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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 MARCH 31, 2006
[ ] 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)
30142 WIXOM ROAD
WIXOM, MICHIGAN 48393
(Address of principal executive offices)
(248) 960-9009
(Issuer's telephone number)
_____________________________________________________________
(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 [ ]
Indicate by check mark whether the issuer is a shell company (as defined by
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 11,292,688 Common Shares
outstanding as of May 5, 2006.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2006 AND DECEMBER 31, 2005
(Whole Dollars)
(Unaudited)
MARCH 31, DECEMBER 31,
2006 2005
------------ ------------
ASSETS
Cash and Cash Equivalents ............................................. $ 5,694,893 $ 299,031
Accounts Receivable, net of a reserve of $85,227 in 2006
and $70,000 in 2005 ................................................. 3,064,293 2,836,072
Inventory .............................................................. 2,211,945 2,051,819
Other Current Assets ................................................... 309,463 193,158
------------ ------------
Total Current Assets ................................................ 11,280,594 5,380,080
Property and Equipment, net ............................................ 2,447,929 2,430,222
Intangible Assets ...................................................... 407,152 394,819
Goodwill ............................................................... 920,745 920,745
Other Non-current Assets ............................................... 133,500 134,794
------------ ------------
Total Assets ........................................................ $ 15,189,920 $ 9,260,660
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short Term Borrowings .................................................. $ -- $ 1,800,000
Notes Payable & Capitalized Lease Obligations .......................... 516,647 522,439
Accounts Payable ....................................................... 1,617,959 1,795,393
Accrued Liabilities .................................................... 384,695 530,749
Customer Deposits ...................................................... 145,307 33,558
------------ ------------
Total Current Liabilities ........................................... 2,664,608 4,682,139
Long Term Notes Payable & Capitalized Lease Obligations ................ 606,856 733,723
Shareholders' Equity:
Common Shares, no par value, 11,283,188 and 8,886,948 shares issued and
outstanding ......................................................... 22,392,249 12,628,539
Common Share Purchase Warrants, 25,000 and 3,591,385 shares issued and
outstanding ......................................................... 14,042 1,414,876
Accumulated Deficit .................................................... (10,487,835) (10,198,617)
------------ ------------
Total Shareholders' Equity .......................................... 11,918,456 3,844,798
------------ ------------
Total Liabilities And Shareholders' Equity .......................... $ 15,189,920 $ 9,260,660
============ ============
2
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005
(WHOLE DOLLARS)
(Unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2006 MARCH 31, 2005
------------------ ------------------
SALES ................................ $6,161,903 $5,619,508
Cost of Sales ........................ 5,378,594 4,950,092
---------- ----------
GROSS PROFIT ...................... 783,309 669,416
Selling, General and Administrative .. 625,842 598,260
Research and Product Development ..... 448,737 49,399
---------- ----------
OPERATING INCOME (LOSS) ........... (291,270) 21,757
Other Income ......................... -- 137,468
Interest Expense (Income), net ....... (2,052) 50,010
---------- ----------
NET INCOME (LOSS) ................. $ (289,218) $ 109,215
========== ==========
BASIC EARNINGS (LOSS) PER SHARE ...... ($.03) $ .01
DILUTED EARNINGS (LOSS) PER SHARE .... ($.03) $ .01
The accompanying notes are an integral part of the
consolidated financial statements.
