(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Delaware | 38-3317208 | ||||||||||
(State or other jurisdiction of |
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| (I.R.S. Employer | ||||||||||
| 30142 S. Wixom Road, Wixom, Michigan | 48393 | ||||||||||
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(Address of principal executive offices) | (Zip Code) | ||||||||||
Large accelerated filer | ☐ | Accelerated filer | ☒ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | ||||||||
| Emerging growth company | ☐ | ||||||||||
Title of each class: Trading Symbol Name of each exchange on which registered: Common Stock, par value RMTI Nasdaq Global Market Page 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 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 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES 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) 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 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES 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 CASH FLOWS 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 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES 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 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 466,994 Stock-based Compensation 2,425,919 Increase in Inventory Reserves 3,442,547 Amortization of Right of Use Asset — (Gain) Loss on Disposal of Assets 4,030 Realized (Gain) Loss on Sale of Investments Available-for-Sale 222,014 Foreign Currency Translation Adjustment (13,791) Changes in Assets and Liabilities: Decrease (Increase) in Accounts Receivable, net (1,226,133) Decrease (Increase) in Insurance Receivable (500,000) Decrease in Inventory 3,669,233 Decrease in Other Assets 75,570 (Decrease) Increase in Accounts Payable 2,709,133 (Decrease) Increase in Settlement Payable 666,667 Decrease in Lease Liability — Decrease in Other Liabilities (2,109,802) Decrease in Deferred License Revenue (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 (18,483,694) Sale of Investments Available-for-Sale 29,596,315 Purchase of Equipment (589,541) Purchase of Research and Development Licenses (Related Party) — Cash (Used in) Provided By Investing Activities (4,921,945) 10,523,080 Cash Flows From Financing Activities: Payments on Short Term Notes Payable — Proceeds from the Issuance of Common Stock / Public Offering — Offering Costs from the Issuance of Common Stock / Public Offering — 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 — Stock Retained in Satisfaction of Tax Liabilities (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 $ — Notes to Condensed Consolidated Financial Statements Liquidity and Capital Resources $8.0 million, net of issuance costs. On See Note 10 for further detail. or debt financing. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume that such financing will be available on favorable terms, if at all. the financial position, operating results and cash flows for the periods presented. The results for the 17, 2020. The Company’s consolidated subsidiaries consisted of its wholly-owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited. As of September 30, 2019 2018 Options to purchase common stock 8,170,382 8,048,105 Unvested restricted stock awards 146,800 146,800 Unvested restricted stock units 1,324,172 1,293,750 Warrants to purchase common stock 2,770,781 - 12,412,135 9,488,655 position, results of operations or cash flows. The Company received upfront fees under In thousands of US dollars ($) 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 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 There were 2019. 2019. products September 30, 2019 Amortized Cost Unrealized Gain Unrealized Loss Fair Value Available-for-Sale Securities Bonds $ 14,549,799 $ 26,401 $ (611) $ 14,575,589 December 31, 2018 Amortized Cost Unrealized Gain Unrealized Loss Fair Value Available-for-Sale Securities Bonds $ 10,801,836 $ 17,415 $ (1,192) $ 10,818,059 Measurements. 6. Inventory September 30, December 31, 2019 2018 Raw Materials $ 2,390,179 $ 3,621,548 Work in Process 209,940 256,129 Finished Goods 1,511,333 1,798,101 Total $ 4,111,452 $ 5,675,778 $2.7 million. Condensed Consolidated Financial Statements September 30, December 31, 2019 2018 Leasehold Improvements $ 1,114,503 $ 929,849 Machinery and Equipment 4,719,132 4,800,774 Information Technology & Office Equipment 1,810,246 2,459,832 Laboratory Equipment 653,075 668,977 8,296,956 8,859,432 Accumulated Depreciation (5,790,863) (6,221,139) Net Property and Equipment $ 2,506,093 $ 2,638,293 $0.6 million. September 30, December 31, 2019 2018 Accrued Research & Development Expense $ 84,798 $ 86,820 Accrued Compensation and Benefits 1,334,563 1,525,599 Accrued Legal Expenses 392,869 170,334 Accrued Marketing Expenses 206,649 5,000 Other Accrued Liabilities 1,897,190 3,342,008 Total Accrued Liabilities $ 3,916,069 $ 5,129,761 9. 