<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-----------------
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] 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: 000-23-661
-----------------
ROCKWELL MEDICAL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38 -3317208
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
28025 OAKLAND OAKS DRIVE
WIXOM, MICHIGAN 48393
-------------------------------------
(Address of principal executive offices)
Issuer's telephone number (248) 449-3353
(NONE)
-------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 4,830,450 Common Shares
outstanding and 3,625,000 Common Share Purchase Warrants outstanding as of May
8, 1998.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [ X ]
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
ASSETS
<S> <C>
Cash and Cash Item ...................................................... $ 2,527,749
Accounts Receivable, net of allowance for doubtful accounts of $26,000 .. 574,570
Inventory ............................................................... 301,099
Other Current Assets .................................................... 70,729
-----------
TOTAL CURRENT ASSETS ............................................... 3,474,147
Property and Equipment, net ............................................. 880,814
Other Noncurrent Assets ................................................. 177,937
Excess of Purchase Price over Fair Value of Net Assets Acquired, net .... 1,353,502
-----------
TOTAL ASSETS ....................................................... $ 5,886,400
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable ........................................................ $ 450,509
Accrued Liabilities ..................................................... 125,173
-----------
TOTAL CURRENT LIABILITIES .......................................... 575,682
SHAREHOLDERS' EQUITY:
Common Shares, no par value, 4,830,450 shares issued and outstanding .... 8,055,823
Common Share Purchase Warrants, 3,625,000 warrants issued and
outstanding .......................................................... 251,150
Deficit ................................................................. (2,996,255)
-----------
5,310,718
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $ 5,886,400
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 3
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENT
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES .................................... $ 1,180,130 $ 812,549 $ 2,153,289 $ 1,151,401
Cost of Sales ............................ 1,292,579 1,042,482 2,427,157 1,469,938
----------- ----------- ----------- -----------
GROSS DEFICIT .......................... (112,449) (229,933) (273,868) (318,537)
Selling, General and Administrative....... 447,671 310,004 836,944 570,216
----------- ----------- ----------- -----------
OPERATING LOSS ......................... (560,120) (539,937) (1,110,812) (888,753)
Interest Income (Expense), net ........... 17,384 (38,207) 28,491 (54,427)
----------- ----------- ----------- -----------
NET LOSS ............................... $ (542,736) $ (578,144) $(1,082,321) $ (943,180)
=========== =========== =========== ===========
Average shares outstanding ............... 4,859,794 2,793,602 4,600,712 2,767,583
BASIC AND DILUTED LOSS PER SHARE ......... $ (.11) $ (.20) $ (.24) $ (.34)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $(1,082,321) $ (943,181)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and Amortization .......................................... 169,906 122,371
----------- -----------
(912,415) (820,810)
Changes in Working Capital:
Increase in Accounts Receivable ....................................... (187,305) (100,150)
Increase in Inventory ................................................. (7,380) (47,629)
Increase in Other Current Assets ...................................... (14,294) (71,615)
Decrease in Accounts Payable .......................................... (587,326) (157,732)
Increase (Decrease) in Other Liabilities .............................. (357,675) 81,968
----------- -----------
Net change in Working Capital ....................................... (1,153,980) (295,158)
NET CASH USED IN OPERATIONS .................................... (2,066,395) (1,115,968)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Business, net of cash acquired .............................. -- (508,887)
Purchase of Equipment ................................................... (267,138) (23,472)
Redemption (Purchase) of Certificate of Deposit ......................... 25,000 (25,000)
----------- -----------
CASH USED IN INVESTING ACTIVITIES .............................. (242,138) (557,359)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares ............................................... 5,982,064 2,441,297
Issuance of Common Share Purchase Warrants .............................. 251,150 --
Purchase of Common Shares ............................................... (164,359) --
Proceeds from notes payable - shareholders .............................. -- 125,000
Payment on promissory note .............................................. -- (500,000)
Repayment of notes payable .............................................. (200,000) (125,000)
Redemption of Series A Preferred Stock .................................. (1,095,915) --
Deposits paid on leases.................................................. -- (138,397)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES .......................... 4,772,940 1,802,900
INCREASE IN CASH ........................................................ 2,464,407 129,573
CASH AT BEGINNING OF PERIOD.............................................. 63,342 --
----------- -----------
CASH AT END OF PERIOD ................................................... $ 2,527,749 $ 129,573
=========== ===========
</TABLE>
Interest paid upon the redemption of the Series A Preferred Stock was $62,272.
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CAPITALIZATION
Rockwell Medical Technologies, Inc. (the "Company") was incorporated on
October 25, 1996 for the purpose of purchasing and operating the business of
Rockwell Medical Supplies, L.L.C. and its sister company, Rockwell
Transportation, L.L.C. (collectively, the "Predecessor Companies"). The Company
is, and the Predecessor Companies were, in the business of manufacturing and
distributing hemodialysis concentrates and dialysis kits to hemodialysis
clinics. The Company also packages, sells and distributes ancillary products
related to the hemodialysis process, as did the Predecessor Companies.
