rmti_Current_Folio_10Q

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 September 30, 2019

☐ 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	(I.R.S. Employer
incorporation or organization)	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 $.0001	RMTI	Nasdaq Global Market

The number of shares of common stock outstanding as of November 12, 2019 was 63,955,893.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
	2019		2018
		(Unaudited)
ASSETS
Cash and Cash Equivalents	$	14,421,394	$	22,713,980
Investments Available-for -Sale		14,575,589		10,818,059
Accounts Receivable, net		5,122,453		6,979,514
Insurance Receivable		—		371,217
Inventory		3,583,452		4,038,778
Prepaid and Other Current Assets		2,861,708		1,903,682
Total Current Assets		40,564,596		46,825,230
Property and Equipment, net		2,506,093		2,638,293
Inventory, Non-Current		528,000		1,637,000
Right of Use Assets, net		3,011,805		—
Goodwill		920,745		920,745
Other Non-current Assets		555,933		536,516
Total Assets	$	48,087,172	$	52,557,784
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts Payable	$	3,194,039	$	4,492,071
Accrued Liabilities		3,916,069		5,129,761
Settlement Payable		270,000		416,668
Lease Liability - Current		1,482,441		—
Deferred License Revenue - Current		2,238,450		2,252,868
Insurance Financing Note Payable		1,145,133		—
Customer Deposits		48,163		63,143
Other Current Liability - Related Party		100,000		850,000
Total Current Liabilities		12,394,295		13,204,511

Lease Liability - Long-Term		1,589,098		—
Deferred License Revenue - Long-Term		10,401,166		12,076,399
Total Liabilities		24,384,559		25,280,910

Commitments and Contingencies (See Note 16)

Shareholders’ Equity:
Preferred Shares, $.0001 par value, no shares issued and outstanding at September 30, 2019 and December 31, 2018		—		—
Common Shares, $.0001 par value; 170,000,000 shares authorized; 63,887,384 and 57,034,154 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		6,389		5,703
Additional paid-in capital		322,837,353		299,596,257
Accumulated Deficit		(299,213,836)		(272,388,234)
Accumulated Other Comprehensive Income		72,707		63,148
Total Shareholders’ Equity		23,702,613		27,276,874
Total Liabilities And Shareholders’ Equity	$	48,087,172	$	52,557,784

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018

Net Sales	$	15,407,248	$	16,672,416	$	45,812,475	$	46,534,358
Cost of Sales		15,423,612		14,703,606		44,085,298		49,303,048
Gross Profit (Loss)		(16,364)		1,968,810		1,727,177		(2,768,690)
Selling and Marketing		1,827,473		121,874		7,148,848		716,414
General and Administrative		4,623,503		6,037,267		16,340,672		14,465,634
Settlement Expense		—		—		430,000		1,030,000
Research and Product Development		1,474,735		808,192		4,930,287		4,033,494
Operating Loss		(7,942,075)		(4,998,523)		(27,122,630)		(23,014,232)

Other Income
Realized Gain (Loss) on Investments		6,268		(97,027)		24,292		(222,014)
Interest Income, net		80,735		125,918		272,736		486,301
Total Other Income		87,003		28,891		297,028		264,287

Net Loss	$	(7,855,072)	$	(4,969,632)	$	(26,825,602)	$	(22,749,945)


Basic and Diluted Net Loss per Share	$	(0.12)	$	(0.10)	$	(0.45)	$	(0.44)

Basic and Diluted Weighted Average Shares Outstanding		63,796,723		51,288,537		59,728,446		51,288,462

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018

Net Loss	$	(7,855,072)	$	(4,969,632)	$	(26,825,602)	$	(22,749,945)
Unrealized Gain on Available-for-Sale Debt Instrument Investments		5,926		143,868		10,190		96,327
Foreign Currency Translation Adjustments		(776)		(6,402)		(631)		(13,791)
Comprehensive Loss	$	(7,849,922)	$	(4,832,166)	$	(26,816,043)	$	(22,667,409)

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three months ended September 30, 2019

(Unaudited)