2019. Controlled Equity Offering (or "At the Market" Offering) On ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 Service based awards: Restricted stock awards $ - $ 20,222 $ - $ 1,292,125 Restricted stock units 502,080 166,417 1,273,903 166,417 Stock option awards 596,657 427,944 1,795,819 967,377 1,098,737 614,583 3,069,722 2,425,919 Performance based awards: Restricted stock units (332,389) - 468,814 - Stock option awards 110,065 - 356,505 - (222,324) - 825,319 - Total $ 876,413 $ 614,583 $ 3,895,041 $ 2,425,919 2020 is as follows: Weighted Average Grant-Date Number of Shares Fair Value Unvested at December 31, 2018 $ 5.70 Unvested at September 30, 2019 $ 5.70 Weighted Average Grant-Date Number of Shares Fair Value Unvested at December 31, 2017 480,000 $ 7.27 Forfeited (333,200) 5.70 Unvested at September 30, 2018 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 September 30, Weighted Average Grant-Date Number of Shares Fair Value Unvested at December 31, 2018 472,959 $ 4.32 Granted 222,497 4.26 Forfeited (4,950) 4.81 Vested (96,542) 4.70 Unvested at September 30, 2019 593,964 $ 4.23 Weighted Average Grant-Date Number of Shares Fair Value Unvested at December 31, 2018 988,958 $ 4.48 Unvested at September 30, 2019 988,958 $ 4.48 Nine Months Ended September 30, 2019 2018 Exercise price $2.39 - $6.21 $4.52 - $5.75 Expected stock price volatility 67.5% - 70.3% 67.5% Risk-free interest rate 1.4% - 2.6% 2.7% - 2.9% Term (years) 5.25 - 6.5 5.0 - 6.5 A summary of the Company’s Weighted Weighted Average Shares Average Remaining Aggregate Underlying Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2018 7,856,480 $ 7.50 5.2 $ - Granted 576,477 4.17 9.2 12,074 Exercised (30,000) 4.93 - - Forfeited (620,700) 6.34 - - Outstanding at September 30, 2019 7,782,257 $ 7.35 5.1 $ 12,074 Exercisable at September 30, 2019 6,340,901 $ 8.07 4.2 $ - Weighted Weighted Average Shares Average Remaining Aggregate Underlying Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2017 6,906,001 $ 7.92 5.0 $ 976,335 Granted 1,337,271 4.96 9.4 Exercised (5,000) 6.59 - Forfeited (190,167) 6.59 - Outstanding at September 30, 2018 8,048,105 $ 7.46 5.2 $ 365,135 Exercisable at September 30, 2018 6,248,160 $ 7.90 4.1 $ 365,135 The aggregate intrinsic value in the table above is calculated as the difference between the closing price of our common stock and the exercise price of the stock options that had strike prices below the closing price. A summary of the Weighted Average Exercise Number of Shares Price Outstanding at December 31, 2018 388,125 $ 4.70 Outstanding at September 30, 2019 388,125 $ 4.70 Exercisable at September 30, 2019 - $ - intravenous-delivered products incorporating SFP for the treatment of iron disorders worldwide for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. The Company is liable to pay Charak royalties on net sales by the Company of products developed under the license at a specified rate until December 31, 2021. From January 1, 2022 until February 1, 2034, the Company is liable to pay Charak a base royalty at a reduced rate on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a The following summarizes quantitative information about the Company’s operating Three Months Ended Nine Months Ended September 30, 2019 September 30, 2019 Operating leases Operating lease cost $ 531,709 $ 1,591,686 Variable lease cost 90,411 258,492 Operating lease expense 622,120 1,850,178 Short-term lease rent expense 4,157 12,470 Total rent expense $ 626,277 $ 1,862,648 Other information Operating cash flows from operating leases $ 493,872 $ 1,531,953 Right of use assets exchanged for operating lease liabilities $ 136,124 $ 4,441,553 Weighted-average remaining lease term – operating leases 1.8 1.8 Weighted-average discount rate – operating leases Three months ended December 31, 2019 $ 479,345 Year ending December 31, 2020 1,433,260 Year ending December 31, 2021 811,097 Year ending December 31, 2022 346,649 Year ending December 31, 2023 197,130 Year ending December 31, 2024 97,423 Total $ 3,364,904 Less present value discount (293,365) Operating lease liabilities $ 3,071,539 agreement. Shareholder Class Action Lawsuits CMS. 2018. On February 18, 2019, the Company answered the consolidated amended complaint. Condensed Consolidated Financial Statements Triferic AVNU are set forth below. While we intend to market and sell Triferic Dialysate and Triferic As a post-approval requirement under the Pediatric Research Equity Act, we are required to conduct a further clinical study of the effectiveness of Triferic in a pediatric patient population. We have reached agreement with the FDA and EMA on the design of this iron products is that the iron must be processed and stored in the liver before it is released and becomes available as a fuel for cardiac muscle energetics. We believe FPC may be a significant advantage for the acute heart failure patient due to the fact that it provides 100% immediately bioavailable iron, which may mean it is faster acting and could make a meaningful impact within the context of the hospital stay. 2019 future gross profits. realized gains on investments. Other income for the three months ended September 30, 2019 was interest expense. 