The Company is regulated by the Federal Food and Drug Administration under
the Federal Drug and Cosmetics Act, as well as by other federal, state and local
agencies. In March 1996 the Predecessor Companies received 510(k) approval from
the FDA to market hemodialysis solutions and powders, which commenced in May
1996. The 510(k) approval was assigned to the Company in connection with the
purchase of the Predecessor Companies.
Effective February 19, 1997 the Company purchased the assets and assumed
certain liabilities of the Predecessor Companies for an initial purchase price
of approximately $2.4 million, excluding liabilities assumed. The transaction
was accounted for using the purchase method of accounting. The initial purchase
price was allocated to assets acquired and liabilities assumed based on the
estimated fair market value at the date of acquisition.
Effective January 26, 1998 the Company issued 1,800,000 Common Shares and
3,105,000 Common Share Purchase Warrants pursuant to a Registration Statement
filed with the Securities and Exchange Commission. The offering price was $4.00
per share for the Common Shares and $.10 per warrant for the Common Share
Purchase Warrants. Net proceeds from this offering were approximately $5.9
million. Proceeds were used to redeem the Series A Preferred Shares, repay the
Notes Payable and reduce Accounts Payable and accrued expenses. The balance of
the funds was invested in short-term cash investments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts
of Rockwell Medical Technologies, Inc. and its wholly owned subsidiary, Rockwell
Transportation, Inc. All intercompany balances and transactions have been
eliminated. The results of operations and cash flows are presented from October
25, 1996 (the date of inception) through June 30, 1997 and January 1, 1998
through June 30, 1998. During the period October 25, 1996 through December 31,
1996 the Company incurred and accrued expenses of $49 thousand, primarily
consulting fees, in conjunction with the initial organization of the Company.
In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The operating results for the six month period ended June 30,
1998 are not necessarily indicative of the results to be expected for the year
ending December 31, 1998.
5
<PAGE> 6
2. BASIS OF PRESENTATION (CONT'D)
COMPREHENSIVE INCOME
A Statement of Comprehensive Income for the periods ended June 30, 1998 and
1997 is not presented in accordance with Statement of Financial Accounting
Standard No. 130 as the Company has no Comprehensive Income.
3. INVENTORY
Components of inventory are as follows:
Raw Materials............................$ 210,856
Finished Goods........................... 90,243
-----------
Total ...............................$ 301,099
===========
4. RELATED PARTY TRANSACTIONS
In July 1997, the Company obtained a demand loan from Karen Bagley in the
amount of $100,000 and in November 1997 the Company obtained a loan from Michael
J. Xirinachs in the amount of $100,000 due February 11, 1998. The loans bear
interest at an annual rate of 24%. These loans were repaid in January and
February 1998 with the proceeds of the Initial Public Offering. Karen Bagley is
the wife of Patrick Bagley, whose firm serves as legal counsel to the Company on
certain matters and also to Mr. Robert L. Chioini in a personal capacity.
Michael J. Xirinachs is a founder and a Director of the Company.
During each of the six month periods ended June 30, 1997 and 1998, the
Company paid fees to the consulting firm of Wall Street Partners, Inc. for
financial and management services of $150,000. The principals of the
consulting firm are shareholders of the Company and members of the Board of
Directors.
ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Financial results for the period ended June 30, 1997 include the results of
operations of the Company from the purchase of the Predecessor Company on
February 19, 1997 through June 30, 1997. Sales for the six months ended June 30,
1998 and 1997 were $2,153.3 thousand and $1,1151.4 thousand respectively, an
increase of 45% after adjusting for the short period of operating results in
1997.
Product line sales of acid concentrate increased 47%, bicarbonate powder sales
increased 129%, and the ancillary product lines were comparable in the six month
period ended June 30, 1998 as compared to the same period in 1997 after
adjusting prior year's sales for the short period of operations. Sales of the
acid concentrate reflect increased market penetration by the Company primarily
due to a new customers attained in mid 1997 and March 1998. Bicarbonate powder
sales partially increased as a result of the inability of a competitor to
manufacture a liquid bicarbonate. Clinics substituted the Company's powder
formulation for our competitors' product. In addition to the Company's main
product lines of acid concentrate, powdered bicarbonate and ancillary products,
the six month period ended June 30, 1997 included sales of $236.6 thousand of
acetate, a product used for hemodialysis in certain South American countries.
There were no sales of acetate in 1998.
6
<PAGE> 7
Gross margin before distribution costs was $289.2 thousand, 13% of sales, in the
period ended June 30, 1998 compared to a deficit of ($58.0) thousand in the same
period in 1997. Production efficiencies, lower material costs, and greater
volume contributed to this positive margin in 1998. Distribution expense, net of
backhaul revenue, was $563.1 thousand or 26% of sales in period ended June 30,
1998. This is comparable to the 1997 period in which distribution expenses was
27% of sales.
