognized over the next 1.4 years.
Service Based Stock Option Awards
The fair value of the service-based stock option awards granted for the nine months ended September 30, 2024 and 2023 were based on the following assumptions:
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||
| Exercise Price | $ | $ | |||||||||
| Expected Stock Price Volatility | |||||||||||
| Risk-free Interest Rate | |||||||||||
| Term (years) | |||||||||||
A summary of the Company’s service-based stock option activity for the nine months ended September 30, 2024 is as follows:
| Service Based Stock Option Awards | Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value (in $1,000's) | |||||||||||||||||||
| Outstanding at January 1, 2024 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Expired | ( | ||||||||||||||||||||||
| Outstanding at September 30, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable at September 30, 2024 | $ | $ | |||||||||||||||||||||
13
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The aggregate intrinsic value is calculated as the difference between the closing price of the Company's common stock at the date indicated and the exercise price of the stock options that had strike prices below the closing price.
The weighted average grant date fair value for service based stock option awards granted during the nine months ended September 30, 2024 and 2023 was $0.99 and $1.03 , respectively.
As of September 30, 2024, total stock-based compensation expense related to unvested options not yet recognized totaled approximately $0.7 million, which is expected to be recognized over the next 2.9 years.
13. License Agreements
Product License Agreements
The Company is a party to a Licensing Agreement between the Company and Charak, LLC ("Charak") dated January 7, 2002 (the "2002 Agreement") that grants the Company exclusive worldwide rights to certain patents and information related to its Triferic product. On October 7, 2018, the Company entered into a Master Services and IP Agreement (the “Charak MSA”) with Charak and Dr. Ajay Gupta, a former Officer of the Company. Pursuant to the MSA, the parties entered into three additional agreements described below related to the license of certain soluble ferric pyrophosphate (“SFP”) intellectual property owned by Charak. As of September 30, 2024 and December 31, 2023, the Company has accrued $0.1
Pursuant to the Charak MSA, the aforementioned parties entered into an Amendment, dated as of October 7, 2018 (the “Charak Amendment”), to the 2002 Agreement, under which Charak granted the Company an exclusive, worldwide, non-transferable license to commercialize SFP for the treatment of patients with renal failure. The Charak Amendment amends the royalty payments due to Charak under the 2002 Agreement such that the Company is liable to pay Charak royalties on net sales by the Company of products developed under the license, which includes the Company’s Triferic product, at a specified rate until December 31, 2021 and thereafter at a reduced rate from January 1, 2022 until February 1, 2034. Additionally, the Company is required to pay Charak a percentage of any sublicense income during the term of the agreement, which cannot be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and can be no less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.
Also pursuant to the Charak MSA, the Company and Charak entered into a Commercialization and Technology License Agreement IV Triferic dated as of October 7, 2018 (the “IV Agreement”), under which Charak granted the Company an exclusive, sub-licensable, royalty-bearing license to SFP for the purpose of commercializing certain intravenous-delivered products incorporating SFP for the treatment of iron disorders worldwide for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. The Company was liable to pay Charak royalties on net sales by the Company of products developed under the license at a specified rate until December 31, 2021. From January 1, 2022 until February 1, 2034, the Company is liable to pay Charak a base royalty at a reduced rate on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the IV Agreement, which amount shall not be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and not be less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.
Also pursuant to the Charak MSA, the Company and Charak entered into a Technology License Agreement TPN Triferic dated as of October 7, 2018 (the “TPN Agreement”), pursuant to which Charak granted the Company an exclusive, sub-licensable, royalty-bearing license to SFP for the purpose of commercializing worldwide certain TPN products incorporating SFP. The license grant under the TPN Agreement continues for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. During the term of the TPN Agreement, the Company is liable to pay Charak a base royalty on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the TPN Agreement, which amount shall not be less than a minimum royalty on net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and not be less than a lower rate of
14
ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.
The potential milestone payments are not yet considered probable, and no
14. Leases
Rockwell leases its production facilities and administrative offices as well as certain equipment used in its operations including leases on transportation equipment used in the delivery of its products. The lease terms range from monthly to six years . Rockwell occupies a 51,000 square foot facility and a 17,500 -square foot facility in Wixom, Michigan under a lease expiring in August 2027. During the nine months ended September 30, 2024, the lease for the Wixom facilities was extended by three years to August 2027, which was accounted for as a modification. As a result of the modification, the operating lease right of use asset and lease liabilities increased by $1.5 million. Rockwell also occupies two other manufacturing facilities, a 51,000 -square foot facility in Grapevine, Texas under a lease expiring in December 2025, and a 57,000 -square foot facility in Greer, South Carolina under a lease expiring February 2026. In addition, Rockwell occupied 4,100 square feet of office space in Hackensack, New Jersey. This lease was subleased on December 15, 2021 and expired on October 31, 2024.