2019 2019. (Expense) income and $24,292 of realized gains on investments. Other expense for the nine months ended September 30, 2020 was $2.1 million, consisting of warrant modification expense of $0.8 million and interest expense of $1.3 million related to our debt facility (see Note 15 for more information on our debt facility). Other expense for the nine months ended September 30, 2019 was $16,365 of interest expense. this report. 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. Net party and $0.4 million for the purchase of equipment. our at-the market offering, respectively. the future. 2020. In connection with the pervasive effect of the ITGC material weaknesses, management has taken a number of steps with the intention of remediating the above control deficiencies. We continue to implement enhanced procedures and controls to remediate the pervasive impact of our material weaknesses in internal control over financial reporting. The remediation of the material weaknesses is among our highest priorities. Our Audit Committee continually assesses the progress and sufficiency of these initiatives and make adjustments as and when necessary. As of the date of this report, our management believes that our efforts, when completed, will remediate the material weaknesses in internal control over financial reporting. However, there can be no assurance that our efforts will result in remediation of the material weaknesses in internal control over financial reporting. Factors.” In order to ensure the safety of patients and staff at the dialysis clinics that use our Triferic products, we expect the dialysis clinics will implement a number of changes to their safety procedures. In addition, the dialysis clinics may face challenges related to decreased staffing, if staff members are affected by COVID-19. Changes to safety procedures and/or staffing issues may impede the clinics’ ability to make additional protocol changes that are required for Triferic. XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Database XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROCKWELL MEDICAL, INC. (Registrant) Russell Ellison Russell Skibsted◻☐$.000112, 20196, 2020 was 63,955,893.93,573,165.3 4 5 6 1071182827353536363737 39444045 2September 30,
2020December 31,
2019(Unaudited) ASSETS Cash and Cash Equivalents $ 56,614 $ 11,794 Investments Available-for-Sale 10,702 14,250 Accounts Receivable, net 4,129 4,203 Inventory, net 3,877 3,647 Prepaid and Other Current Assets 2,621 2,980 Total Current Assets 77,943 36,874 Property and Equipment, net 2,785 2,433 Inventory, Non-Current 859 441 Right of Use Assets, net 2,099 3,213 Goodwill 921 921 Other Non-Current Assets 629 435 Total Assets $ 85,236 $ 44,317 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts Payable $ 4,190 $ 3,018 Accrued Liabilities 4,968 4,518 Settlement Payable 0 104 Lease Liability - Current 1,155 1,493 Deferred License Revenue - Current 2,180 2,234 Insurance Financing Note Payable 0 763 Customer Deposits 73 55 Other Current Liability - Related Party 142 188 Total Current Liabilities 12,708 12,373 Lease Liability - Long-Term 1,039 1,781 Term Loan, Net of Issuance Costs 20,856 0 Deferred License Revenue - Long-Term 8,558 9,843 Total Liabilities 43,161 23,997 Commitments and Contingencies (See Note 14) Stockholders’ Equity: Preferred Stock, $0.0001 par value, 2,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 0 0 Common Stock, $0.0001 par value; 170,000,000 shares authorized; 93,573,165 and 65,378,890 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 9 7 Additional Paid-in Capital 370,760 326,777 Accumulated Deficit (328,743) (306,516) Accumulated Other Comprehensive Income 49 52 Total Stockholders’ Equity 42,075 20,320 Total Liabilities and Stockholders’ Equity $ 85,236 $ 44,317 (Unaudited)Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Net Sales $ 15,280 $ 15,407 $ 47,033 $ 45,812 Cost of Sales 14,934 15,424 44,693 44,085 Gross Profit 346 (17) 2,340 1,727 Selling and Marketing 1,669 1,827 5,738 7,149 General and Administrative 3,622 4,623 11,767 16,341 Settlement Expense 0 0 0 430 Research and Product Development 1,745 1,475 5,183 4,930 Operating Loss (6,690) (7,942) (20,348) (27,123) Other Income (Expense) Realized Gain on Investments 4 6 8 24 Warrant Modification Expense 0 0 (837) 0 Interest Expense (666) (16) (1,289) (16) Interest Income 2 97 239 289 Total Other Income (Expense) (660) 87 (1,879) 297 Net Loss $ (7,350) $ (7,855) $ (22,227) $ (26,826) Basic and Diluted Net Loss per Share $ (0.10) $ (0.12) $ (0.32) $ (0.45) Basic and Diluted Weighted Average Shares Outstanding 71,811,322 63,796,723 69,594,167 59,728,446 Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Net Loss $ (7,350) $ (7,855) $ (22,227) $ (26,826) Unrealized Gain (Loss) on Available-for-Sale Debt Instrument Investments 2 6 (11) 10 Foreign Currency Translation Adjustments 1 (1) 8 (1) Comprehensive Loss $ (7,347) $ (7,850) $ (22,230) $ (26,817) SHAREHOLDERS'STOCKHOLDERS' EQUITYFor the three months ended September 30, 2019(Unaudited)COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED
DEFICITACCUMULATED
OTHER
COMPREHENSIVE
INCOMETOTAL
STOCKHOLDERS'