3
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005
(WHOLE DOLLARS)
(Unaudited)
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ............................................. $ (289,218) $ 109,215
Adjustments To Reconcile Net Income To Net Cash Used For
Operating Activities:
Depreciation and Amortization .............................. 222,496 167,156
Loss on Disposal of Equipment .............................. 653 --
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable ....................... (228,221) (194,528)
(Increase) in Inventory ................................. (160,126) (997,503)
(Increase) in Other Assets .............................. (115,011) (81,902)
Increase (Decrease) in Accounts Payable ................. (177,434) 499,188
Increase in Customer Deposits ........................... 111,749 1,214,328
(Decrease) in Other Liabilities ......................... (146,054) (53,903)
----------- -----------
Changes in Assets and Liabilities .................... (715,097) 385,680
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES ............. (781,166) 662,051
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment ................................... (231,553) (60,281)
Purchase of Intangible Assets ........................... (21,636) --
----------- -----------
CASH (USED IN) INVESTING ACTIVITIES ............... (253,189) (60,281)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowing on Line of Credit ............... -- 4,648,395
Payments on Line of Credit .............................. (1,800,000) (4,590,077)
Payments on Notes Payable and Capital Lease Obligations (132,659) (63,553)
Issuance of Common Shares ............................... 8,362,876 103,750
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ... 6,430,217 98,515
INCREASE IN CASH ................................................. 5,395,862 700,285
CASH AT BEGINNING OF PERIOD ...................................... 299,031 166,195
----------- -----------
CASH AT END OF PERIOD ............................................ $ 5,694,893 $ 866,480
=========== ===========
Supplemental Cash Flow Disclosure:
Interest Paid.................................................. $ 43,654 $ 50,057
=========== ===========
Non-Cash investing and Financing Activity - Equipment Acquired
Under Capital Lease Obligations................................ $ -- $ 17,009
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
We manufacture, sell and distribute hemodialysis concentrates and other
ancillary medical products and supplies used in the treatment of patients with
End Stage Renal Disease "ESRD". We supply our products to medical service
providers who treat patients with kidney disease. Our products are used to
cleanse patients' blood and replace nutrients lost during the kidney dialysis
process. We primarily sell our products in the United States.
We are 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. We have received 510(k) approval from the FDA to market hemodialysis
solutions and powders. We also have 510(k) approval to sell our Dri-Sate Dry
Acid Concentrate product line and our Dri-Sate Mixer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Our consolidated financial statements include our accounts and the accounts
of our wholly owned subsidiary, Rockwell Transportation, Inc. All intercompany
balances and transactions have been eliminated.
In the opinion of our management, all adjustments have been included which
are necessary to make the financial statements not misleading. All of these
adjustments that are material are of a normal and recurring nature. Our
operating results for the three month period ended March 31, 2006 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2006. You should read our unaudited interim financial statements
together with the financial statements and related footnotes for the year ended
December 31, 2005 included in our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2005. Our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2005 includes a description of our significant
accounting policies.
REVENUE RECOGNITION
We recognize revenue at the time we transfer title to our products to our
customers consistent with generally accepted accounting principles. Generally,
we recognize revenue when our products are delivered to our customer's location
consistent with our terms of sale. In most instances title for goods shipped
internationally transfers to the buyer once it leaves our facility and
therefore, we recognize revenue upon shipment to foreign customers.
We require certain customers, mostly international customers, to pay for
product prior to the transfer of title to the customer. Deposits received from
customers and payments in advance for orders are recorded as liabilities under
Customer Deposits until such time as orders are filled and title transfers to
the customer consistent with our terms of sale. At March 31, 2006, we had
customer deposits of $111,749.
For the quarter ended March 31, 2006, we reached a settlement
with a customer related to its breach of several purchase contracts. The
settlement provides for payment of a total amount of $755,000 in exchange for
release of the customer's future obligations under these contracts and all of
this settlement has been recognized as a component of revenue in the quarter
ended March 31, 2006.
5
RESEARCH AND PRODUCT DEVELOPMENT
We recognize research and product development costs as expenses as
incurred. We have reclassified research and product development costs incurred
in 2005 to this statement line from selling, general and administrative expense
in 2005 to conform with the current year presentation for research and product
development expense.
We have entered into a number of research and development related contracts
for safety, pharmacology and toxicology testing of our iron dialysate drug
product under which we have commitments to spend $3.1 million. Services under
the contracts will be performed over periods ranging from 3 to 15 months. We are
recognizing the costs of these contracts as research and development expense
over the periods in which the testing is being performed and on a basis
reflective of the level of activity under those contracts in each period. As of
March 31, 2006, we had made payments in advance of services performed under
those contracts which have been recorded as prepaid expenses totaling $171,722.
We recognized approximately $205,000 of expense under these contracts during the
quarter ended March 31, 2006.
STOCK OPTIONS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R ("SFAS 123R"), a revision to Statement No. 123, "Accounting
for Stock-Based Compensation." This standard requires us to measure the cost of
employee services received in exchange for equity awards, including stock
options, based on the grant date fair value of the awards. The cost will be
recognized as compensation expense over the vesting period of the awards. The
Company has adopted SFAS 123R as of January 1, 2006. The standard provides for a
modified prospective application. Under this method, the Company will begin
recognizing compensation cost for equity based compensation for all new or
modified grants after the date of adoption. In addition, the standard requires
the Company to recognize compensation cost for the remaining unvested portion of
prior option grants over the remaining service period. All of the Company's
options granted in 2005 and prior years were fully vested as of December 31,
2005, and therefore, the Company has not recorded any expense for options
granted prior to 2006 upon adoption of SFAS 123R. The Company did not grant any
stock options in the first quarter of 2006.