The following summarizes quantitative information about the Company’s operating and finance leases (table in thousands):
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||
| Operating Leases | |||||||||||||||||||||||
| Operating Lease Cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable Lease Cost | |||||||||||||||||||||||
| Operating Lease Expense | |||||||||||||||||||||||
| Finance Leases | |||||||||||||||||||||||
| Amortization of Right-of-use Assets | |||||||||||||||||||||||
| Interest on Lease Obligations | |||||||||||||||||||||||
| Finance Lease Expense | |||||||||||||||||||||||
| Short-term Lease Rent Expense | |||||||||||||||||||||||
| Total Rent Expense | $ | $ | $ | $ | |||||||||||||||||||
| Other Information | |||||||||||||||||||||||
| Operating Cash Flows from Operating Leases | $ | $ | $ | $ | |||||||||||||||||||
| Operating Cash Flows from Finance Leases | $ | $ | $ | $ | |||||||||||||||||||
| Financing Cash Flows from Finance Leases | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average Remaining Lease Term – Operating Leases | |||||||||||||||||||||||
| Weighted-average Remaining Lease Term – Finance Leases | |||||||||||||||||||||||
| Weighted-average Discount Rate – Operating Leases | % | % | % | % | |||||||||||||||||||
| Weighted-average Discount Rate – Finance Leases | % | % | % | % | |||||||||||||||||||
Future minimum rental payments under operating and finance lease agreements are as follows (in thousands):
| Operating | Finance | ||||||||||
| Year ending December 31, 2024 (remaining) | $ | $ | |||||||||
| Year ending December 31, 2025 | |||||||||||
| Year ending December 31, 2026 | |||||||||||
| Year ending December 31, 2027 | |||||||||||
| Year ending December 31, 2028 | |||||||||||
| Total | |||||||||||
| Less Present Value Discount | ( | ( | |||||||||
| Operating and Finance Lease Liabilities | $ | $ | |||||||||
15. Loan and Security Agreement
On March 16, 2020, the Company and Rockwell Transportation, Inc., as Borrowers, entered into a Loan and Security Agreement (the "Loan Agreement") with Innovatus, as collateral agent and the lenders party thereto, pursuant to which Innovatus, as a lender, agreed to make certain term loans to the Company in the aggregate principal amount of up to $35.0 million (the "Term Loans"). Funding of the first $22.5 million tranche was completed on March 16, 2020. The Company is no longer eligible to draw on additional tranches, which were tied to the achievement of certain milestones. Net draw down proceeds were $21.2 million with closing costs of $1.3 million. The Company also owes an additional fee equal to 4.375 % of the funded amount of the Term Loans, or $1.0 million (such additional fee, the "Final Fee") at maturity. The Company is accreting up to this Final Fee premium with a charge against interest expense on the accompanying condensed consolidated statements of operations.
In connection with each funding of the Term Loans, the Company was required to issue to Innovatus a warrant (the “Warrants”) to purchase a number of shares of the Company’s common stock equal to 3.5 % of the principal amount of the relevant Term Loan funded divided by the exercise price. In connection with the first tranche of the Term Loans, the Company issued a Warrant to Innovatus, exercisable for an aggregate of 43,388 shares of the Company’s common stock at an exercise price of $18.15 per share. The Warrant may be exercised on a cashless basis and is immediately exercisable through the seventh anniversary of the applicable funding date. The number of shares of common stock for which the Warrant is exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in such Warrant. The Company evaluated the warrant under ASC 470, Debt, and recognized an additional debt discount of approximately $0.5 million based on the relative fair value of the base instruments and warrants. The Company calculated the fair value of the warrant using the Black-Scholes model.
The Term Loan was scheduled to mature on March 16, 2025, and bore interest at the greater of (i) Prime Rate (as defined in the Loan Agreement) and (ii) 4.75 %, plus 4.00 %, with an initial interest rate of 8.75 % per annum. The Company had the option, under certain circumstances, to add 1.00 % of such interest rate amount to the then outstanding principal balance in lieu of paying such amount in cash.
