<PAGE> 1
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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 JUNE 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
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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
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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: 4,852,022 Common Shares
outstanding and 3,625,000 Common Share Purchase Warrants outstanding as of
August 5, 1999.
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
AS OF JUNE 30, 1999
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1999
ASSETS
<S> <C>
Cash and Cash Equivalents........................................................................ $ 1,124,019
Accounts Receivable, net of allowance for doubtful accounts of $55,745........................... 834,062
Inventory........................................................................................ 347,965
Other Current Assets............................................................................. 47,297
----------
TOTAL CURRENT ASSETS......................................................................... 2,353,343
Property and Equipment, net...................................................................... 829,661
Other Non-current Assets......................................................................... 138,396
Excess of Purchase Price over Fair Value of Net Assets Acquired, net............................. 1,196,792
----------
TOTAL ASSETS................................................................................ $4,518,192
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable................................................................................. $ 407,468
Accrued Liabilities.............................................................................. 186,407
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TOTAL CURRENT LIABILITIES 593,875
SHAREHOLDERS' EQUITY:
Common Shares, no par value, 4,852,022 shares issued and outstanding............................ 8,734,773
Common Share Purchase Warrants, 3,625,000 warrants issued and outstanding....................... 251,150
Accumulated Deficit.............................................................................. (5,061,606)
----------
3,924,317
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................................. $4,518,192
==========
</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 SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES............................................ $ 1,537,046 $ 1,180,130 $ 3,121,256 $ 2,153,289
Cost of Sales.................................... 1,387,837 1,292,579 2,824,041 2,427,157
----------- ----------- ----------- -----------
GROSS MARGIN (DEFICIT)......................... 149,209 (112,449) 297,215 (273,868)
Selling, General and Administrative 526,072 447,671 1,056,963 836,944
----------- ----------- ----------- -----------
OPERATING LOSS (376,863) (560,120) (759,748) (1,110,812)
----------- ----------- ----------- -----------
Interest Income, net ............................ 10,622 17,384 35,369 28,491
----------- ----------- ----------- -----------
NET LOSS....................................... $ (366,241) $ (542,736) $ (724,379) $(1,082,321)
=========== =========== =========== ===========
Average shares outstanding 4,838,111 4,859,794 4,834,281 4,600,712
BASIC AND DILUTED LOSS PER SHARE................. $ (.08) $ (.11) $ (.15) $ (.24)
</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 SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(WHOLE DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (724,379) $(1,082,321)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and Amortization . . . . . . . . . . . 202,303 169,906
Compensation recognized for stock options . . . . . 50,570 49,263
----------- -----------
(471,506) (863,152)
Changes in Working Capital:
Decrease (Increase) in Accounts Receivable. . . . (125,374) (187,305)
Decrease (Increase) in Inventory. . . . . . . . . (125,870) (7,380)
Decrease (Increase) in Other Assets . . . . . . . 17,721 (14,294)
Decrease in Accounts Payable. . . . . . . . . . . (121,240) (587,326)
Increase (Decrease) in Other Liabilities. . . . . 13,059 (255,367)
----------- -----------
Net Change in Working Capital. . . . . . . . . (341,704) (1,151,672)
----------- -----------
NET CASH USED IN OPERATIONS . . . . . . . . . (813,210) (1,914,824)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment. . . . . . . . . . . . . . . . . (27,995) (267,138)
Redemption of Certificate of Deposit . . . . . . . . . -- 25,000
----------- -----------
CASH USED IN INVESTING ACTIVITIES . . . . . . (27,995) (242,138)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares and Purchase Warrants. . . . 32,027 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. . . . 32,027 4,621,369
INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . (809,178) 2,464,407
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . 1,933,197 63,342
----------- -----------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . $ 1,124,019 $ 2,527,749
=========== ===========
</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 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.
