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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 June 30, 2020
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
ROCKWELL MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
38-3317208
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
411 Hackensack Avenue, Suite 501,
Hackensack,
New Jersey
07601
(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
Non-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:
Common Stock, par value $0.0001
 
RMTI
 
Nasdaq Global Market
The number of shares of common stock outstanding as of August 7, 2020 was 70,297,814.
 



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
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2020
 
December 31,
2019
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and Cash Equivalents
$
26,697,063

 
$
11,794,526

Investments Available-for-Sale
13,258,197

 
14,250,176

Accounts Receivable, net
3,565,292

 
4,202,725

Inventory, net
4,557,177

 
3,646,906

Prepaid and Other Current Assets
3,458,104

 
2,979,504

Total Current Assets
51,535,833

 
36,873,837

Property and Equipment, net
2,306,462

 
2,433,405

Inventory, Non-Current
821,000

 
441,000

Right of Use Assets, net
2,440,115

 
3,212,530

Goodwill
920,745

 
920,745

Other Non-Current Assets
560,588

 
434,935

Total Assets
$
58,584,743

 
$
44,316,452

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Accounts Payable
$
3,313,240

 
$
3,018,424

Accrued Liabilities
4,437,080

 
4,517,732

Settlement Payable

 
104,000

Lease Liability - Current
1,342,228

 
1,493,394

Deferred License Revenue - Current
2,174,626

 
2,233,640

Insurance Financing Note Payable

 
763,422

Customer Deposits
38,273

 
55,100

Other Current Liability - Related Party
189,600

 
187,849

Total Current Liabilities
11,495,047

 
12,373,561

 
 
 
 
Lease Liability - Long-Term
1,204,210

 
1,780,626

Term Loan, Net of Issuance Costs
20,764,213

 

Deferred License Revenue - Long-Term
8,909,703

 
9,842,762

Total Liabilities
42,373,173

 
23,996,949

 
 
 
 
Commitments and Contingencies (See Note 14)


 


 
 
 
 
Stockholders’ Equity:
 
 
 
Preferred Stock, $0.0001 par value, 2,000,000 shares authorized; no shares issued and outstanding at June 30, 2020 and December 31, 2019

 

Common Stock, $0.0001 par value; 170,000,000 shares authorized; 70,156,922 and 65,378,890 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
7,017

 
6,538

Additional Paid-in Capital
337,551,385

 
326,777,250

Accumulated Deficit
(321,392,548
)
 
(306,516,265
)
Accumulated Other Comprehensive Income
45,716

 
51,980

Total Stockholders’ Equity
16,211,570

 
20,319,503

Total Liabilities and Stockholders’ Equity
$
58,584,743

 
$
44,316,452

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended June 30, 2020
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2020
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
Net Sales
$
15,895,971

 
$
14,845,788

 
$
31,752,510

 
$
30,405,227

Cost of Sales
15,015,404

 
14,112,639

 
29,759,017

 
28,661,686

Gross Profit
880,567

 
733,149


1,993,493


1,743,541

Selling and Marketing
1,996,595

 
2,218,997

 
4,069,393

 
5,321,375

General and Administrative
2,871,013

 
5,496,670

 
8,144,445

 
11,717,169

Settlement Expense

 
430,000

 

 
430,000

Research and Product Development
1,616,393

 
2,958,276

 
3,437,881

 
3,455,552

Operating Loss
(5,603,434
)
 
(10,370,794
)
 
(13,658,226
)
 
(19,180,555
)
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
Realized Gain on Investments
2,065

 
4,135

 
3,994

 
18,023

Warrant Modification Expense
(837,322
)
 

 
(837,322
)
 

Interest Expense
(520,604
)
 

 
(622,556
)
 

Interest Income
66,750

 
74,476

 
237,827

 
192,002

Total Other Income
(1,289,111
)
 
78,611

 
(1,218,057
)
 
210,025

 
 
 
 
 
 
 
 
Net Loss
$
(6,892,545
)
 
$
(10,292,183
)
 
$
(14,876,283
)
 