EQUITYSHARES AMOUNT Balance as of January 1, 2020 65,378,890 $ 7 $ 326,777 $ (306,516) $ 52 $ 20,320 Net Loss — — — (7,984) — (7,984) Unrealized Loss on Available-for-Sale Investments — — — — (7) (7) Foreign Currency Translation Adjustments — — — — 6 6 Issuance of common stock, net of offering costs/Public Offering 3,670,212 0 8,003 — — 8,003 Issuance of Warrants related to Debt Financing — — 501 — — 501 Stock-based Compensation — — 935 — — 935 Balance as of March 31, 2020 69,049,102 $ 7 $ 336,216 $ (314,500) $ 51 $ 21,774 Net Loss — — — (6,893) — (6,893) Unrealized Loss on Available-for-Sale Investments — — — — (6) (6) Foreign Currency Translation Adjustments — — — — 1 1 Issuance of common stock, net of offering costs/At-the-Market Offering 987,716 0 1,978 — — 1,978 Vesting of Restricted Stock Units Issued, net of taxes withheld 120,104 0 (19) — — (19) Warrant Modification Expense — — 837 — — 837 Stock-based Compensation expense — — (1,461) — — (1,461) Balance as of June 30, 2020 70,156,922 $ 7 $ 337,551 $ (321,393) $ 46 $ 16,211 Net Loss — — — (7,350) — (7,350) Unrealized Gain on Available-for-Sale Investments — — — — 2 2 Foreign Currency Translation Adjustments — — — — 1 1 Issuance of common stock, net of offering costs/Public Offering 23,178,809 2 32,675 — — 32,677 Issuance of common stock, net of offering costs/At-the-Market Offering 140,892 0 284 — — 284 Vesting of Restricted Stock Units Issued, net of taxes withheld 96,542 0 — — — 0 Stock-based Compensation expense — — 250 — — 250 Balance as of September 30, 2020 93,573,165 $ 9 $ 370,760 $ (328,743) $ 49 $ 42,075 6SHAREHOLDERS'STOCKHOLDERS' EQUITYFor the three months ended September 30, 2018(Unaudited)COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED
DEFICITACCUMULATED
OTHER
COMPREHENSIVE
INCOMETOTAL
STOCKHOLDERS'
EQUITYSHARES AMOUNT Balance as of January 1, 2019 57,034,154 $ 6 $ 299,596 $ (272,388) $ 63 $ 27,277 Net Loss — — — (8,679) — (8,679) Unrealized Loss on Available-for-Sale Investments — — — — (7) (7) Foreign Currency Translation Adjustments — — — — 0 0 Exercise of Employee Stock Options, Net of Tax 30,000 0 148 — — 148 Delivery of common stock underlying restricted stock units, net of tax 64,173 0 (95) — — (95) Stock-based Compensation — — 1,517 — — 1,517 Balance as of March 31, 2019 57,128,327 $ 6 $ 301,166 $ (281,067) $ 56 $ 20,161 Net Loss — — — (10,292) — (10,292) Unrealized Gain on Available-for-Sale Investments — — — — 12 12 Foreign Currency Translation Adjustments — — — — 0 0 Issuance of common stock, net of offering costs/Public Offering 5,833,334 0 16,120 — — 16,120 Issuance of common stock, net of offering costs/At-the-Market Offering 437,043 0 2,089 — — 2,089 Stock-based Compensation — — 1,502 — — 1,502 Balance as of June 30, 2019 63,398,704 $ 6 $ 320,877 $ (291,359) $ 68 $ 29,592 Net Loss — — — (7,855) — (7,855) Unrealized Gain on Available-for-Sale Investments — — — — 6 6 Foreign Currency Translation Adjustments — — — — (1) (1) Delivery of common stock underlying restricted stock units, net of tax 62,800 0 (85) — — (85) Issuance of common stock, net of offering costs/Public Offering 425,880 0 1,169 — — 1,169 Stock-based Compensation — — 876 — — 876 Balance as of September 30, 2019 63,887,384 $ 6 $ 322,837 $ (299,214) $ 73 $ 23,702 7CHANGES IN SHAREHOLDERS' EQUITY(Unaudited)2020 2019 Cash Flows From Operating Activities: Net Loss $ (22,227) $ (26,826) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 614 582 Stock-based Compensation (276) 3,895 Warrant Modification Expense 837 0 Increase in Inventory Reserves 305 1,271 Amortization of Right of Use Asset 1,090 1,430 Amortization of Debt Financing Costs and Accretion of Debt Discount 200 0 Loss (Gain) on Disposal of Assets 7 (1) Realized (Gain) on Sale of Investments Available-for-Sale (8) (24) Foreign Currency Translation Adjustment 7 0 Changes in Assets and Liabilities: Decrease in Accounts Receivable, net 74 1,857 Decrease in Insurance Receivable 0 371 (Increase) Decrease in Inventory (953) 293 Decrease in Prepaid and Other Assets 161 931 Increase (Decrease) in Accounts Payable 1,172 (1,298) Decrease in Settlement Payable (104) (147) Decrease in Lease Liability (1,056) (1,369) Increase (Decrease) in Other Liabilities 423 (1,229) Decrease in Deferred License Revenue (1,338) (1,690) Changes in Assets and Liabilities (1,621) (2,281) Cash Used In Operating Activities (21,072) (21,954) Cash Flows From Investing Activities: Purchase of Investments Available-for-Sale (23,531) (34,202) Sale of Investments Available-for-Sale 27,076 30,479 Purchase of Equipment (970) (449) Purchase of Research and Development Licenses (Related Party) 0 (750) Cash Provided By (Used In) Investing Activities 2,575 (4,922) Cash Flows From Financing Activities: Proceeds from Term Loan 22,500 0 Debt Issuance Costs (1,343) 0 Payments on Short Term Note Payable (763) (763) Proceeds from the Issuance of Common Stock / Public Offering 43,148 18,777 Offering Costs from the Issuance of Common Stock / Public Offering (2,469) (1,488) Proceeds from the Issuance of Common Stock / At-the-Market Offering 2,325 2,296 Offering Costs from the Issuance of Common Stock / At-the-Market Offering (63) (207) Proceeds from the Exercise of Employee Stock Options 0 148 Repurchase of Common Stock to Pay Employee Withholding Taxes (18) (180) Cash