<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-----------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER 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)
(248) - 449-3353
-------------------------
Issuer's telephone number
(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: 4,854,397 Common Shares
outstanding and 3,625,000 Common Share Purchase Warrants outstanding as of
November 2, 1999.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
<S> <C>
ASSETS
Cash and Cash Equivalents........................................................................ $ 1,005,215
Accounts Receivable, net of allowance for doubtful accounts of $55,745............................ 781,960
Inventory......................................................................................... 371,654
Other Current Assets.............................................................................. 101,112
------------
TOTAL CURRENT ASSETS.......................................................................... 2,259,941
Property and Equipment, net....................................................................... 765,717
Other Non-current Assets.......................................................................... 138,396
Excess of Purchase Price over Fair Value of Net Assets Acquired, net.............................. 1,157,614
------------
TOTAL ASSETS................................................................................. $ 4,321,668
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable.................................................................................. $ 343,149
Accrued Liabilities............................................................................... 297,182
------------
TOTAL CURRENT LIABILITIES.................................................................... 640,331
SHAREHOLDERS' EQUITY:
Common Shares, no par value, 4,854,397 shares issued and outstanding............................. 8,749,858
Common Share Purchase Warrants, 3,625,000 warrants issued and outstanding........................ 251,150
Accumulated Deficit............................................................................... (5,319,671)
------------
3,681,337
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................................... $ 4,321,668
============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE> 3
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
SALES...................................... $ 1,604,453 $ 1,547,273 $ 4,725,709 $ 3,700,562
Cost of Sales.............................. 1,404,003 1,528,926 4,228,044 3,956,083
--------- ---------- ---------- -----------
GROSS MARGIN (DEFICIT)................... 200,450 18,347 497,665 (255,521)
Selling, General and Administrative 471,875 520,947 1,528,838 1,357,890
--------- ---------- ---------- -----------
OPERATING LOSS (271,425) (502,600) (1,031,173) (1,613,411)
Interest Income, net ...................... 13,359 27,804 48,729 56,294
--------- ---------- ---------- -----------
NET LOSS................................. $ (258,066) $ (474,796) $ (982,444) $ (1,557,117)
=========== =========== =========== ============
Average shares outstanding 4,853,637 4,830,450 4,840,733 4,689,731
BASIC AND DILUTED LOSS PER SHARE........... $(.05) $(.10) $(.20) $(.33)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (982,444) $(1,557,117)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and Amortization............................................... 302,546 264,486
Compensation recognized for stock options................................... 63,407 82,571
---------- -----------
(616,491) (1,210,060)
Changes in Working Capital:
Decrease (Increase) in Accounts Receivable................................ (73,272) (296,804)
Decrease (Increase) in Inventory.......................................... (149,559) 104,568
Decrease (Increase) in Other Assets....................................... (36,095) (737)
Decrease in Accounts Payable.............................................. (185,559) (627,958)
Increase (Decrease) in Other Liabilities.................................. 123,835 (223,194)
---------- -----------
Net Change in Working Capital.......................................... (320,650) (1,044,125)
---------- -----------
NET CASH USED IN OPERATIONS........................................... (937,141) (2,254,185)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment.......................................................... (25,117) (391,722)
Redemption of Certificate of Deposit........................................... 25,000
---------- -----------
CASH USED IN INVESTING ACTIVITIES..................................... (25,117) (366,722)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares and Purchase Warrants................................ 34,276 5,794,914
Cost of Initial Public Offering................................................ -- 286,729
Purchase of Common Shares...................................................... -- (164,359)
Repayment of notes payable..................................................... -- (200,000)
Redemption of Series A Preferred Stock........................................ -- (1,095,915)
-- -----------
CASH PROVIDED BY FINANCING ACTIVITIES................................ 34,276 4,621,369
INCREASE (DECREASE) IN CASH...................................................... (927,982) 2,000,462
CASH AT BEGINNING OF PERIOD...................................................... 1,933,197 63,342
---------- -----------
CASH AT END OF PERIOD............................................................ $1,005,215 $ 2,063,804
========== ===========
</TABLE>
Interest paid in 1998 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. The Company is 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.
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. The Company currently has 510(k) approval from the FDA to market
hemodialysis solutions and powders.
On 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 $5.8 million.
Proceeds were used to redeem the Series A Preferred Shares, repay 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.
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 nine month period ended September
30, 1999 are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
A description of the Company's significant accounting policies can be found
in the footnotes to the Company's annual consolidated financial statements for
the year ended December 31, 1998 included in its Annual Report on Form 10-KSB
dated March 30, 1999.
Certain reclassifications were made to the 1998 financial statements to
conform to the current year financial statement presentation.
5
<PAGE> 6
3. 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 of the Company and was a Director of the
Company until January of 1999.
During each of the nine month periods ended September 30, 1998 and 1999, the
Company paid fees to the consulting firm of Wall Street Partners, Inc. for
financial and management services. Amounts paid for the first nine months of
1998 were $225,000 and for the first nine months of 1999 were $180,000.