$
(18,970,530
)
 
 
 
 
 
 
 
 
Basic and Diluted Net Loss per Share
$
(0.10
)
 
$
(0.18
)
 
$
(0.22
)
 
$
(0.33
)
Basic and Diluted Weighted Average Shares Outstanding
69,428,574

 
58,216,066

 
68,473,407

 
57,660,947

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
Three Months Ended June 30, 2020
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2020
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
Net Loss
$
(6,892,545
)
 
$
(10,292,183
)
 
$
(14,876,283
)
 
$
(18,970,530
)
Unrealized Loss on Available-for-Sale Debt Instrument Investments
(5,701
)
 
11,426

 
(12,411
)
 
4,265

Foreign Currency Translation Adjustments
536

 
236

 
6,147

 
144

Comprehensive Loss
$
(6,897,710
)
 
$
(10,280,521
)
 
$
(14,882,547
)
 
$
(18,966,121
)
The accompanying notes are an integral part of the condensed consolidated financial statements.

5


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the three and six months ended June 30, 2020
(Unaudited)
 
COMMON STOCK
 
ADDITIONAL PAID-IN CAPITAL
 
ACCUMULATED
DEFICIT
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
 
TOTAL
STOCKHOLDERS'
EQUITY
SHARES
 
AMOUNT
 
Balance as of January 1, 2020
65,378,890

 
$
6,538

 
$
326,777,250

 
$
(306,516,265
)
 
$
51,980

 
$
20,319,503

Net Loss

 

 

 
(7,983,738
)
 

 
(7,983,738
)
Unrealized Loss on Available-for-Sale Investments

 

 

 

 
(6,710
)
 
(6,710
)
Foreign Currency Translation Adjustments

 

 

 

 
5,611

 
5,611

Issuance of common stock, net of offering costs/Bought Deal
3,670,212

 
367

 
8,003,590

 

 

 
8,003,957

Issuance of Warrants related to Debt Financing

 

 
500,736

 

 

 
500,736

Stock-based Compensation

 

 
934,846

 

 

 
934,846

Balance as of March 31, 2020
69,049,102

 
$
6,905

 
$
336,216,422

 
$
(314,500,003
)
 
$
50,881

 
$
21,774,205

Net Loss

 

 

 
(6,892,545
)
 

 
(6,892,545
)
Unrealized Loss on Available-for-Sale Investments

 

 

 

 
(5,701
)
 
(5,701
)
Foreign Currency Translation Adjustments

 

 

 

 
536

 
536

Issuance of common stock, net of offering costs/Public offering
987,716

 
99

 
1,977,531

 

 

 
1,977,630

Vesting of Restricted Stock Units Issued, net of taxes withheld
120,104

 
13

 
(18,876
)
 

 

 
(18,863
)
Warrant Modification Expense

 

 
837,322

 

 

 
837,322

Stock-based Compensation expense

 

 
(1,461,014
)
 

 

 
(1,461,014
)
Balance as of June 30, 2020
70,156,922

 
$
7,017

 
$
337,551,385

 
$
(321,392,548
)
 
$
45,716

 
$
16,211,570


The accompanying notes are an integral part of the condensed consolidated financial statements.

6


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the three and six months ended June 30, 2019
(Unaudited)
 
COMMON STOCK
 
ADDITIONAL PAID-IN CAPITAL
 
ACCUMULATED
DEFICIT
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
 
TOTAL
STOCKHOLDERS'
EQUITY
SHARES
 
AMOUNT
 
Balance as of January 1, 2019
57,034,154

 
$
5,703

 
$
299,596,257

 
$
(272,388,234
)
 
$
63,148

 
$
27,276,874

Net Loss

 

 

 
(8,678,347
)
 

 
(8,678,347
)
Unrealized Loss on Available-for-Sale Investments

 

 

 

 
(7,161
)
 
(7,161
)
Foreign Currency Translation Adjustments

 

 

 

 
(92
)
 
(92
)
Exercise of Employee Stock Options, Net of Tax
30,000

 
3

 
147,897

 

 