Our reported and pro forma information for the three months ended March 31:
Three months ended Three months ended
March 31, 2006 March 31, 2005
------------------ ------------------
As reported net income (loss) available
to common shareholders ($289,218) $ 109,215
Less: Stock based compensation expense determined
under the fair market value method, net of tax -- (606,814)
--------- ----------
Pro forma net income (loss) ($289,218) ($497,599)
========= ==========
As reported basic earnings (loss) per share ($0.03) $ 0.01
As reported diluted earnings (loss) per share ($0.03) $ 0.01
Pro forma earnings (loss) per share and
diluted earnings (loss) per share ($0.03) ($0.05)
EARNINGS PER SHARE
6
We computed our basic earnings per share using weighted average shares
outstanding for each respective period. Diluted earnings per share also reflect
the weighted average impact from the date of issuance of all potentially
dilutive securities, consisting of stock options and common share purchase
warrants, unless inclusion would have had an anti-dilutive effect. Actual
weighted average shares outstanding used in calculating basic and diluted
earnings per share were:
Three months ended March 31,
----------------------------
2006 2005
---------- ----------
Basic Weighted Average Shares Outstanding 10,493,690 8,596,531
Effect of Dilutive Securities -- 749,785
---------- ----------
Diluted Weighted Average Shares Outstanding 10,493,690 9,346,316
========== ==========
3. LINE OF CREDIT
On March 29, 2006, we renewed our line of credit with a financial
institution. The loan agreement provides for revolving borrowings by us of up to
$2,750,000. We are permitted to borrow up to 80% of our eligible accounts
receivable and up to 40% of our eligible inventory up to $600,000. Borrowings
under the loan agreement are secured by accounts receivable, inventory and
certain other assets. The annual interest rate payable on revolving borrowings
under the loan agreement is the lender's prime rate plus 75 basis points. The
lender's commitment to make revolving borrowings under the loan agreement
expires on April 1, 2007. As of March 31, 2006, we had no outstanding borrowings
under this line of credit.
4. WARRANT EXERCISE
On July 29, 2005, we filed with the Securities and Exchange Commission (the
"SEC") a registration statement on Forms S-4 and SB-2 (the "Registration
Statement") with respect to an offer to exchange new common share purchase
warrants expiring January 26, 2006 with an exercise price of $3.90 ("New
Warrants") for each of the 3,625,000 currently outstanding common share purchase
warrants expiring January 26, 2006 with an exercise price of $4.50 ("Old
Warrants"). The SEC declared the Registration Statement effective on October 20,
2005. Old Warrant holders were required to tender their Old Warrants by November
28, 2005 to participate in the exchange. Both Old and New Warrants expired
January 26, 2006.
We raised gross proceeds of $9,363,982 upon exercise of New Warrants issued
in the exchange prior to their expiration on January 26, 2006. We issued
2,401,021 Common Shares resulting from New Warrant exercises of which 58,615
were issued in 2005 and the remainder in January 2006. All unexercised publicly
traded warrants expired on January 26, 2006. Gross proceeds of the warrant
exercises were offset by costs of the offering of approximately $941,000. Net
proceeds received during the quarter ended March 31, 2006 were $8,194,036.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Some of the statements in this report are forward-looking statements. These
forward-looking statements include statements relating to our performance in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations. In addition, we may make forward-looking statements in future
filings with the Securities and Exchange Commission and in written material,
press releases and oral statements. Forward-looking statements include
statements regarding the intent, belief or current expectations of us or our
officers, including statements preceded by, followed by or including
forward-looking terminology such as "may," "might," "will," "should," "believe,"
"expect," "anticipate," "estimate," "continue," "predict," "forecast,"
"projected," or similar expressions, with respect to various matters.
7
Our actual results might differ materially from those projected in the
forward-looking statements depending on various important factors. These
important factors include the cost of obtaining FDA approval to market our new
iron supplemented dialysate product, the challenges associated with developing
new products, the uncertainty of acceptance of our products by the hemodialysis
community, competition in our market, and the other factors discussed under the
caption "Risk Factors" in our Registration Statement on Form SB-2 (file no.