In September 2021, the Company entered into an amendment to the Loan Agreement in which the Company, in exchange for Innovatus lowering the sales covenants, agreed to: (i) prepay an aggregate principal amount of $7.5 million in ten installments commencing on December 1, 2021; (ii) pay an additional prepayment premium of 5 % on prepaid amounts if the Company elected to prepay all outstanding Term Loans on or before September 24, 2023; and (iii) maintain minimum liquidity of no less than $5.0 million if the aggregate principal amount of Term Loans was greater than $15 million pursuant to the liquidity covenant in the Loan Agreement.
On November 10, 2022, the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) dated as of November 14, 2022 with Innovatus. Pursuant to the Second Amendment, the Company (i) prepaid an additional aggregate principal amount of $5.0 million in Term Loans in one installment on November 14, 2022; and (ii) paid interest only payments until September 2023, at which time it resumed scheduled debt payments. The financial covenant related to the sales of Triferic was replaced with the trailing 6 months revenue of the Company's concentrates products.
On January 2, 2024, the Company entered into the Third Amendment to and Restatement of the Loan and Security Agreement (the "Third Amendment") with Innovatus, dated January 1, 2024. The Third Amendment provides for the continuation of term loans initially borrowed under the Loan Agreement amounting to $8.0 million as of January 1, 2024. The Company will make interest-only payments on the Term Loans for 30 months, or up to 36 months if certain conditions are met. The Company will make equal monthly payments of principal, together with applicable interest, in arrears, starting either August 1, 2026 or February 1, 2027, depending on whether the interest only period is extended to 36 months after the Effective Date. The Term Loans will mature on January 1, 2029, unless earlier repaid. Effective on January 1, 2024, the Term Loans bear interest equal to the sum of (i) the greater of (a) Prime Rate (as defined in the Third Amendment) and (b) 7.50 % plus (ii) 3.50 %. At the Company's option, 2.00 % of the interest due on any applicable interest payment date during the interest-only period may be paid in-kind by adding such amount to the then outstanding principal balance of the Term Loans. The Term Loans may be voluntarily prepaid in full (but not partially) at any time, upon at least business days’ prior notice. In connection with any voluntary prepayment or satisfaction of the Term Loans prior to the maturity date (including any acceleration), the Company will pay all accrued and unpaid interest and all other amounts due in connection with the Term Loans, together with (x) a prepayment fee (the “Prepayment Fee”) equal to: (i) 6.0 % of the principal amount of the Term Loans prepaid if the payment is made before January 1, 2025; (ii) 2.0 % of the principal amount of the Term Loans prepaid if the payment is made after January 1, 2025 but on or before January 1, 2026; (iii) 1.0 % of the principal amount of the Term Loans prepaid if the payment is made after January 1, 2026 but on or before January 1, 2027; or (iv) 0 % of the principal amount of the Term Loans prepaid if the payment is made after January 1, 2027 through maturity, and (y) the Final Fee. The Term Loans will be mandatorily prepaid upon a change in control of the Company, or upon any early termination/acceleration of the Term Loans. In the event of a mandatory prepayment of the Term Loans, the Company shall be required to pay the Prepayment Fee (if applicable), as well as the Final Fee. The Third Amendment Final Fee shall be due and payable at maturity if it has not previously been paid in full in connection with a prepayment of the Term Loans. The Third Amendment was treated as a modification for accounting purposes.
The Third Amendment contains various financial covenants and customary representations and warranties and affirmative and negative covenants, subject to exceptions as described in the Third Amendment. The Company's ability to comply with the covenants under the Third Amendment may be adversely affected by events beyond its control. If the Company is unable to comply with the covenants under the Third Amendment, it would pursue all available cure options in order to regain compliance. However, the Company may not be able to mutually agree with Innovatus on appropriate remedies to cure a future breach of a covenant, which could give rise to an event of default. However, as of September 30, 2024, the Company was in compliance with all covenants under the Third Amendment.
In connection with the execution of the Third Amendment, on January 2, 2024, the Company issued a warrant to purchase shares of the Company’s common stock. The warrant is equity-classified with a fair value of $0.2 million at issuance, which was treated as a debt issuance cost and will be amortized through interest expense over the remaining contractual term of the Term Loan. For additional information, see Note 11.