 
147,900

Delivery of common stock underlying restricted stock units, net of tax
64,173

 
7

 
(95,436
)
 

 

 
(95,429
)
Stock-based Compensation

 

 
1,517,302

 

 

 
1,517,302

Balance as of March 31, 2019
57,128,327

 
$
5,713

 
$
301,166,020

 
$
(281,066,581
)
 
$
55,895

 
$
20,161,047

Net Loss

 

 

 
(10,292,183
)
 

 
(10,292,183
)
Unrealized Gain on Available-for-Sale Investments

 

 

 

 
11,426

 
11,426

Foreign Currency Translation Adjustments

 

 

 

 
236

 
236

Issuance of common stock, net of offering costs/Public offering
5,833,334

 
583

 
16,120,096

 

 

 
16,120,679

Issuance of common stock, net of offering costs/At-the-market offering
437,043

 
44

 
2,089,164

 

 

 
2,089,208

Stock-based Compensation

 

 
1,501,326

 

 

 
1,501,326

Balance as of June 30, 2019
63,398,704

 
$
6,340

 
$
320,876,606

 
$
(291,358,764
)
 
$
67,557

 
$
29,591,739

The accompanying notes are an integral part of the condensed consolidated financial statements.


7


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2020 and 2019
(Unaudited)
 
2020
 
2019
Cash Flows From Operating Activities:
 
 
 
Net Loss
$
(14,876,283
)
 
$
(18,970,530
)
Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities:
 
 
 
Depreciation and Amortization
407,680

 
380,372

Stock-based Compensation
(526,168
)
 
3,018,628

Warrant Modification Expense
837,322

 

Increase in Inventory Reserves
12,000

 
192,000

Amortization of Right of Use Asset
748,160

 
975,947

Amortization of Debt Financing Costs and Accretion of Debt Discount
107,527

 

Loss (Gain) on Disposal of Assets
6,048

 
(300
)
Realized (Gain) on Sale of Investments Available-for-Sale
(3,996
)
 
(18,023
)
Foreign Currency Translation Adjustment
6,147

 
144

Changes in Assets and Liabilities:
 
 
 
Decrease in Accounts Receivable, net
637,432

 
1,590,656

Decrease in Insurance Receivable

 
371,217

(Increase) Decrease in Inventory
(1,302,270
)
 
66,141

(Increase) Decrease in Prepaid and Other Assets
(607,574
)
 
125,750

Increase (Decrease) in Accounts Payable
294,816

 
(426,772
)
Increase (Decrease) in Settlement Payable
(104,000
)
 
13,332

Decrease in Lease Liability
(703,327
)
 
(977,636
)
Decrease in Other Liabilities
(95,728
)
 
(992,909
)
Decrease in Deferred License Revenue
(992,073
)
 
(1,126,434
)
Changes in Assets and Liabilities
(2,872,724
)
 
(1,356,655
)
Cash Used In Operating Activities
(16,154,287
)
 
(15,778,417
)
Cash Flows From Investing Activities:
 
 
 
Purchase of Investments Available-for-Sale
(16,513,592
)
 
(21,774,410
)
Sale of Investments Available-for-Sale
17,497,153

 
18,798,678

Purchase of Equipment
(283,462
)
 
(305,030
)
Purchase of Research and Development Licenses (Related Party)

 
(500,000
)
Cash Provided By (Used In) Investing Activities
700,099

 
(3,780,762
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from Term Loan
22,500,000

 

Debt Issuance Costs
(1,342,578
)
 

Payments on Short Term Note Payable
(763,421
)
 

Proceeds from the Issuance of Common Stock / Public Offering
8,147,871

 
17,500,002

Offering Costs from the Issuance of Common Stock / Public Offering
(143,914
)
 
(1,379,323
)
Proceeds from the Issuance of Common Stock / At-the Market Offering
2,034,073

 
2,296,235

Offering Costs from the Issuance of Common Stock / At-the Market Offering
(56,443
)
 
(207,027
)

8


Proceeds from the Exercise of Employee Stock Options

 
147,900

Repurchase of Common Stock to Pay Employee Withholding Taxes
(18,863
)
 