During the first nine months of 1998, the principals of the consulting firm
were shareholders and members of the Board of Directors of the Company. Since
October 31, 1998, the remaining sole principal of the consulting firm is a
shareholder and Chairman of the Board of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND
1998
The Company's net earnings improved by $217,000 in the third quarter of 1999
as compared to the third quarter of 1998. The Company's third quarter loss was
$(258,000) as compared to a loss of $(475,000) in the third quarter of 1999.
Improvements to the operating results were largely due to improvements in the
Company's gross profit margins coupled with increased revenues. Basic and fully
diluted earnings per share increased by $.05 with the loss per share reduced by
half from the third quarter of 1998. Third quarter 1999 loss per share was
$(.05) compared to $(.10) in the third quarter of 1998.
Improvements to the Company's results have largely been due to its strategy
to increase sales of its Dry Acid Products. The Company has emphasized the sale
of its Dri-Sate(TM) Dry Acid Concentrate in both new accounts and in the
conversion of its existing customer base from liquid acid concentrate products
to Dri-Sate. Rockwell's Dri-Sate(TM) Dry Acid Concentrate product was introduced
during the first quarter of 1999 and for the third quarter its sales represented
36% of total acid sales. The Company's gross profit margins have increased
largely as a result of product conversion to Dri-Sate, increased pricing and
changes to the Company's customer mix. Gross profit margins increased 11.3
percentage points to 12.5% in the third quarter of 1999 from 1.2% in the third
quarter of 1998.
The Company experienced a significant shift in both its customer and product
mix compared to the third quarter of 1998. In the third quarter, net sales
increased by $57,000 with direct ship business up $320,000 while distributor
sales decreased by $263,000. Excluding distributor related sales volume, sales
of the Company's concentrate products increased by 35% or $363,000 while sales
of ancillary items and freight recoveries decreased by $35,000 from the third
quarter of 1998. The Company experienced higher average selling prices on the
Company's core concentrate products of between 6-8% for non-distributor related
sales compared to the year earlier quarter.
As a result of a shift in product and customer mix, the Company's gross
profit dollars grew at a higher rate than its revenue. Gross Profit increased
$182,000 over the third quarter last year, while revenue for the third quarter
of 1999 was $57,000 or 3.7% higher than the third quarter of 1998. Third quarter
1999 sales were $1,604,000 as compared to $1,547,000 in the third quarter of
1998. Contributing to Rockwell's improved profitability has been an increase
in higher margin direct ship customers with a more favorable product mix.
6
<PAGE> 7
Rockwell has gained distribution efficiencies through the sale of its
Dri-Acid product line. During the third quarter of 1999, the Company's sales of
lower margin products to distributors decreased which contributed to improving
the Company's overall gross profit margins.
For the third quarter, the Company's net loss was 16.1% of sales compared to
30.7% in the third quarter of 1998 for a total improvement of 14.6 percentage
points. Gross profit margins improved by 11.3 percentage points to sales and
selling, general and administrative costs improved by 4.2 percentage points to
sales compared to the third quarter last year. Interest Income decreased by
$14,000 compared to the third quarter of 1998.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND
1998
For the nine months ended September 30, 1999, the Company reported a 27.7%
increase in sales revenue over the first nine months of 1998. Sales were
$4,726,000 for the first three quarters of 1999 and increased by $1,025,000 over
the first three quarters of 1998. The Company's sales have increased due to a
combination of factors including new business development, the introduction of
new products, an improved product mix and higher average selling prices.
Rockwell's introduction of Dri-Sate(TM)Dry Acid Concentrate and
Sterilyte(TM)Liquid Bicarbonate in early 1999 have made significant
contributions to the Company's increased revenue and its improved profitability.
Revenue of these new products accounted for an increase of 19% in revenue over
the first nine months of 1998. In addition, the Company's average selling prices
of its core concentrate products have increased by between 9 - 10% as a result
of changes to its mix of customers and due to higher average selling prices in
its accounts. The Company has reduced its business with certain distributors
that were below its margin objectives and offset the reduced distributor sales
with new business at higher profitability levels.
All of the above factors have contributed to improving the Company's gross
profit margins, which have increased by 17.4 percentage points in 1999. Gross
profit margin was 10.5% for the first nine months of 1999 as compared to a
deficit of (6.9%) in the first three-quarters of 1998. Gross profit increased by
$753,000 over the first nine months of 1999 compared to the same period last
year. Improvements to gross profit were largely driven by higher sales volume,
more favorable selling prices and lower distribution costs to sales resulting
from the increased revenue from Dry Acid Concentrate.
Selling, General & Administrative expenses increased by $152,000 over the first
three quarters of 1999 compared to 1998 largely as a result of advertising and
selling expenses related to new business development, $60,000, with the
remainder of the increase attributable to increased human resource costs to
operate the business.
Interest income decreased by $26,000 as a result of lower cash balances
available for investment. Year to date interest income was $49,000 compared to
$75,000 in 1998.
Earnings through the nine months ending September 30, 1999 were $575,000 higher
than in 1998 over the same period. The Company's loss was $(982,400) through
September 30, 1999 as compared to $(1,557,000) for the same period of 1998.