Selling, General and Administrative expense were comparable as a percent of
sales for the six months ended June 30, 1997 as compared to the six months ended
June 30, 1998. The gross increase in Selling, General and Administrative costs
was $266.7 thousand of additional cost in 1998 as compared to 1997. Costs in the
1998 period, for which no expense was recorded in 1997, include compensation
expense associated with the Company's stock option plan of $53 thousand and
investor relation and other costs associated with public company requirements of
approximately $64.5 thousand. Other cost increases of approximately $147.3
thousand were related to salaries, wages, and employee benefits.
Basic and fully diluted loss per share improved to ($.24) for the period ended
June 30, 1998 from a loss per share of ($.34) for the comparable period in 1997.
Although the net loss of the company increased to $(1,082.3) thousand in the six
months ended June 30, 1998 as compared to $(943.2) thousand in the period
February 19 through June 30, 1997, the loss per share improved as a result of
the increased average shares outstanding. The increased average shares
outstanding was directly attributable to the additional Common Shares issued in
conjunction with the Initial Public Offering.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Sales for the three month period ended June 30, 1998 were $1,180.1 thousand as
compared to $812.5 thousand in the comparable period of 1997. The increase in
sales is attributable to the factors discussed in the RESULTS OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 above. This increase is partially
offset by the sale of acetate which occurred during the three month period ended
June 30, 1997 as is noted in the discussion above.
The increase in the Operating Loss from $(539.9) thousand in the three months
ended June 30, 1997 as compared to $(560.1) thousand in the comparable period in
1998 was the result of an improvement in the costs of production offset by
increased Selling, General and Administrative Expense. The causal factors
associated with these variances are the same as those discussed in the RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 above.
LIQUIDITY AND CAPITAL RESOURCES
The Company issued 1,800,000 Common Shares and 3,105,000 Common Share Purchase
Warrants pursuant to a Registration Statement filed with the Securities and
Exchange Commission on January 26,1998 (the "IPO"). Net IPO proceeds of $5.9
million were used for: (a) payments for redemption of the Series A Preferred
Shares ($1.1 million), (b) payments of accounts payable and certain liabilities
($700 thousand), and (c) repayment of promissory notes ($217 thousand). The
balance of the cash remaining, approximately $3.9 million, will be used to fund
operating cash needs and capital equipment and expansion programs.
Operating cash requirements, excluding working capital needs were $912.4
thousand for the six months ended June 30, 1998. In addition working capital
requirements, primarily accounts receivable caused by the growth in revenue, was
approximately $254 thousand. The Company anticipates that these cash needs will
continue in the future as our growth strategy is implemented.
Capital equipment purchases were $267.1 thousand for the six month period ended
June 30, 1998. This capital was primarily related to technological improvements
in existing manufacturing processes and other expenditures to enable the company
to manufacture the new product, Sterilyte(TM) Liquid Bicarbonate.
The Company also used cash to repurchase 108,300 Common Shares for approximately
$164 thousand during the first six months of 1998.
7
<PAGE> 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No Description
---------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
(b) Reports on Form 8-K
(None)
8
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROCKWELL MEDICAL TECHNOLOGIES, INC.
(Registrant)
Date August 13, 1998 /s/ ROBERT L. CHIOINI
--------------------------
Robert L. Chioini
President, Chief Executive
Officer and Director (Principal
Executive Officer)
Date August 13, 1998 /s/ JAMES J. CONNOR
---------------------------
James J. Connor
Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
9
<PAGE> 10
Exhibit Index
-------------
Exhibit No Description
---------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,180,130
<TOTAL-REVENUES> 1,180,130
<CGS> 1,292,579
<TOTAL-COSTS> 1,292,579
<OTHER-EXPENSES> 447,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (542,736)
<INCOME-TAX> 0
<INCOME-CONTINUING> (542,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (542,736)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 812,549
<TOTAL-REVENUES> 812,549
<CGS> 1,042,482
<TOTAL-COSTS> 1,042,482
<OTHER-EXPENSES> 310,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,207
<INCOME-PRETAX> (578,144)
<INCOME-TAX> 0
<INCOME-CONTINUING> (578,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (578,144)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,527,749
<SECURITIES> 0
<RECEIVABLES> 574,570
<ALLOWANCES> 26,000
<INVENTORY> 301,099
<CURRENT-ASSETS> 3,474,147
<PP&E> 1,094,228
<DEPRECIATION> 213,414
<TOTAL-ASSETS> 5,886,400
<CURRENT-LIABILITIES> 575,682
<BONDS> 0
0
0
<COMMON> 8,055,823
<OTHER-SE> 251,150
<TOTAL-LIABILITY-AND-EQUITY> 5,886,400
<SALES> 2,153,289
<TOTAL-REVENUES> 2,153,289
<CGS> 2,427,157
<TOTAL-COSTS> 2,427,157
<OTHER-EXPENSES> 836,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,082,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,082,321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,082,321)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,151,401
<TOTAL-REVENUES> 1,151,401
<CGS> 1,469,938
<TOTAL-COSTS> 1,469,938
<OTHER-EXPENSES> 570,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,427
<INCOME-PRETAX> (943,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (943,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (943,180)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