(95,429
)
Cash Provided By Financing Activities
30,356,725

 
18,262,358

 
 
 
 
Increase (Decrease) In Cash and Cash Equivalents
14,902,537

 
(1,296,821
)
Cash and cash equivalents At Beginning Of Period
11,794,526

 
22,713,980

Cash and cash equivalents At End Of Period
$
26,697,063

 
$
21,417,159

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Paid for Interest
$
409,931

 
$

Supplemental Disclosure of Noncash Investing and Financing Activities:
 
 
 
Change in Unrealized Loss on Marketable Securities Available-for-Sale
$
(12,411
)
 
$
4,265

Insurance Financing Note Payable
$

 
$
1,908,554

Fair Value of Warrants issued related to Debt Financing
$
500,736

 
$

The accompanying notes are an integral part of the condensed consolidated financial statements.

9


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


1.  Description of Business
    
Rockwell Medical, Inc. and subsidiaries (collectively, “we”, “our”, “us”, or the “Company”), is a biopharmaceutical company dedicated to improving outcomes for patients with iron deficiency and iron-deficiency anemia, with an initial focus on patients with end-stage kidney disease (ESKD) and on dialysis. The Company is focused on developing its proprietary ferric pyrophosphate citrate (“FPC”) therapeutic platform. The first product developed from this platform is Triferic, the first-FDA approved product for the replacement of iron and maintenance of hemoglobin in adult hemodialysis patients. We initiated commercial sales of Triferic Dialysate, during the second quarter of 2019 and received approval by the U.S. Food and Drug Administration ("FDA") for the intravenous formulation of Triferic, Triferic AVNU, on March 27, 2020. We plan to leverage our experience with Triferic to develop our FPC platform for iron deficiency and iron deficiency anemia in other disease states. We are also a manufacturer of hemodialysis concentrates for dialysis providers and distributors in the United States and abroad. We supply the domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim.
 
Our mission is to transform anemia management in a wide variety of disease states across the globe, while improving patients’ lives. Accordingly, we are building the foundation to become a leading medical and commercial organization in the field of iron deficiency.
 
Triferic® is a registered trademark of Rockwell Medical, Inc.
2.  Liquidity and Capital Resources
As of June 30, 2020, the Company had approximately $26.7 million of cash and cash equivalents, $13.3 million of investments available-for-sale, working capital of $40.0 million and an accumulated deficit of $321.4 million. Net cash used in operating activities for the six months ended June 30, 2020 was approximately $16.2 million. Management evaluated the Company’s ability to continue as going concern for at least the next 12 months from the filing of this report. Based on the currently available working capital, capital raise and debt financing described 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.
In February 2020, the Company sold 3,670,212 shares of its common stock for proceeds of $8.0 million, net of issuance costs. On March 16, 2020, the Company closed a debt financing transaction with net proceeds at closing of approximately $21.2 million, net of fees and expenses (See Note 15 for further detail).
During the six months ended June 30, 2020, the Company sold 987,716 shares of its common stock as part of its sales agreement with Cantor Fitzgerald & Co. for proceeds of $2.0 million, net of issuance costs. Approximately $32.6 million remains available for sale under this facility. See Note 10 for further detail.

The Company will require additional capital to sustain its operations and make the investments it needs to execute upon its longer-term business plan, including the continued commercialization of Triferic Dialysate and Triferic AVNU, executing plans for enhancing its medical capabilities, generating additional data for Triferic and developing Triferic for new therapeutic indications. If the Company is unable to generate sufficient revenue from its existing long-term business plan, the Company will need to obtain additional equity or debt financing. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume that such financing will be available on favorable terms, if at all.
The COVID-19 pandemic and resulting global disruptions have adversely affected our business and operations, including, but not limited to, our sales and marketing efforts and our research and development activities, and the operations of third parties upon whom we rely. As noted above, we intend to initiate a sample evaluation program for Triferic AVNU during the third quarter of 2020 in order to prepare for a commercial launch. Quarantines, shelter-in-place, executive and similar government orders may negatively impact our sales and marketing activities, particularly if our sales representatives are unable to interact with current and potential customers to the same extent as before onset of the COVID-19 pandemic. Depending on the severity of the impact on our sales and marketing efforts, the timing of our commercial launch of Triferic AVNU could be adjusted into the first quarter of 2021.