Provided By Financing Activities 63,317 18,583 Increase (Decrease) in Cash and Cash Equivalents 44,820 (8,293) Cash and Cash Equivalents at Beginning of Period 11,794 22,714 Cash and Cash Equivalents at End of Period $ 56,614 $ 14,421 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 906 $ 0 Supplemental Disclosure of Noncash Investing and Financing Activities: Change in Unrealized Loss on Marketable Securities Available-for-Sale $ (11) $ 0 Insurance Financing Note Payable $ 0 $ 1,145 Fair Value of Warrants issued related to Debt Financing $ 501 $ 0 8CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYFor the nine months ended September 30, 2018(Unaudited)The accompanying notes are an integral part of the condensed consolidated financial statements.9ROCKWELL MEDICAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the nine months ended September 30, 2019 and 2018(Unaudited)581,982 3,895,041 1,271,000 1,429,727 (620) (24,292) (631) 1,857,061 371,217 293,326 930,847 (1,298,031) (146,668) (1,369,994) (1,228,671) (1,689,651) (34,202,301) 30,479,252 (448,896) (750,000) (763,422) 18,777,642 (1,487,721) 147,900 (180,289) The accompanying notes are an integral part of the condensed consolidated financial statements.10ROCKWELL MEDICAL, INC. AND SUBSIDIARIESrenalkidney disease (ESRD).(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. Our lead indication is developing FPC for the treatment of iron deficiency anemia in patients undergoing home infusion therapy. 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.dialysis.Triferic®iron deficiency.Going Concern2019,2020, the Company had approximately $14.4$56.6 million of cash and cash equivalents, $14.6$10.7 million of investments available-for-sale, working capital of $28.2$65.2 million and an accumulated deficit of $299.2$328.7 million. Net cash used in operating activities for the nine months ended September 30, 20192020 was approximately $21.9$21.1 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 Management evaluated the Company’s ability to continue as a going concern for one yearat least the next 12 months from the issuancefiling 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 accompanying condensed consolidated financial statements. The condensed consolidated financial statements have been prepared assumingfiling of this report.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 classificationsold 3,670,212 shares of recorded asset amounts and classificationits common stock for proceeds of liabilities that might be necessary should the Company be unable to continue as a going concern.June 20, 2019,March 16, 2020, the Company closed a public offeringdebt financing transaction with net proceeds at closing of 5,833,334approximately $21.2 million, net of fees and expenses (See Note 15 for further detail). On September 23, 2020, the Company sold 23,178,809 shares of its common stock at a pricefor proceeds of $3.00 per share. The aggregate proceeds from this public offering (net$32.7 million, net of issuance costs (see Note 10 for further detail).underwriters’ commissions and offering expenses) were approximately $16.1 million. On July 9, 2019,nine months ended September 30, 2020, the underwriters of the public offering partially exercised their over-allotment option and purchased an additional 425,800Company sold 1,128,608 shares of its common stock at a priceas part 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 aits sales agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time sharesfor proceeds of the Company’s common stock through the Agent up to $40,000,000. As$2.3 million, net of September 30, 2019, approximately $37.7issuance costs. Approximately $32.3 million remains available for issuancesale 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.launchcommercialization of Triferic Dialysate and Triferic AVNU, executing upon our plans for enhancing Triferic's medical capabilities, generating additional data for Triferic and I.V. Triferic.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 equity11ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)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. unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“U.S.”) of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8Rule 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. In the opinion of management, the accompanying unauditedfinancialbalance sheet at September 30, 2020, condensed consolidated statements reflectof operations for the three and nine months ended September 30, 2020 and 2019, condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2020 and 2019, condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, and condensed consolidated statement of changes in shareholder’s equity for the three and nine months ended September 30, 2020 and 2019 are unaudited, but include all adjustments, consisting of normal recurring adjustments, consideredthat the Company considers necessary for a fair presentation of such interim results.condensed consolidated statement of operationsthree and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 20192020 or for any future interim period. The condensed