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,
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 six month periods ended June 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 six months of 1998
were $150,000 and for the first six months of 1999 were $ 120,000. During the
first half of 1998, the principals of the consulting firm were shareholders, and
members of the Board of Directors of the Company. Mr. Xirinachs withdrew from
the consulting firm and is no longer a consultant with Wall Street Partners,
Inc. nor is he currently a member of the Board of Directors of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30,
1999 AND 1998
Sales in the second quarter of 1999 were $ 1,537,000 and were 30% higher
than the second quarter of 1998. The Company realized sales volume growth as
well as higher prices across its product lines. The Company's sales are
primarily hemodialysis concentrates and related ancillary products and supplies
sold to hemodialysis providers. The majority of the Company's revenues are from
hemodialysis concentrates. The Company realized sales growth of 32 % in its
hemodialysis concentrate products as a result of a combination of increased
volume, higher prices and the introduction of new products from the year earlier
period. Average selling prices on the Company's products increased by between
9-13% on its product lines compared to the second quarter of 1998. The Company
successfully introduced two new products during the fourth quarter of 1998.
Sales of these new products represented approximately 20% of total concentrate
product sales in the second quarter of 1999. Ancillary sales increased 15.5%
over the year earlier period. In addition, the Company also realized an increase
in freight revenue of 34% primarily derived from backhaul revenue following
delivery of the Company's products.
For the six months ended June 30, 1999, the Company's revenue increased by
45% over the first half of 1998. The Company had first half 1999 sales of
$3,121,000 which exceeded the first half of 1998 by $ 968,000. Sales increased
due to the growth of the Company's business coupled with higher average selling
prices, improved product mix and the introduction of new products. The Company
realized growth in concentrate sales of $ 858,000 or 47% compared to last year.
Average selling prices for the Company's concentrate products were 10-12% higher
than the first half of 1998. New product sales represented 46% of the total
growth in concentrate sales. The Company's Dri-Sate (TM)Dry Acid Concentrate
introduced in late 1998, contributed to the addition of new accounts and also
replaced existing lower margin products.
Gross Profit Margins for the second quarter were 9.7% compared to a deficit
of 9.5 % in the second quarter of 1998. The 19.2 percentage point improvement in
margins was derived from improved pricing, and more favorable customer and
product mix coupled with the favorable impact of higher overall volume.
Similarly, gross profit margins for the first half of 1999 were 9.5% as compared
to a deficit of 12.7% in the first half of 1998. Higher average selling prices
of concentrate products accounted for approximately half of the overall margin
improvement with the remainder attributable to overall growth in the Company's
business coupled with an improved product mix.
6
<PAGE> 7
Selling, General & Administrative expenses were $ 526,000 for the quarter as
compared to $ 448,000 in the second quarter of 1998. Similarly, expense for the
first six months of 1999 was $1,057,000 as compared to $837,000 for the first
six months of 1998. The overall expense increase from the year earlier period
was due to a variety of items primarily related to the development of the
Company's sales and administrative staff. Selling expenses increased in 1999 as
a result of sales staff added during 1998 coupled with increased advertising
costs in 1999 to support development of the Company's business. In addition,
costs related to the Company's status as a public company also contributed to an
increase in costs over 1998.
Interest income for the first six months of 1999 was $ 35,000 as compared to
$ 28,000 in 1998.
The Company had a net loss of $ 366,000 for the second quarter of 1999
compared to a loss of $ 543,000 in the second quarter of 1998 for an improvement
of $176,000 and a 33% reduction in the loss from the year earlier quarter. Basic
and fully diluted earnings per share improved $0.03 to a loss of ($ 0.08) as
compared to a loss of ($0.11) in 1998. For the six months ended June 30, 1999,
the Company incurred a loss of $ 724,000 or ($0.15) per share. In the first six
months of 1998, the Company incurred a loss of $ 1,082,000 or $ (0.24) per
share. Earnings for the first six months of 1999 improved by $ 358,000 or 33%.