The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial and credit markets. We have utilized a range of financing methods to fund our operations in the past; however, current conditions in the financial and

10


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

credit markets may limit the availability of funding 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 our liquidity and capital resources in the future.
3.  Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“U.S.”) of America (“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 June 30, 2020, condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, and condensed consolidated statement of changes in shareholder’s equity for the three and six months ended June 30, 2020 and 2019 are unaudited, but include all adjustments, consisting of normal recurring adjustments, that 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 six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020 or for any future interim period. The condensed consolidated balance sheet at December 31, 2019 has been derived from audited financial statements, however, it does not include all of the information and notes required by 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, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on Form 10-K on March 17, 2020. The Company’s consolidated subsidiaries consisted 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.
Certain reclassifications have been made to the 2019 financial statements and notes to conform to the 2020 presentation.
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 expenses during the reporting period. Actual results could differ from those estimates.
Leases
The Company accounts for its leases under Accounting Standards Codification (“ASC”) 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.
In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Loss Per Share

11


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”), with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then sharing in the earnings of the entity.
Basic net loss per share of common stock excludes dilution and is computed by dividing the net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. The Company has only incurred losses, therefore, basic and diluted net loss per share is the same. Securities that could potentially dilute net income per share in the future that were not included in the computation of diluted loss per share were as follows:
 
As of June 30,
 
2020
 
2019
Options to purchase common stock
6,225,562

 
8,187,161

Unvested restricted stock awards
146,800

 
146,800

Unvested restricted stock units
503,395

 
1,658,205

Warrants to purchase common stock
3,248,054

 
2,770,781

 
10,123,811

 
12,762,947


Adoption of Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that 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 that there are sufficient controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.
4.  Revenue Recognition

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new 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 us 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
The following is a description of principal activities from which the Company generates its revenue.
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

12


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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.
The Company received upfront fees under three distribution and license agreements that have been deferred as a contract liability.  The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) and amounts to be received from Sun Pharmaceutical Industries Ltd. ("Sun 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 and India, respectively, to determine that regulatory approval was probable as of the execution of the agreement.  The amounts received from Baxter Healthcare Corporation (“Baxter”), are recognized as revenue at the point in time that the estimated product sales under the agreement occur. 
For the business under the Company’s distribution agreement with Baxter (the “Baxter Agreement”), and 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 or receipt 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. There were no such adjustments for the periods reported. Customers typically pay for the product based on customary business practices with payment terms averaging 30 days, while distributor payment terms average 45 days.
Disaggregation of revenue
Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
In thousands of US dollars ($) 
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
Products By Geographic Area
Total
 
U.S.
 
Rest of World
 
Total
 
U.S.
 
Rest of World
Drug Revenues
 
 
 
 
 
 
 
 
 
 
 
Product Sales – Point-in-time
$
182

 
$
182

 
$

 
$
381

 
$
381

 
$

License Fee – Over time
56

 

 
56

 
112

 

 
112

Total Drug Products
238


182


56

 
493

 
381

 
112

Concentrate Products
 
 
 
 
 
 
 
 
 
 
 
Product Sales – Point-in-time
15,168

 
13,319

 
1,849

 
30,280

 
26,826

 
3,454

License Fee – Over time
490

 
490

 

 
980

 
980

 

Total Concentrate Products
15,658

 
13,809

 
1,849

 
31,260

 
27,806

 
3,454

Net Revenue
$
15,896

 
$
13,991

 
$
1,905

 
$
31,753

 
$
28,187

 
$
3,566



13


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

In thousands of US dollars ($)
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Products By Geographic Area
Total
 
U.S.
 
Rest of World
 
Total
 
U.S.
 