consolidated balance sheet at September 30,December 31, 2019 has been derived from unauditedaudited financial statements;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 consolidatedaudited financial statements for the year ended December 31, 20182019 and notes thereto included in the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on Form 10-K on March 18, 2019.Significant Accounting PoliciesWith 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, 2018.12ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)LeasesEffective January 1, 2019, theThe 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 byThe Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.As of September 30, 2020 2019 Options to purchase common stock 6,682,192 8,170,382 Unvested restricted stock awards 146,800 146,800 Unvested restricted stock units 245,405 1,324,172 Warrants to purchase common stock 26,426,863 2,770,781 33,501,260 12,412,135 February 2016,July 2017, the FASB issued ASU 2016-02, LeasesNo. 2017-11, “Earnings Per Share (Topic 842), which amended260) and Derivatives and Hedging (Topic 815)- Accounting for Certain Financial Instruments with Down Round Features” (“ASU 2017-11”). Equity-linked instruments, such as warrants and convertible instruments may contain down round features that result in 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 liabilitiesstrike price being reduced on the balance sheetbasis of the pricing of future equity offerings. Under ASU 2017-11, a down round feature will no longer require a freestanding equity-linked instrument (or embedded conversion option) to be classified as a liability that is remeasured at fair value through the income statement (i.e. marked-to-market). However, other features of the equity-linked instrument (or embedded conversion option) must still be evaluated to determine whether liability or equity classification is appropriate. Equity classified instruments are not marked-to-market. For earnings per share ("EPS") reporting, the ASU requires companies to recognize the effect of the down round feature only when it is triggered by treating it as a dividend and the disclosureas a reduction of key information about leasing arrangements.income available to common shareholders in basic EPS. The Company adoptedamendments in 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 of13ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)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 all entities for fiscal years, and interim periods within those 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. The2019. This standard, which the Company as adopted this new standard on January 1, 20192020, and the adoption did not have amaterial impact on its condensed consolidatedthe Company’s financial statements and related disclosures.·Step 1: Identify the contract with the customer·Step 2: Identify the performance obligations in the contract
•Step 1: Identify the contract with the customer·Step 3: Determine the transaction price
•Step 2: Identify the performance obligations in the contract·Step 4: Allocate the transaction price to the performance obligations in the contract
•Step 3: Determine the transaction price·Step 5: Recognize revenue when the company satisfies a performance obligation14ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)two4 distribution and license agreements that have been deferred as a contract liability. The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) and Sun Pharmaceutical Industries Ltd. ("Sun Pharma") and amounts to be received Jeil Pharmaceutical Co., Ltd. ("Jeil 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, India and South Korea, 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. 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.In thousands of U.S. dollars ($) Three Months Ended September 30, 2020 Nine Months Ended September 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 $ 228 $ 228 $ 0 $ 609 $ 609 $ 0 License Fee – Over time 56 0 56 167 0 167 Total Drug Products 284 228 56 776 609 167 Concentrate Products Product Sales – Point-in-time 14,506 13,470 1,036 44,786 40,295 4,491 License Fee – Over time 490 490 0 1,471 1,471 0 Total Concentrate Products 14,996 13,960 1,036 46,257 41,766 4,491 Net Revenue $ 15,280 $ 14,188 $ 1,092 $ 47,033 $ 42,375 $ 4,658 In thousands of U.S. 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 $ 0 $ 112 $ 112 $ 0 License Fee – Over time $ 68 $ 0 68 205 0 205 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 0 1,485 1,485 0 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 15In thousands of U.S. dollars ($) September 30, 2020 December 31, 2019 Receivables, which are included in "Trade and other receivables" $ 4,129 $ 4,203 Contract liabilities $ 10,738 $ 12,076 ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)no impairment0 material losses recognized related to any receivables arising from the Company’s contracts with customers for the three and nine months ended September 30, 20192020 and 2018.20192020 and September 30, 2018,2019, the Company did not recognize any material bad-debt expense and thereexpense. There were no0 material contract assets recorded on the condensed consolidated balance sheet as of September 30, 20192020 and December 31, 2018.2019. The Company does not generally accept returns of its concentrate products and no0 material reserve for returns of concentrate products was established as of September 30, 20192020 or December 31, 2018. products. 