The effective interest rate is 11.5 % as of September 30, 2024. For the three months ended September 30, 2024 and 2023, interest expense amounted to $0.2 million and $0.3 million, respectively. For the nine months ended September 30, 2024 and 2023, interest expense amounted to $0.7 million and $0.9 million, respectively. As of September 30, 2024, the outstanding balance of the Term Loan was $8.4 million, net of unamortized issuance costs and discount of $0.6 million, and including $0.8 million of premium accretion, $0.1 million related to a fee resulting from the Third Amendment, and paid-in-kind interest of $0.1 million.
The Loan Agreement is secured by all assets of the Company and Rockwell Transportation, Inc. and contains customary representations and warranties and covenants, subject to customary carve outs, and initially included financial covenants related to liquidity and sales of Triferic.
The following table reflects the schedule of principal payments on the Term Loan as of September 30, 2024 (in thousands):
| September 30, 2024 | |||||
| 2024 (remaining) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 (inclusive of Final Fee) | |||||
| Total Debt Maturities | |||||
| Unamortized Issuance Costs, Discount and Premium, net | ( | ||||
| Term Loan - Long-Term, net of issuance costs | $ | ||||
16. Insurance Financing Note Payable
On June 3, 2023, the Company entered into a short-term note payable for $0.7 million, bearing interest at a rate of 9.59 % per annum to finance various insurance policies. Principal and interest payments related to this note began on July 3, 2023 and were paid on a straight-line amortization over nine months with the final payment due on March 3, 2024. During the nine months ended September 30, 2024, the Company's insurance financing note payable balance was paid in full.
On June 24, 2024, the Company entered into a short-term note payable with a principal amount of $0.7 million, bearing interest at a rate of 7.89 % per annum to finance various insurance policies, which required an upfront payment of $0.2 million. Principal and interest payments related to this note began on July 3, 2024 and will be paid in 10 equal monthly payments of $0.1 million, with the final payment due on April 3, 2025. As of September 30, 2024, the balance of the insurance financing note payable was $0.5 million.
15
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 our condensed consolidated financial statements and related notes in “Item 1. Condensed Consolidated Financial Statements”. References in this report to “Rockwell,” the “Company,” “we,” “our” and “us” are references to Rockwell Medical, 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 U.S. Securities and Exchange Commission ("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 current 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,” “could,” “plan,” “potential,” “predict,” “forecast,” “project,” “intend,” “is focused on” 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 liquidity and capital resources; our ability to successfully integrate acquisitions; the size of the hemodialysis concentrates market opportunity; our ability to successfully execute on our business strategy; our ability to raise additional capital; our ability to successfully implement certain cost containment and cost-cutting measures; our ability to maintain profitability and statements regarding our anticipated future financial condition, operating results, cash flows and business plans.
While we believe 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 in this report, “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and from time to time in our other reports filed with the SEC.
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 future results will meet expectations. Forward-looking statements speak only as of the date of this report and we expressly disclaim any intent 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
Rockwell Medical is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide.
Rockwell is the largest supplier of liquid bicarbonate concentrates and the second largest supplier of acid and dry bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is usually performed at freestanding outpatient dialysis centers, at hospital-based outpatient centers, at skilled nursing facilities, or in a patient’s home. This represents a large market opportunity for which we believe Rockwell's products are well-positioned to meet the needs of patients.
Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers. Rockwell has developed a core expertise in manufacturing and delivering hemodialysis concentrates, and has built a longstanding reputation for reliability, quality, and excellent customer service.
Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S. Food and Drug Administration ("FDA"). Rockwell is ISO 13485 Certified and adheres to current Good Manufacturing Practices ("cGMP") and Association for Advancement of Medical Instrumentation ("AAMI") standards. Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. In addition, the Company manufactures hemodialysis concentrates in Minnesota under a contract manufacturing agreement with a contract
manufacturing organization. (See Note 4 of the accompanying condensed consolidated interim financial statements for further detail). On February 12, 2024, the Company entered into an amendment to its contract manufacturing agreement to extend the term to December 31, 2024. The Company plans to transfer the manufacturing of the former Evoqua product line to one of its own manufacturing facilities by the end of 2024, which the Company believes will reduce production costs for these products.