Rest of World
Drug Revenues
 
 
 
 
 
 
 
 
 
 
 
Product Sales – Point-in-time
$
15

 
$
15

 
$

 
$
15

 
$
15

 
$

License Fee – Over time
$
68

 
$

 
68

 
136

 

 
136

Total Drug Products
83

 
15

 
68

 
151

 
15

 
136

Concentrate Products
 
 
 
 
 
 
 
 
 
 
 
Product Sales – Point-in-time
14,268

 
12,822

 
1,446

 
29,264

 
25,746

 
3,518

License Fee – Over time
495

 
495

 

 
990

 
990

 

Total Concentrate Products
14,763

 
13,317

 
1,446

 
30,254

 
26,736

 
3,518

Net Revenue
$
14,846

 
$
13,332

 
$
1,514

 
$
30,405

 
$
26,751

 
$
3,654


Contract balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.
In thousands of US dollars ($)
June 30, 2020
 
December 31, 2019
Receivables, which are included in "Trade and other receivables"
$
3,565

 
$
4,203

Contract liabilities
$
11,084

 
$
12,076


There were no material losses recognized related to any receivables arising from the Company’s contracts with customers for the three and six months ended June 30, 2020 and 2019.
For the three and six months ended June 30, 2020 and June 30, 2019, the Company did not recognize any material bad-debt expense. There were no material contract assets recorded on the condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019.  The Company does not generally accept returns of its concentrate products and no material reserve for returns of concentrate products was established as of June 30, 2020 or December 31, 2019
The contract liabilities primarily relate to upfront payments and consideration received from customers that are received in advance of the customer assuming control of the related products
Transaction price allocated to remaining performance obligations
For the three and six months ended June 30, 2020, revenue recognized from performance obligations related to prior periods was not material.
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 $11.1 million as of June 30, 2020. 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 paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The Baxter Agreement includes minimum commitments of product sales over the duration of the agreement. Unfulfilled performance obligations related to the Baxter Agreement are product sales of $8.2 million as of June 30, 2020, which is being amortized ratably through expiration of the Baxter Agreement on October 2, 2024.
5.  Investments - Available-for-Sale
Investments available-for-sale consisted of the following as of June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Accrued Interest Income
 
Fair Value
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Bonds
$
13,172,049

 
$
14,468

 
$
(447
)
 
$
72,127

 
$
13,258,197

 
December 31, 2019
 
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Accrued Interest
 
Fair Value
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Bonds
$
14,238,161

 
$
13,321

 
$
(1,306
)
 
$

 
$
14,250,176


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.
As of June 30, 2020 and December 31, 2019, the amortized cost and estimated fair value of our available-for-sale securities were due within one year.
6.  Inventory

14


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Components of inventory, net of reserves, as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30,
2020
 
December 31,
2019
Raw Materials
$
3,041,887

 
$
2,471,234

Work in Process
303,545

 
184,382

Finished Goods
2,032,745

 
1,432,290

Total
$
5,378,177

 
$
4,087,906


As of June 30, 2020, we classified $0.8 million of inventory as non-current, all of which was related to Triferic or the active pharmaceutical ingredient and raw materials for Triferic. As of June 30, 2020, we had total Triferic inventory aggregating $3.7 million, against which we had reserved $2.5 million.
The $1.2 million net value of Triferic inventory consisted of $0.2 million of Triferic Dialysate finished goods with expiration dates ranging from December 2020 to May 2021, $0.5 million of Triferic API with estimated remaining shelf life extending through 2023, and $0.5 million of raw materials for Triferic with estimated remaining shelf life extending beyond 2025.
7.  Property and Equipment
As of June 30, 2020 and December 31, 2019, the Company’s property and equipment consisted of the following:
 
June 30,
2020
 
December 31,
2019
Leasehold Improvements
$
1,175,986

 
$
1,162,328

Machinery and Equipment
4,869,771

 
4,672,724

Information Technology & Office Equipment
1,822,260

 
1,810,246

Laboratory Equipment
652,676

 
653,075

 
8,520,693

 
8,298,373

Accumulated Depreciation
(6,214,231
)
 