								ACCUMULATED
				ADDITIONAL				OTHER		TOTAL
	COMMON SHARES			PAID-IN		ACCUMULATED		COMPREHENSIVE		SHAREHOLDER’S
	SHARES	AMOUNT		CAPITAL		DEFICIT		INCOME		EQUITY
Balance as of July 1, 2019	63,398,704	$	6,340	$	320,876,606	$	(291,358,764)	$	67,557	$	29,591,739
Net Loss	—		—		—		(7,855,072)		—		(7,855,072)
Unrealized Gain on Available-for-Sale Investments	—		—		—		—		5,926		5,926
Foreign Currency Translation Adjustments	—		—		—		—		(776)		(776)
Delivery of common stock underlying restricted stock units, net of tax	62,800		6		(84,866)		—		—		(84,860)
Issuance of common stock, net of offering costs/Public offering	425,880		43		1,169,199		—		—		1,169,242
Stock-based Compensation	—		—		876,414		—		—		876,414
Balance as of September 30, 2019	63,887,384	$	6,389	$	322,837,353	$	(299,213,836)	$	72,707	$	23,702,613

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three months ended September 30, 2018

(Unaudited)


								ACCUMULATED
				ADDITIONAL				OTHER		TOTAL
	COMMON SHARES			PAID-IN		ACCUMULATED		COMPREHENSIVE		SHAREHOLDER’S
	SHARES	AMOUNT		CAPITAL		DEFICIT		INCOME / (LOSS)		EQUITY
Balance as of July 1, 2018	51,768,424	$	5,177	$	275,017,065	$	(258,042,689)	$	(90,313)	$	16,889,240
Net Loss	—		—		—		(4,969,632)		—		(4,969,632)
Unrealized Gain on Available-for-Sale Investments	—		—		—		—		143,868		143,868
Foreign Currency Translation Adjustments	—		—		—		—		(6,402)		(6,402)
Exercise of Employee Stock Options, Net of Tax	870		—		(1,978)		—		—		(1,978)
Stock-based Compensation	—		—		614,584		—		—		614,584
Balance as of September 30, 2018	51,769,294	$	5,177	$	275,629,671	$	(263,012,321)	$	47,153	$	12,669,680

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the nine months ended September 30, 2019

(Unaudited)


								ACCUMULATED
				ADDITIONAL				OTHER		TOTAL
	COMMON SHARES			PAID-IN		ACCUMULATED		COMPREHENSIVE		SHAREHOLDER’S
	SHARES	AMOUNT		CAPITAL		DEFICIT		INCOME		EQUITY
Balance as of January 1, 2019	57,034,154	$	5,703	$	299,596,257	$	(272,388,234)	$	63,148	$	27,276,874
Net Loss	—		—		—		(26,825,602)		—		(26,825,602)
Unrealized Gain on Available-for-Sale Investments	—		—		—		—		10,190		10,190
Foreign Currency Translation Adjustments	—		—		—		—		(631)		(631)
Exercise of Employee Stock Options	30,000		3		147,897		—		—		147,900
Delivery of common stock underlying restricted stock units, net of tax	126,973		13		(180,302)		—		—		(180,289)
Issuance of common stock, net of offering costs/Public offering	6,259,214		626		17,289,296		—		—		17,289,921
Issuance of common stock, net of offering costs/At-the-market offering	437,043		44		2,089,164		—		—		2,089,208
Stock-based Compensation	—		—		3,895,041		—		—		3,895,041
Balance as of September 30, 2019	63,887,384	$	6,389	$	322,837,353	$	(299,213,836)	$	72,707	$	23,702,613

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the nine months ended September 30, 2018

(Unaudited)


								ACCUMULATED
				ADDITIONAL				OTHER		TOTAL
	COMMON SHARES			PAID-IN		ACCUMULATED		COMPREHENSIVE		SHAREHOLDER’S
	SHARES	AMOUNT		CAPITAL		DEFICIT		(LOSS)		EQUITY
Balance as of January 1, 2018	51,768,424	$	5,177	$	273,205,730	$	(240,262,376)	$	(35,383)	$	32,913,148
Net Loss	—		—		—		(22,749,945)		—		(22,749,945)
Unrealized Gain on Available-for-Sale Investments	—		—		—		—		96,327		96,327
Foreign Currency Translation Adjustments	—		—		—		—		(13,791)		(13,791)
Exercise of Employee Stock Options, Net of Tax	870		—		(1,978)		—		—		(1,978)
Stock-based Compensation	—		—		2,425,919		—		—		2,425,919
Balance as of September 30, 2018	51,769,294	$	5,177	$	275,629,671	$	(263,012,321)	$	47,153	$	12,669,680