During the three months ended September 30, 2024, Rockwell Medical received the Notice of Extension of Term (the "Extension") of the Amended and Restated Products Purchase Agreement (the "Amended Agreement"), dated September 21, 2023, which amended and restated the Products Purchase Agreement, dated July 1, 2019, with DaVita. The Extension extends the term of the Amended Agreement through December 31, 2025 (the "Extension Term"), during which Extension Term product pricing will be increased. DaVita has indicated to Rockwell that DaVita expects volumes to decline during the Extension Term as DaVita works to diversify its supplier base. Rockwell believes that net sales to DaVita in 2025 will decline between approximately $31 million and $37 million. DaVita is required to provide Rockwell with a twelve-month binding forecast on or before December 15, 2024, at which time the Company will be able to determine the actual impact on net sales in 2025. Under the terms of the Amended Agreement, DaVita is committed to purchasing at least the amount provided in the binding forecast. DaVita's product purchases have historically ranged between a gross loss to single digit gross margin, excluding the special large order of premium-priced product described below.
Results of Operations for the Three Months Ended September 30, 2024 and 2023
The following table summarizes our operating results for the periods presented below (dollars in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||
| 2024 | % of Revenue | 2023 | % of Revenue | % Change | |||||||||||||||||||||||||
| Net Sales | $ | 28,316 | $ | 23,771 | 19 | % | |||||||||||||||||||||||
| Cost of Sales | 22,077 | 78 | % | 21,569 | 91 | % | 2 | % | |||||||||||||||||||||
| Gross Profit | 6,239 | 22 | % | 2,202 | 9 | % | |||||||||||||||||||||||
| Research and Product Development | — | — | % | 494 | 2 | % | (100) | % | |||||||||||||||||||||
| Selling and Marketing | 726 | 3 | % | 556 | 2 | % | 31 | % | |||||||||||||||||||||
| General and Administrative | 3,577 | 13 | % | 2,889 | 12 | % | 24 | % | |||||||||||||||||||||
| Operating Income (Loss) | $ | 1,936 | 6 | % | $ | (1,737) | (7) | % | |||||||||||||||||||||
Net Sales
During the three months ended September 30, 2024, net sales were $28.3 million compared to net sales of $23.8 million during the three months ended September 30, 2023. The increase of $4.5 million was due to $6.7 million from product revenue, partially offset by a decrease of $2.2 million from non-product revenue. Overall, product revenue for the three months ended September 30, 2024 was $28.3 million compared to product revenue of $21.6 million for the three months ended September 30, 2023. The increase of $6.7 million was driven by $4.5 million from a special large order of premium-priced product, as well as $2.5 million of increased sales and price increases to existing customers. Net sales of non-product revenue were not material during the three months ended September 30, 2024 compared to non-product revenue of $2.2 million during the three months ended September 30, 2023, which was the result of deferred license revenue recognition related to the termination of the Wanbang Agreement.
Gross Profit
Cost of sales for the three months ended September 30, 2024 was $22.1 million, resulting in gross profit of $6.2 million for the three months ended September 30, 2024, compared to cost of sales of $21.6 million and a gross profit of $2.2 million for the three months ended September 30, 2023. Gross profit increased by $4.0 million driven by $1.5 million from a special large order of premium-priced product, as well as $2.5 million from increased sales and price increases to existing customers and $1.1 million of lower costs, partially offset by a decrease of $1.1 million associated with the termination of the Wanbang agreement for the three months ended September 30, 2023.
Research and Product Development Expense
16
Research and product development expenses were nil and $0.5 million for the three months ended September 30, 2024 and 2023, respectively. The decrease of approximately $0.5 million was driven by severance cost in the three months ended September 30, 2023.
Selling and Marketing Expense
Selling and marketing expenses were $0.7 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively.
General and Administrative Expense
General and administrative expenses were $3.6 million for the three months ended September 30, 2024, compared with $2.9 million for the three months ended September 30, 2023. The increase of $0.6 million was primarily due to increased compensation expense related to bonuses.