(5,864,968
)
Property and Equipment, net
$
2,306,462

 
$
2,433,405


Depreciation expense for the three months ended June 30, 2020 and 2019 totaled $0.2 million. Depreciation expense for the six months ended June 30, 2020 and 2019 totaled $0.4 million.
8.  Accrued Liabilities
Accrued liabilities as of June 30, 2020 and December 31, 2019 consisted of the following:
 
June 30,
2020
 
December 31,
2019
Accrued Research & Development Expense
$
268,677

 
$
283,407

Accrued Compensation and Benefits
2,032,651

 
1,018,196

Accrued Legal Expenses
116,578

 
181,597

Accrued Marketing Expenses
191,797

 
61,164

Other Accrued Liabilities
1,827,377

 
2,973,368

Total Accrued Liabilities
$
4,437,080

 
$
4,517,732


9.  Deferred Revenue
In October 2014, the Company entered into the Baxter Agreement with Baxter and received an upfront fee of $20 million. The upfront fee was recorded as deferred revenue and is 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 Baxter Agreement, which expires in October 2024. The Company recognized revenue of approximately $0.5 million and $1.0 million for the three and six months ended June 30,

15


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

2020 and 2019, respectively. Deferred revenue related to the Baxter Agreement totaled $8.2 million as of June 30, 2020 and $9.1 million as of December 31, 2019.
If a “Refund Trigger Event” occurs under the Baxter Agreement, we would be obligated to repay a portion of the upfront fee and any paid portion of the facility fee. In the event of a Refund Trigger Event occurring from April 1, 2020 to December 31, 2021, Baxter would be eligible for a 25% refund of the Baxter Agreement’s upfront fee. In addition, if Baxter terminates the Baxter Agreement because Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Baxter Agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior to the end of 2020, Baxter would be eligible for a partial refund of the upfront fee of $5.0 million. In no event does the Baxter Agreement require more than one refund be paid.
In 2016, the Company entered into a distribution and license agreement with Wanbang (the "Wanbang Agreement") and received an upfront fee of $4.0 million. The upfront fee was recorded as deferred revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $53,000 and $0.1 million for the three and six months ended June 30, 2020 and 2019, respectively. Deferred revenue related to the Wanbang Agreement totaled $2.9 million as of June 30, 2020 and $3.0 million as of December 31, 2019.

On January 14, 2020, we entered into license and supply agreements with Sun Pharma (the "Sun Pharma Agreements"), for the rights to commercialize Triferic Dialysate (ferric pyrophosphate citrate) in India. Under the terms of the Sun Pharma Agreements, Sun Pharma will be the exclusive development and commercialization partner for Triferic Dialysate in India, and we will supply the product to Sun Pharma. In consideration for the license, we received an upfront fee of $0.1 million, and will be eligible for milestone payments and royalties on net sales. A Joint Alliance Committee, comprised of members from the Company and Sun Pharma, will guide the development and execution for Triferic Dialysate in India. Sun Pharma will be responsible for all clinical and regulatory approval, as well as commercialization activities. The upfront fee was recorded as deferred revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $2,500 and $5,000 during the three and six months ended June 30, 2020, respectively.
10.  Stockholders’ Equity

The Company held its annual meeting of stockholders on May 18, 2020 (the “Annual Meeting”). At the Annual Meeting, the Company’s stockholders approved the amendment and restatement of the Rockwell Medical, Inc. 2018 Long Term Incentive Plan to increase the number of shares of common stock issuable thereunder by 2,900,000 shares (the “Amended 2018 Plan”).
Preferred Stock
As of June 30, 2020 and December 31, 2019, there were 2,000,000 shares of preferred stock, $0.0001 par value per share, authorized and no shares of preferred stock issued or outstanding.
Common Stock
As of June 30, 2020 and December 31, 2019, there were 170,000,000 shares of common stock, $0.0001 par value per share, authorized and 70,156,922 and 65,378,890 shares issued and outstanding, respectively.
Controlled Equity Offering (or "At the Market" Offering)
On March 22, 2019, the Company entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time shares of the Company’s common stock through the Agent. The offering and sale of up to $40.0 million of the shares has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the Company’s registration statement on Form S-3 (File No. 333-227363), which was originally filed with the SEC on September 14, 2018 and declared effective by the SEC on October 1, 2018, the base prospectus contained within the registration statement, and a prospectus supplement that was filed with the SEC on March 22, 2019.
Sales of the shares, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market" offering as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for the Company’s common stock. The Company intends to use the proceeds from the offering for working capital and other general corporate purposes. The Company may suspend or terminate the Sales Agreement at any time.