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

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2019 and 2018

(Unaudited)


	2019		2018

Cash Flows From Operating Activities:
Net Loss	$	(26,825,602)	$	(22,749,945)
Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities:
Depreciation and Amortization		581,982		466,994
Stock-based Compensation		3,895,041		2,425,919
Increase in Inventory Reserves		1,271,000		3,442,547
Amortization of Right of Use Asset		1,429,727		—
(Gain) Loss on Disposal of Assets		(620)		4,030
Realized (Gain) Loss on Sale of Investments Available-for-Sale		(24,292)		222,014
Foreign Currency Translation Adjustment		(631)		(13,791)
Changes in Assets and Liabilities:
Decrease (Increase) in Accounts Receivable, net		1,857,061		(1,226,133)
Decrease (Increase) in Insurance Receivable		371,217		(500,000)
Decrease in Inventory		293,326		3,669,233
Decrease in Other Assets		930,847		75,570
(Decrease) Increase in Accounts Payable		(1,298,031)		2,709,133
(Decrease) Increase in Settlement Payable		(146,668)		666,667
Decrease in Lease Liability		(1,369,994)		—
Decrease in Other Liabilities		(1,228,671)		(2,109,802)
Decrease in Deferred License Revenue		(1,689,651)		(1,718,127)
Changes in Assets and Liabilities		(2,280,564)		1,566,541
Cash Used In Operating Activities		(21,953,959)		(14,635,691)
Cash Flows From Investing Activities:
Purchase of Investments Available-for-Sale		(34,202,301)		(18,483,694)
Sale of Investments Available-for-Sale		30,479,252		29,596,315
Purchase of Equipment		(448,896)		(589,541)
Purchase of Research and Development Licenses (Related Party)		(750,000)		—
Cash (Used in) Provided By Investing Activities		(4,921,945)		10,523,080
Cash Flows From Financing Activities:
Payments on Short Term Notes Payable		(763,422)		—
Proceeds from the Issuance of Common Stock / Public Offering		18,777,642		—
Offering Costs from the Issuance of Common Stock / Public Offering		(1,487,721)		—
Proceeds from the Issuance of Common Stock / At-the Market Offering		2,296,235		—
Offering Costs from the Issuance of Common Stock / At-the Market Offering		(207,027)		—
Proceeds from the Exercise of Employee Stock Options		147,900		—
Stock Retained in Satisfaction of Tax Liabilities		(180,289)		(1,978)
Cash Provided By (Used In) Financing Activities		18,583,318		(1,978)

Decrease In Cash and Cash Equivalents		(8,292,586)		(4,114,589)
Cash At Beginning Of Period		22,713,980		8,406,917
Cash At End Of Period	$	14,421,394	$	4,292,328

Supplemental Disclosure of Noncash Investing and Financing Activities:
Insurance Financing Note Payable	$	1,145,133	$	—

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

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 anemia, with an initial focus on end-stage renal disease (ESRD). 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. Substantially, all of our sales have been concentrate products and ancillary items, though we initiated commercial sales of our proprietary therapeutic, Triferic, during the second quarter of 2019.

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 dialysis.

Triferic® is a registered trademark of Rockwell Medical, Inc.

2. Going Concern

As of September 30, 2019, the Company had approximately $14.4 million of cash and cash equivalents, $14.6 million of investments available-for-sale, working capital of $28.2 million and an accumulated deficit of $299.2 million. Net cash used in operating activities for the nine months ended September 30, 2019 was approximately $21.9 million.

The Company will require significant additional capital to sustain its operations and make the investments it needs to execute its longer-term business plan. The Company’s existing liquidity is not sufficient to fund its operations and anticipated capital expenditures within one year of the issuance of the accompanying condensed consolidated financial statements.

The Company’s recurring operating losses, net operating cash flow deficits, and an accumulated deficit, raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the accompanying condensed consolidated financial statements. The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made any adjustments to the accompanying condensed consolidated financial statements related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

On June 20, 2019, the Company closed a public offering of 5,833,334 shares of common stock at a price of $3.00 per share. The aggregate proceeds from this public offering (net of the underwriters’ commissions and offering expenses) were approximately $16.1 million. On July 9, 2019, the underwriters of the public offering partially exercised their over-allotment option and purchased an additional 425,800 shares of common stock at a price of $3.00 per share, which closed on July 11, 2019. The aggregate proceeds from the exercise of the over-allotment option (net of the underwriters’ discount and offering expenses) were approximately $1.2 million.