Other Expense
Total other expense of $0.3 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, was primarily driven by interest expense related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). For the three months ended September 30, 2023, the interest expense is partially offset by $0.2 million of realized gains on available-for-sale investments.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our operating results for the periods presented below (dollars in thousands):
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| 2024 | % of Revenue | 2023 | % of Revenue | % Change | |||||||||||||||||||||||||
| Net Sales | $ | 76,824 | $ | 61,519 | 25 | % | |||||||||||||||||||||||
| Cost of Sales | 62,971 | 82 | % | 55,685 | 91 | % | 13 | % | |||||||||||||||||||||
| Gross Profit | 13,853 | 18 | % | 5,834 | 9 | % | |||||||||||||||||||||||
| Research and Product Development | 18 | — | % | 939 | 2 | % | (98) | % | |||||||||||||||||||||
| Selling and Marketing | 1,906 | 2 | % | 1,584 | 3 | % | 20 | % | |||||||||||||||||||||
| General and Administrative | 10,802 | 14 | % | 9,434 | 15 | % | 15 | % | |||||||||||||||||||||
| Operating Loss | $ | 1,127 | 2 | % | $ | (6,123) | (11) | % | |||||||||||||||||||||
Net Sales
During the nine months ended September 30, 2024, our net sales were $76.8 million compared to net sales of $61.5 million during the nine months ended September 30, 2023. Product revenue for the nine months ended September 30, 2024 was $76.8 million compared to product revenue of $57.7 million for the nine months ended September 30, 2023. The increase of $19.1 million was primarily due to $6.4 million from customers added through the Evoqua asset acquisition, $5.4 million from a special large order of premium-priced product, as well as $7.2 million of increased sales and price increases to existing customers. Net sales of non-product revenue were not material during the nine months ended September 30, 2024 compared to $3.8 million during the nine months ended September 30, 2023, which was the result of $2.3 million and $1.5 million of deferred license revenue recognition related to the terminations of the Wanbang Agreement and Baxter Distribution Agreement, respectively.
17
Gross Profit
Cost of sales for the nine months ended September 30, 2024 was $63.0 million, resulting in gross profit of $13.9 million for the nine months ended September 30, 2024, compared to cost of sales of $55.7 million and a gross profit of $5.8 million for the nine months ended September 30, 2023. Gross profit increased by $8.0 million driven by $7.1 million of price increases to existing customers, $1.6 million from a special large order of premium-priced product and $1.4 million of lower costs, partially offset by $1.5 million and $1.1 million of gross profit for the nine months ended September 30, 2023 associated with deferred license revenue recognition related to the terminations of the Baxter Distribution Agreement and the Wanbang agreement, respectively.
Research and Product Development Expense
Research and product development expenses were immaterial and $0.9 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease of approximately $0.9 million is due to the decision to pause all research and development related to Triferic in 2023.
Selling and Marketing Expense
Selling and marketing expenses were $1.9 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $0.3 million is primarily due to higher employee compensation expenses.
General and Administrative Expense
General and administrative expenses were $10.8 million for the nine months ended September 30, 2024, compared with $9.4 million for the nine months ended September 30, 2023. The increase of $1.4 million was primarily due to increased compensation expense related to bonuses, additional administrative costs and amortization of intangible assets.
Other Expense
Total other expense of $0.9 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively, was driven by interest expense of $1.0 million and $1.2 million, respectively, related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q), partially offset by $0.1 million and $0.2 million of interest income, respectively, as well as realized gains on available-for-sale of investments of $0.1 million and $0.2 million, respectively.
Liquidity and Capital Resources
As of September 30, 2024, we had approximately $18.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $20.0 million. Based on the currently available working capital along with the expectation of management of its ability to execute on its operational plans as discussed below, 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.
Additionally, the Company's operational plans include raising capital, if needed, by using the $4.5 million remaining availability under its at-the-market ("ATM") facility or other methods or forms of financings, subject to existing limitations. Under the ATM, we have the ability to control the timing and price at which capital is raised.
The actual amount of cash that we will need to execute our business strategy is subject to many factors, including, but not limited to, the costs associated with our manufacturing and transportation operations related to our concentrate business.
We may elect to raise capital in the future through one or more of the following: (i) equity and debt raises through the equity and capital markets, though there can be no assurance we will be able to secure additional capital or funding on acceptable terms, or if at all; and (ii) strategic transactions, including potential alliances and collaborations focused on markets outside the United States, as well as potential combinations (including by merger or acquisition) or other corporate transactions.
We believe our ability to fund our activities in the long term will be highly dependent upon (i) our ability to execute on the growth strategy of our hemodialysis concentrates business and maintain sales with existing customers, (ii) our ability to achieve sustained profitability, and (iii) our ability to identify, develop, in-license, or acquire new products in developing our renal care product portfolio. All of these strategies are subject to significant risks and uncertainties such that there can be no assurance we will be successful in achieving them. If we are unsuccessful in executing our business plan and we are unable to raise the required capital, we may be forced to curtail all of our activities and, ultimately, cease operations. Even if we are able to raise sufficient capital, such financings may only be available on unattractive terms, or result in significant dilution of stockholders’ interests and, in such event, the market price of our common stock may decline.