333-31991) effective January 26, 1998, our Registration Statement on Forms SB-2
and S-4(file no. 333-127048), effective October 20, 2005, and elsewhere in our
public filings and in this report, all of which constitute cautionary statements
identifying important factors with respect to the forward-looking statements,
including risks and uncertainties, that could cause actual results to differ
materially from those in the forward-looking statements.
All forward-looking statements in this report are based on information
available to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this
report or otherwise.
OVERVIEW
We operate in a single business segment; the manufacture, sale and
distribution of hemodialysis concentrates, dialysis kits and ancillary products
used in the dialysis process. We have gained market share each year since our
inception in 1996. We increased our sales by 54% in 2005 over 2004 and have a
five year compound annual growth rate of sales of 30%. Our core concentrate
sales grew 38% in 2005. Net Income in 2005 was $76,800 or $.01 per share. Our
plan is to grow and develop our dialysis business including the development and
introduction of new products.
The dialysis supply market is very competitive and is characterized by
having a few dialysis providers treating the majority of patients in the United
States. We compete against companies which have substantially greater resources
than we have. Our revenue is highly concentrated in a few customers and the loss
of any of those customers would adversely affect our results. However, we expect
to continue to grow our business while executing our strategic plan to expand
our product lines, to expand our geographic reach and to develop our proprietary
technology which may include adding facilities and personnel to support our
growth. As we increase our business in certain markets and regions, we may incur
additional costs that are greater than the additional revenue generated from
these initiatives. We added a third manufacturing facility to support our growth
in 2005. We may add additional facilities in the future and may incur operating
losses until sufficient volume growth is realized to offset the additional
operating expenses to operate these facilities.
We are seeking to gain FDA approval for our iron supplemented dialysate
product, Soluble Ferric Pyrophosphate (SFP). We believe SFP has the potential to
compete in the iron maintenance therapy market. The cost to obtain regulatory
approval for a drug in the United States is expensive and can take a long time.
We expect to spend between $6-8 million to complete testing and file for
regulatory approval in the United States. We completed an equity financing
transaction in January of 2006 which we believe raised sufficient cash resources
to fund these expected costs.
We expect to incur substantial costs to conduct required clinical trials
and to obtain marketing approval which we expect will offset some or all of any
profits generated from sales of our existing products during the approval
process. We anticipate that we may report losses for the duration of the
approval process. We expect this process to take several years and we might not
be successful.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31,
2005
Our sales in the first quarter of 2006 were $6,161,903, an increase of $542,395
or 9.7% over our sales in the first quarter of 2005. We anticipate that we will
continue to realize sales growth both in the United States and abroad. While we
expect our business to grow substantially in the future, we also anticipate that
our sales results may be impacted by volatility in order patterns and other
changes to our customer and product mix going forward. In the first quarter our
domestic based sales increased by 20.8% but the overall reported growth rate was
lower due to the timing and volume of a certain international distributor's
orders compared to the first quarter of 2005 which represented an overall
reduction of 11% of overall sales from the first quarter of 2005.
8
Over the last several years we have realized a substantial portion of our
growth with several major chains and key customers. In the first quarter of
2006, we increased our sales by 19.2% compared to the first quarter of 2005 with
our two largest chain customers which represented 48% of our sales in the first
quarter of 2005. We also realized substantial growth over the last year with
several new customers and existing regional and local chains reflective of an
increase of 28% in the first quarter of 2006 over 2005 for this group of
customers that represented 40% of our 2005 first quarter sales.
The hemodialysis service provider market has recently experienced
substantial consolidation with the four largest dialysis service provider chains
in our industry consolidating into two during the last six months. In November
of 2005 DaVita, Inc., our largest customer, completed its acquisition of
Gambro's clinic division, the then third largest dialysis provider. At the end
of March of 2006, Fresenius Medical Care completed its acquisition of Renal Care
Group, Inc., the fourth largest provider in the United States. Together, DaVita,
Inc. and Fresenius are now estimated to provide treatments to over 60% of the
chronic hemodialysis patient population in the United States.
We compete against both Gambro, which remained in the dialysis products
business, and Fresenius. Renal Care Group, Inc. is a customer of ours with whom
we had several supply contracts which were breached by the customer. We entered
into a settlement with Renal Care Group, Inc. for these prematurely terminated
contracts. In the first quarter of 2006, approximately 12% of our revenue was
related to this settlement. While our first quarter 2006 revenue with this
customer increased approximately 13% from the first quarter of 2005, the amount
or duration of future revenue from this customer is not known.