On March 22, 2019, the Company entered into a 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 up to $40,000,000. As of September 30, 2019, approximately $37.7 million remains available for issuance 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.

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 launch of Dialysate Triferic and I.V. Triferic. 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.

3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

At the 2019 Annual Meeting, the Company’s shareholders voted and approved to reincorporate the Company from the State of Michigan to the State of Delaware (the “Reincorporation”). The Reincorporation became effective on August 30, 2019 and was accomplished by the filing of (i) a certificate of conversion with the Bureau of Commercial Services of the Michigan Department of Labor & Economic Growth; (ii) a certificate of conversion with the Secretary of State of the State of Delaware; and (iii) a Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Incorporation”).

The Company’s new authorized capital stock consists of 170,000,000 shares of common stock, $0.0001 par value per share, and 2,000,000 shares of preferred stock, $0.0001 par value per share.

Certain reclassifications have been made to the 2018 financial statements and notes to conform to the 2019 presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The condensed consolidated balance sheet at September 30, 2019 has been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2018 has been derived from audited financial statements, however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s annual report on Form 10-K filed on March 18, 2019.

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.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with 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.

Significant Accounting Policies

With the exception of the adoption of ASU 2016-02 relating to accounting for leases, there have been no material changes in the Company’s significant accounting policies as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Leases

Effective January 1, 2019, 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.

The Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.

Loss Per Share

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 September 30,
	2019		2018
Options to purchase common stock		8,170,382		8,048,105
Unvested restricted stock awards		146,800		146,800
Unvested restricted stock units		1,324,172		1,293,750
Warrants to purchase common stock		2,770,781		-
		12,412,135		9,488,655

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.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amended the guidance on accounting for leases. The FASB issued this update to increase transparency and comparability among organizations. This update requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The Company adopted this ASU effective January 1, 2019 using the additional (optional) approach by recording a right-of-use asset and a lease liability of approximately $3.5 million. Our adoption of

this ASU had no effect on opening retained earnings, and the Company continues to account for leases in the prior period consolidated financial statements under ASC Topic 840. In adopting the new standard, the Company elected to apply the practical expedients regarding identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components.

In June 2018, the FASB issued ASU 2018-17, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under ASU 2018-17, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company adopted this new standard on January 1, 2019 and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

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 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 two distribution and license agreements that have been deferred as a contract liability. The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) are recognized as revenue over the estimated term of the distribution and license agreement as regulatory approval was not received and the Company did not have sufficient experience in China 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 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, including the business under the Company’s distribution agreement with Baxter (the “Baxter Agreement”), 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 September 30, 2019						Nine Months Ended September 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	$	98	$	98	$	-	$	112	$	112	$	-
License Fee – Over time		68		-		68		205		-		205
Total Drug Products		166		98		68		317		112		205
Concentrate Products
Product Sales – Point-in-time		14,746		13,353		1,393		44,010		39,100		4,910
License Fee – Over time		495		495		-		1,485		1,485		-
Total Concentrate Products		15,241		13,848		1,393		45,495		40,585		4,910
Net Revenue	$	15,407	$	13,946	$	1,461	$	45,812	$	40,697	$	5,115

		Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
Products By Geographic Area		Total		U.S.		Rest of World		Total		U.S.		Rest of World
Drug Revenues
License Fee – Over time	$	68		-	$	68	$	205		-	$	205
Concentrate Products
Product Sales – Point-in-time		16,099		13,208		2,891		44,815		38,536		6,279
License Fee – Over time		505		505		-		1,514		1,514		-
Total Concentrate Products		16,604		13,713		2,891		46,329		40,050		6,279
Net Revenue	$	16,672	$	13,713	$	2,959	$	46,534	$	40,050	$	6,484

Contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.


In thousands of US dollars ($)	September 30, 2019		December 31, 2018
Receivables, which are included in "Trade and other receivables"	$	5,122	$	6,980
Contract liabilities	$	12,640	$	14,329


	Page
Part I — Financial Information (unaudited)

Item 1 - Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018	5

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	10

Notes to Condensed Consolidated Financial Statements	11

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	35

Item 4 - Controls and Procedures	35

Part II — Other Information

Item 1 - Legal Proceedings	36

Item 1A - Risk Factors	37

Item 6 - Exhibits	39

Signatures	40