If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all. In addition, any debt financing is limited by the terms of our Securities Purchase Agreement with DaVita. Specifically, until DaVita owns less than 50% of its investment, the Company may only incur additional debt in the form of a purchase money loan, a working capital line of up to $5 million or to refinance existing debt, unless DaVita consents.
The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus. As of September 30, 2024, the Company is in compliance with all covenants. On January 2, 2024, the Company's Loan Agreement was amended to include, among other things, an interest-only period for 30 months, or up to 36 months if certain conditions are met, and extend the maturity date to January 1, 2029 (See Note 15 to the accompanying condensed consolidated financial statements).
The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, recent bank failures in the United States, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the Middle East conflict and other political tensions, and the occurrence of natural disasters and public health crises. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on our future operations. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future.
Cash Provided By (Used In) Operating Activities
Net cash provided by operating activities was $3.3 million for the nine months ended September 30, 2024 compared to net cash used in operating activities of $9.4 million for the nine months ended September 30, 2023. The change in cash provided by operating activities during the current period as compared to cash used in operating activities in the prior period was primarily due to (i) an increase in net income of approximately $7.2 million, (ii) an increase in cash provided by changes in current balance sheet accounts in the ordinary course of business of approximately $5.9 million, primarily due to increases of $5.1 million of accounts receivable, net and $3.8 million of deferred license revenue, partially offset by decreases of $1.8 million of accounts payable and $1.2 million of inventory, partially offset by (iii) a decrease in cash provided from non-cash adjustments primarily related to a decrease of $0.8 million in inventory reserves.
Cash Used In Investing Activities
Net cash used in investing activities was $4.5 million during the nine months ended September 30, 2024 compared to net cash used in investing activities of $5.1 million for the nine months ended September 30, 2023. Net cash used in investing activities during the nine months ended September 30, 2024 was driven primarily by (i) net cash payments from purchases and sales of our available-for-sale investments of $3.9 million during the period. Net cash used in investing activities during the nine months ended September 30, 2023 was primarily due to the cash paid in connection with the Evoqua Asset Acquisition of $12.4 million, partially offset by the net cash proceeds from sales and purchase of available-for-sale investments during the period of $7.5 million.
Cash Provided By Financing Activities
Net cash provided by financing activities was $4.6 million during the nine months ended September 30, 2024 compared to net cash provided by financing activities of $12.1 million for the nine months ended September 30, 2023. Net cash provided by financing activities during the nine months ended September 30, 2024 was primarily due to the gross proceeds from the issuance of common stock in connection with the ATM facility of $6.4 million, partially offset by the cash paid in
connection with the Evoqua Asset Acquisition of $1.0 million. Net cash provided by financing activities for the nine months ended September 30, 2023 was primarily due to the gross proceeds from the issuance of common stock in connection with the exercise of the Prior Warrant and Pre-Funded Warrants of $13.8 million.
Contractual Obligations and Other Commitments
See Note 13 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for additional disclosures. There have been no other material changes from the contractual obligations and other commitments disclosed in Note 14 and 15 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recently issued and adopted accounting pronouncements:
We have evaluated all recently issued accounting pronouncements and believe such pronouncements do not have a material effect our financial statements. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Per §229.305 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in §229.10(f)(1) of Regulation S-K, is not required to provide the disclosure required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure material information required to be disclosed in our reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance 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 was required to apply its judgment in evaluating the cost‑benefit relationship of possible controls and procedures.
Under the supervision of and with the participation of our management, including the Company’s Chief Executive Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer concluded our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
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We may be involved in certain routine legal proceedings from time to time before various courts and governmental agencies. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on our operations or consolidated financial statements in the period in which they are resolved.
Item 1A. Risk Factors
Our business is subject to various risks, including those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 under "Item 1A - Risk Factors."
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX | ||||||||
| Exhibit No. | Description | |||||||
| 31.1* | ||||||||
| 32.1** | ||||||||
| 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 | |||||||
| 104* | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL (included as Exhibit 101) | |||||||
| * | Filed herewith | |||||||
| ** | Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act | |||||||
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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, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: November 12, 2024 | /s/ Mark Strobeck | ||||||||||
| Mark Strobeck, Ph.D. Chief Executive Officer (Principal Executive Officer and Interim Financial Officer) | |||||||||||
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