As a condition of these two major chains completing their recent
acquisitions, various government agencies required the spin-off of clinics and
those clinics were acquired by two new clinic chains which we estimate represent
approximately 4% of the U.S. market. We do not know how these recent
acquisitions and their spin-offs may impact our future sales growth and the
competitive environment. However, we think these developments may create
opportunities for us to expand our market position and increase our sales.
In the first quarter of 2006, we experienced a reduction in sales to an
international distributor as a result of volatility in the distributor's order
pattern. This distributor placed a large purchase order with us aggregating $6.5
million in the first quarter of 2005 which was fulfilled throughout 2005. In
January 2006, this distributor also placed a large purchase order with us but
did not require deliveries during the first quarter of 2006. This resulted in a
$629,000 decrease in sales to the distributor in the first quarter of 2006
compared to the first quarter of 2005 or 11% of total first quarter 2005 sales.
We anticipate this distributor will request substantial shipments of products
during the second quarter of 2006 and throughout the remainder of 2006, but
shipments and revenue from those shipments may not recur evenly by quarter.
Sales of our dialysis concentrate product lines, which represented 84% of
our sales in the first quarter, increased over 11.5% in the first quarter of
2006 compared to the first quarter of 2005.
Gross profit in the first quarter of 2006 was $783,309 and was $113,893 or
17% higher than the first quarter of 2005. Gross profit margins increased by .8
percentage points to 12.7% from 11.9% in the first quarter of 2005. Gross profit
was favorably impacted by our overall sales results and by the settlement of
contractual obligations by Renal Care Group. We anticipate that we will
experience changes in our customer and product mix in future quarters that will
impact gross profit. Since we sell a wide range of products with varying profit
margins and to customers with varying order patterns, we expect that the gross
profit we generate and our gross profit margins to vary by interim period.
While our first quarter 2006 gross profit increased and gross profit
margins increased compared to the first quarter of 2005, first quarter 2006
gross profit was unfavorably impacted by increases in raw material costs, higher
operating costs for facilities and personnel and increased delivery costs. We
estimate that inflationary cost increases for material and production costs have
resulted in an increase of 5-6% of those costs from the first quarter of 2005.
We estimate that increased distribution costs have reduced gross profit margins
by approximately 2 percentage points to sales compared to the first quarter of
2005. In addition, we expect higher fuel costs to have a negative impact on
gross profit in the future.
Selling, general and administrative expense was $625,842 or 10.2% of sales
in the first quarter of 2006. While total costs increased 4.6% over the first
quarter of 2005, selling, general and administrative expense decreased by .4
percentage
9
point to sales to 10.2% from 10.6%. Total selling, general and administrative
expense increased $27,582 with the majority due to additional resources added to
support our continued growth and development.
Research and product development expense was $448,737 in the first quarter
of 2006 and increased by $399,338 over the first quarter of 2005. Research and
product development spending was 7.3% of sales in the first quarter of 2006 and
was 6.4 percentage points to sales higher than the first quarter of 2005. We
increased spending for product development and regulatory approval for Soluble
Ferric Pyrophosphate (SFP) our proprietary dialysate iron product used in the
treatment of anemia. We anticipate that our spending will increase in future
quarters this year. We anticipate total SFP spending in 2006 to be between $3.5
to $4 million but it could be more depending on our testing progress. We have
made contractual commitments for testing of $3.1 million and have expensed
$242,000 under those contracts since inception.
In the first quarter of 2005, we recognized income from proceeds of a
litigation settlement aggregating $137,468.
In the first quarter of 2006 we raised approximately $8.3 million in equity
capital after expenses. We repaid all of our borrowings under our line of credit
totaling $1,800,000 and invested the balance of the proceeds in short term
investments. We generated interest income of $45,700 from these short term
investments. Overall, our net interest income, net of interest expense, was
$2,050 in the first quarter of 2006, and represented an earnings improvement of
$52,060 from our net interest income and expense reported for the first quarter
of 2005.
Our net (loss) in the first quarter 2006 was ($289,218) or $(.03) per share
as compared to net income of $109,215 or $.01 per share in the first quarter of
2005. The decrease in earnings per share of $(.04) from the first quarter of
2005 was largely attributable to increased spending on research and product
development for SFP of $.04 per share.