2019,2020, revenue recognized from performance obligations related to prior periods was not material.$10.4$10.7 million as of September 30, 2019.2020. 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 obligationsminimum commitments related to the Baxter Agreement are product sales of $9.6$7.7 million as of September 30, 2020, which will beis being amortized ratably through expiration of the agreementBaxter Agreement on October 2, 2024.20192020 and December 31, 2018:2019 (table in thousands):September 30, 2020 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 10,679 $ 3 $ (1) $ 21 $ 10,702 December 31, 2019 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Fair Value Available-for-Sale Securities Bonds $ 14,238 $ 13 $ (1) $ 0 $ 14,250 as described in Note 3 on Form 10-K, measurement under ASC 820 Fair Value Measurement to our condensed consolidated financial statements.20192020 and December 31, 2018,2019, the amortized cost and estimated fair value of our available-for-sale securities were due inwithin one year or less.year.16ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)20192020 and December 31, 20182019 are as follows:follows (table in thousands):September 30,
2020December 31,
2019Raw Materials $ 2,794 $ 2,471 Work in Process 329 185 Finished Goods 1,613 1,432 Total $ 4,736 $ 4,088 2019 and December 31, 2018,2020, we classified $0.5$0.9 million and $1.6 million, respectively, of inventory as non-current, all of which was related to Triferic or the active pharmaceutical ingredient (API)and raw materials for Triferic. As of September 30, 2019 and December 31, 2018, we had2020, the total Triferic inventory aggregating $3.5was $3.8 million, and $8.0 million respectively, against which we had reserved $2.8 million and $5.8 million respectively.$0.7$1.1 million net value of Triferic inventory consisted of $0.1 million of Triferic Dialysate Triferic finished goods with expiration dates ranging from MarchDecember 2020 to May 2021, and $0.6$0.3 million of Triferic API with estimated useful livesremaining shelf life extending through 2023. The Company increased its inventory reserve2021, and $0.7 million of raw materials for Triferic by $1.1 million as of September 30, 2019 duewith estimated remaining shelf life extending beyond 2025.among other factors, the impact of the Centers for Medicare & Medicaid Services (“CMS”) Final Rule, which is discussed in Note 17 below, and its current volume forecasts for Triferic across the globe. 20192020 and December 31, 2018,2019, the Company’s property and equipment consisted of the following:following (table in thousands):September 30,
2020December 31,
2019Leasehold Improvements $ 1,176 $ 1,162 Machinery and Equipment 5,454 4,673 Information Technology & Office Equipment 1,822 1,810 Laboratory Equipment 653 653 9,105 8,298 Accumulated Depreciation (6,320) (5,865) Property and Equipment, net Property and Equipment, net $ 2,785 $ 2,433 20192020 and 2018,2019 totaled $0.2 million and $0.2 million, respectively.million. Depreciation expense for the nine months ended September 30, 2020 and 2019 and 2018, totaled $0.58 million and $0.47 million, respectively.20192020 and December 31, 20182019 consisted of the following:17September 30,
2020December 31,
2019Accrued Research & Development Expense $ 258 $ 283 Accrued Compensation and Benefits 2,584 1,018 Accrued Legal Expenses 172 182 Accrued Marketing Expenses 100 61 Other Accrued Liabilities 1,854 2,974 Total Accrued Liabilities $ 4,968 $ 4,518 ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited) Insurance Financing Note PayableOn June 3, 2019, the Company entered into a short-term note payable for $1.9 million, bearing interest at 4.65% per annum to finance various insurance policies. Principal and interest payments related to this note began on July 3, 2019 and are paid on a straight-line amortization over a 10-month period with the final payment due on April 3, 2020. As of September 30, 2019, the Company’s insurance note payable balance was $1.15 million.10. Deferred Revenue of 2014, the Company entered into a 10 year distribution agreementthe 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.Agreement, which expires in October 2024. The Company recognized revenue of approximately $0.5 million and $1.5 million duringfor the three and nine months ended September 30, 20192020 and 2018,2019, respectively. Deferred revenue related to the Baxter Agreement totaled $9.6$7.7 million as of September 30, 20192020 and $11.1$9.1 million as of December 31, 2018.JanuaryOctober 1, 20192020 to December 31, 2021, Baxter would be eligible for a 25% refund of the Baxter Agreement’s Upfront Payment.