Similarly, basic and fully diluted earnings per share were $.09 per share better
in the first six months of 1999 compared to the first six months of 1998.
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
$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 June 30, 1999, the Company had cash balances and short term
investments of $ 1.1 million to fund its future operating cash needs. The
Company anticipates that it will continue to have a need for cash to continue
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 second quarter of 1999, the Company's cash balances decreased by
$ 149,000. Cash used to fund operating losses was $ 240,000. The Company
successfully reduced its accounts receivable by $ 162,000 during the quarter,
which partially funded the cash needs for the second quarter.
For the first six months of 1999, the Company's cash balances decreased by
$ 809,000 with $ 471,500 used to fund operating activities and $ 341,700 to fund
working capital additions to support the Company's growth efforts. Working
capital additions were primarily for inventory $ 126,000 and for accounts
receivable $ 125,000. The Company added additional inventory to support the
launch of its new products and does not anticipate further significant inventory
additions for the remainder of 1999. In addition, while accounts payable
decreased by $ 121,000 since the beginning of the year, the Company does not
anticipate any further reductions in accounts payable during 1999.
Capital spending for the first half of 1999 was $28,000 with the majority
due to information technology spending coupled with manufacturing equipment
additions.
YEAR 2000 ISSUES AND CONSEQUENCES
The Company is continuing the process of reviewing its systems and those of
its key vendors and suppliers with respect to the impact of Year 2000. With
respect to its suppliers, the Company has initiated a review of its key
suppliers and has received assurance from its key suppliers that they have taken
steps to ensure that they will not interrupt the Company's supply chain and that
they have addressed or are addressing any Year 2000 impact on their respective
organizations. The Company believes that there are alternative sources of supply
for the primary materials used in its operations and therefore, has limited
exposure to a disruption in its supply chain.
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<PAGE> 8
With respect to its internal information systems, the Company does not
anticipate any adverse impact from Year 2000 issues. The Company has converted
its financial and business operations systems to software that is Year 2000
compliant. The Company anticipates that at its current pace of business growth
it may elect to upgrade its current information system network. The Company
anticipates that it may upgrade its computer network during the fourth quarter
of 1999. The impact of this upgrade is not financially material to the company,
involves no programming modification to application software and is not
anticipated to have any adverse impact on business operations. Other
non-information technology based systems and equipment do not appear to have
Year 2000 issues. The Company does not believe that Year 2000 issues will have a
material impact on the business.
8
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No Description
----------- -----------
27.1 Financial Data Schedule - 3 mos.
27.2 Financial Data Schedule - 6 mos.
(b) Reports on Form 8-K
(None)
9
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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 12, 1999 /s/ ROBERT L. CHIOINI
----------------------------------------
Robert L. Chioini
President, Chief Executive
Officer and Director (Principal
Executive Officer)
Date: August 12, 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
-------------
Exhibit Index Description
- ------------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-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> 1,537,046
<TOTAL-REVENUES> 1,537,046
<CGS> 1,387,837
<TOTAL-COSTS> 1,387,837
<OTHER-EXPENSES> 526,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (366,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> (366,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (366,241)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,124,019
<SECURITIES> 0
<RECEIVABLES> 889,807
<ALLOWANCES> 55,745
<INVENTORY> 347,965
<CURRENT-ASSETS> 2,353,343
<PP&E> 1,322,653
<DEPRECIATION> 492,992
<TOTAL-ASSETS> 4,518,192
<CURRENT-LIABILITIES> 593,875
<BONDS> 0
0
0
<COMMON> 8,734,773
<OTHER-SE> 251,150
<TOTAL-LIABILITY-AND-EQUITY> 4,518,192
<SALES> 3,121,256
<TOTAL-REVENUES> 3,121,256
<CGS> 2,824,041
<TOTAL-COSTS> 2,824,041
<OTHER-EXPENSES> 1,056,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (724,379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (724,379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (724,379)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