LIQUIDITY AND CAPITAL RESOURCES
Our strategy includes expanding our operations and seeking FDA approval for
SFP, our iron supplemented dialysate product. We believe that we can continue to
grow and expand our business. We plan to develop and offer new and innovative
products to the dialysis market. We expect that we will continue to realize
substantial sales growth in the future. In 2005, our revenue increased by
$9,750,245 or 54.3% over 2004 and in the first quarter of 2006 our domestic
based sales increased by over 20% compared to the first quarter last year.
In January of 2006, prior to expiration of common share purchase warrants
we issued in November of 2005 ("New Warrants") in exchange for most of our
previously outstanding common share purchase warrants, most of the holders of
such New Warrants exercised the New Warrants from which we realized gross
proceeds of $9.1 million in 2006. We believe these proceeds will fund all of our
foreseeable cash requirements in 2006.
We have two major areas of strategic focus in our business. First, we plan
to develop our dialysis concentrate solutions and ancillary supply business.
Second, we plan to expand our product offering to include drugs and vitamins
administered to dialysis patients.
Our plan is to expand our operations to serve dialysis providers throughout
the United States and internationally on an export basis. We anticipate that, as
a result of our existing supply agreements, our customer relationships and our
changing market dynamics, we have the opportunity to capture substantial market
share that will lead to sustaining and increasing our profitable operations. We
expect that we will continue to realize substantial growth during 2006 and that
we will require additional working capital and capital expenditures to fund this
growth. In order to fund facility expansions and certain capital expenditures,
we intend to enter into lease financing arrangements. We anticipate that our
working capital line of $2.75 million is sufficient to meet our requirements for
working capital expansion in the year ahead.
The dialysis provider industry that we serve is becoming increasingly
concentrated. As a result, our business is predominantly with national and
regional dialysis chains. If we were to lose a significant portion of our
business with major national and regional dialysis chains, it could have a
substantial negative impact on our cash flow and results. If we were to lose a
substantial portion of our business, it may have a detrimental impact on our
ability to continue our
10
operations in their current form or to continue to execute our business
strategy. If we lost a substantial portion of our business, we would be required
to take actions to conserve our cash resources and to mitigate the impact of any
such losses on our business operations.
A second major area of focus is to expand our product offering to include
drugs and vitamins administered to dialysis patients using our dialysis
concentrate solutions as the delivery method. We are seeking FDA approval for
our dialysate iron drug product, SFP. The development and approval of drugs can
be expensive and take a long time. Drug development and approval costs may
offset some or all of any earnings during the approval process and we may incur
losses in the future. We estimate the cash required to fund development and
approval of SFP will be between $6,000,000 - $8,000,000 over the next several
years. We expect to spend between $3,500,000 -$4,000,000 in 2006 on product
testing and possibly more depending on the progress of testing during the year.
To fund our business development efforts for our two key areas of focus we
completed an equity offering of our common shares upon exercise of warrants we
issued in late 2005. We issued 2,401,021 common shares at $3.90 per common
shares resulting in gross proceeds of $9,363,000 with $9,135,000 raised in
January 2006. These substantial cash resources are intended to be used for our
business development initiatives. We anticipate that the net proceeds from this
offering will be sufficient for us to complete the FDA approval process for SFP.
However, there is no guarantee that we will not require additional funds to
execute our strategy or pursue other business development opportunities. If we
need additional funds in the future, we will evaluate both debt and equity
financing as potential sources of funds.
ITEM 3. CONTROLS AND PROCEDURES
We carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of March 31, 2006. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective as of March 31, 2006 in ensuring that information
required to be disclosed by us under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified under the Exchange Act
rules and forms. There was no change in our internal control over financial
reporting identified in connection with such evaluation that occurred during our
fiscal quarter ended March 31, 2006 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
31.1 Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of the Chief Financial Officer Pursuant to Rule 13a-14(a),
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of the Chief Executive Officer and Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
12
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: May 12, 2006 /s/ ROBERT L. CHIOINI
--------------------------------
Robert L. Chioini
President, Chief Executive
Officer and Director (Principal
Executive Officer)
Date: May 12, 2006 /s/ THOMAS E. KLEMA
-------------------------------
Thomas E. Klema
Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
13
10-QSB EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
EX-10.1 Rockwell Medical Technologies, Inc. 1997 Stock Option Plan,
incorporated by reference to the Proxy Statement for the Annual
Meeting of Shareholders filed on April 17, 2006.
EX-31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
EX-31.2 Certification of the Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
EX-32.1 Certifications of the Chief Executive Officer and Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
14