16


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

During the year ended December 31, 2019, the Company sold 1,840,443 of shares of its common stock pursuant to the Sales Agreement for gross proceeds of $5,383,079, at a weighted average selling price of approximately $2.92. The Company paid $309,479 in commissions and offering fees related to the sale of the common stock. For the six months ended June 30, 2020, the Company sold 987,716 of shares of its common stock pursuant to the Sales Agreement for gross proceeds of $2,034,073, at a weighted average selling price of approximately $2.06. The Company paid $56,443 in commissions and offering fees related to the sale of common stock. Approximately $32.6 million remains available for sale under this facility.

We are not required to sell any shares at any time during the term of the facility. Our ability to sell common stock under the facility may be limited by several factors including, among other things, the trading volume of our common stock and certain black-out periods that we may impose upon the facility, among other things.
Public Offering of Common Stock

On February 4, 2020, the Company entered into an underwriting agreement with Cantor Fitzgerald & Co., as underwriter, pursuant to which the Company agreed to issue and sell an aggregate of up to 3,670,212 shares of its common stock, which included 478,723 optional shares that may be sold pursuant to an over-allotment option granted to the underwriters. On February 6, 2020, the Company closed the sale of 3,191,489 shares of its common stock at the public offering price of $2.22 per share (the "Offering").

On February 19, 2020, the underwriter exercised its over-allotment option to purchase an additional 478,723 shares at a price of $2.22 per share, which closed on February 21, 2020. The Company raised a total of $8.0 million, net of issuance costs of $0.1 million, relating to the sale of the common stock in the Offering. The Offering was made pursuant to the Company’s effective Registration Statement on Form S-3 (File No. 333-227363), which was previously filed with the SEC.
11.  Stock-Based Compensation
The Company recognized total stock-based compensation expense during the three and six months ended June 30, 2020 and 2019 as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Service-based awards:
 
 
 
 
 
 
 
Restricted stock units
$
(4,127
)
 
$
427,472

 
$
233,987

 
$
771,823

Stock option awards
336,513

 
547,139

 
776,138

 
1,199,163

 
332,386

 
974,611

 
1,010,125

 
1,970,986

Performance-based awards:
 
 
 
 
 
 
 
Restricted stock units
(1,196,713
)
 
402,814

 
(1,025,502
)
 
801,202

Stock option awards
(596,687
)
 
123,901

 
(510,791
)
 
246,440

 
(1,793,400
)
 
526,715

 
(1,536,293
)
 
1,047,642

Total
$
(1,461,014
)
 
$
1,501,326

 
$
(526,168
)
 
$
3,018,628


Restricted Stock
A summary of the Company’s restricted stock awards during the six months ended June 30, 2020 is as follows:
 
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Unvested at January 1, 2020
146,800

 
$
5.70

Unvested at June 30, 2020
146,800

 
$
5.70

A summary of the Company’s restricted stock awards during the six months ended June 30, 2019 is as follows:

17


ROCKWELL MEDICAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

 
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Unvested at January 1, 2019
146,800

 
$
5.70

Unvested at June 30, 2019
146,800

 
$
5.70


The fair value of 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 June 30, 2020, unvested restricted stock awards of 146,800 were related to performance-based awards.
Service-Based Restricted Stock Units
A summary of the Company’s service-based restricted stock units during the six months ended June 30, 2020 is as follows:

Number of Shares

Weighted Average
Grant-Date
Fair Value
Unvested at January 1, 2020
463,786


$
4.26

Granted