Similarly, basic and fully diluted earnings per share improved $.13 to a loss of
$(.20) in 1999 versus $(.33) in 1998. The majority of the earnings improvement
was due to higher revenue, up 27.7%, and increased gross profit margins, up 17.7
margin points.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company issued 1,800,000 Common Shares and 3,105,000 Common
Share Purchase Warrants in an Initial Public Offering on January 26, 1998. The
net offering proceeds of $5.8 million were used for: (a) payments for redemption
of the Series A Preferred Shares ($1.2 million), (b) payments of accounts
payable and certain liabilities ($1,100,000), and (c) repayment of promissory
notes ($217,000). The balance of the cash remaining, approximately
7
<PAGE> 8
$3.3 million at that time, was intended to be used to fund operating cash needs,
capital equipment acquisitions and business development throughout the United
States.
As of September 30, 1999 the Company had cash balances and short term
investments of $1.0 million to fund its future operating cash requirements. The
Company anticipates that it will continue to have a need for cash to fund its
business development efforts and to fund future operating losses. The Company
anticipates that it has sufficient cash resources to meet its current cash
requirements to fund operations over the next twelve months.
During the third quarter, the Company's cash balances decreased by
$119,000. Cash used to fund operating losses was $145,000 which was partially
offset by aggregate reductions in working capital of $21,000. The Company was
able to successfully reduce its accounts receivable through improved collection
management efforts during the third quarter. Receivables decreased by $52,000 in
the quarter despite higher sales during the quarter. Inventories increased
modestly in support of the Company's sales growth during the third quarter.
For the nine months ended September 30, 1999, overall cash balances
decreased by $928,000 with $616,000 used to fund operating losses and $320,000
used to fund increases in working capital primarily for increases in receivables
and inventory of $232,000 used to support the Company's business development
efforts. The Company has added $150,000 of inventory to support its sales
growth. Sales, in the first nine months of 1999, have increased $1,025,000 or
27.7%. The Company does not anticipate any significant increase in inventories
for the remainder of 1999. Accounts payable decreased by $185,000 in 1999 and
the Company anticipates no further reduction in accounts payable in 1999.
Capital spending for the first nine months of 1999 was $25,000 with the
majority due to information technology spending coupled with minor manufacturing
equipment additions.
YEAR 2000 ISSUES AND CONSEQUENCES
The Company is continuing the process of reviewing its key vendors,
suppliers and service providers and their respective readiness for any impact
from Year 2000 information system issues. The Company has received assurance
from all key vendors with respect to their readiness to continue an
uninterrupted supply chain with the Company. The Company's primary vendors have
assured the Company that they have addressed or are addressing any Year 2000
issues that may impact the Company's supply chain. The Company believes that
there are alternative sources of supply for the key components of its products
and that it has limited exposure to a disruption to its supply chain.
With respect to its internal information systems, the Company has tested its
operating system software and believes it to be Year 2000 ready. The
manufacturers of its application software have represented that such software
applications are Year 2000 compliant. Other non-information technology based
systems and equipment do not appear to have Year 2000 issues. Based on its
review of its vendors', service providers and internal systems readiness, the
Company does not believe that Year 2000 issues will have a material impact on
its business.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No Description
---------- -----------
27.1 Financial Data Schedule for the 3 months
ended September 30, 1999
27.2 Financial Data Schedule for the 9 months
ended September 30, 1999
(b) Reports on Form 8-K
(None)
9
<PAGE> 10
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: November 10, 1999 /s/ ROBERT L. CHIOINI
--------------------------------
Robert L. Chioini
President, Chief Executive
Officer and Director (Principal
Executive Officer)
Date: November 10, 1999 /s/ THOMAS E. KLEMA
-------------------------------
Thomas E. Klema
Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
10
<PAGE> 11
EXHIBIT INDEX
-------------
EX 27.1 Financial Data Schedule for the 3 months ended September 30, 1999
EX 27.2 Financial Data Schedule for the 9 months ended September 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<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> 1,604,453
<TOTAL-REVENUES> 1,604,453
<CGS> 1,404,003
<TOTAL-COSTS> 1,404,003
<OTHER-EXPENSES> 471,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (258,066)
<INCOME-TAX> 0
<INCOME-CONTINUING> (258,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258,066)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,005,215
<SECURITIES> 0
<RECEIVABLES> 837,705
<ALLOWANCES> 55,745
<INVENTORY> 371,654
<CURRENT-ASSETS> 2,259,941
<PP&E> 1,319,773
<DEPRECIATION> 554,056
<TOTAL-ASSETS> 4,321,668
<CURRENT-LIABILITIES> 640,331
<BONDS> 0
0
0
<COMMON> 8,749,858
<OTHER-SE> 251,150
<TOTAL-LIABILITY-AND-EQUITY> 4,321,668
<SALES> 4,725,709
<TOTAL-REVENUES> 4,725,709
<CGS> 4,228,044
<TOTAL-COSTS> 4,228,044
<OTHER-EXPENSES> 1,528,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (982,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (982,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (982,444)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