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 2019,2020, Baxter would be eligible for a partial refund of $6.6the upfront fee of $5.0 million. In no event woulddoes the Baxter Agreement require more than one refund be required to be paid.During the year ended December 31,$0.2 millionwill 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 $7,500 during the three and nine months ended September 30, 2019 and 2018,2020, respectively. Deferred revenue related to the Wanbang agreementSun Pharma Agreement totaled $3.0 million$92,500 as of September 30, 20192020.$3.2supply agreements with Jeil Pharma (the "Jeil Pharma Agreements"), for the rights to commercialize Triferic Dialysate (ferric pyrophosphate citrate) in South Korea. Under the terms of the Jeil Pharma Agreements, Jeil Pharma will be the exclusive development and commercialization partner for Triferic Dialysate in South Korea, and the Company will supply the product to Jeil Pharma. In consideration for the license, the Company received an upfront fee of $0.2 million, and will be eligible for milestone payments and royalties on net sales. A Joint Alliance Committee, comprised of members from the Company and Jeil Pharma, will guide the development and execution for Triferic Dialysate in South Korea. Jeil 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 NaN during the three and nine months ended September 30, 2020.2018.11. Shareholders’ EquityAt the 2019, Annual Meeting, the Company’s shareholders votedthere were 2,000,000 shares of preferred stock, $0.0001 par value per share, authorized and approved to reincorporate the Company from the State0 shares of Michigan to the Statepreferred stock issued or outstanding.Delaware (the “Reincorporation”). The Reincorporation became effective on AugustSeptember 30, 2020 and December 31, 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 ofthere were 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.Preferred StockAs of September 30, 2019 and December 31, 2018, there were 2,000,000 shares of preferred stock authorized and no93,573,165 and 65,378,890 shares of preferred stock issued or outstanding.Common StockAs of September 30, 2019, the Company’s authorized shares of common stock was 170 million shares. On June 6, 2019, the Company obtained shareholder approval to increase the number of authorized shares of the Company’s18ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)common stock by 50 million shares from 120 million shares to 170 million shares. On July 30, 2019, the Company amended its Articles of Incorporation to reflect this increase in authorized shares from 120 million to 170 million shares.During the nine months ended September 30, 2019, 30,000 vested employee stock options were exercised for cash proceeds of $147,900, at a weighted average exercise price of $4.93.$40,000,000$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. The2018, the base prospectus contained within the registration statement, and a prospectus supplement that was filed with the SEC on March 22, 2019.aan “at the market offering”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.In April437,0431,840,443 of shares of its common stock pursuant to the Sales Agreement for gross proceeds of $2,296,235,$5,383,079, at a weighted average selling price of approximately $5.25.$2.92. The Company paid $207,027$309,479 in commissions and offering fees related to the sale of the common shares. As ofstock. For the nine months ended September 30, 2019,2020, the Company sold 1,128,608 of shares of its common stock pursuant to the Sales Agreement for gross proceeds of $2,325,478, at a weighted average selling price of approximately $37.7$2.06. The Company paid $63,000 in commissions and offering fees related to the sale of common stock. Approximately $32.3 million remains available for issuancesale under this facility.June 17, 2019,February 4, 2020, the Company entered into a purchasean underwriting agreement with Piper Jaffray & Co., and Cantor Fitzgerald & Co,Co., as underwriter, pursuant to which the Company agreed to issue and sell an aggregate of up to 6,708,3343,670,212 shares of its common stock, which included 875,000478,723 optional shares that may be sold pursuant to an over-allotment option granted to the underwriters. June 20, 2019,February 6, 2020, the Company closed the sale of 5,833,3343,191,489 shares of its common stock for gross proceeds of $17,500,002 at the public offering price of $3.00$2.22 per share (the “Offering”"Offering").paid $1,379,323 in underwriters’ commissions and fees relatedraised a total of $8.0 million, net of issuance costs of $0.1 million, relating to the sale of the common shares.stock in the Offering. The Offering was made pursuant to the Company’s effective registration statementRegistration Statement on Form S-3 (File No. 333-227363), which was previously filed with the SEC.July 9, 2019,September 23, 2020, the Underwriters exercised their over-allotment optionCompany entered into a Securities Purchase Agreement (the “2020 Purchase Agreement”) with certain purchasers named therein, pursuant to purchase an additional 425,800which the Company agreed to issue and sell to several institutional and accredited investors in a registered direct offering, 21,818,544 shares of common stock at a price of $3.00 per share, which closed on July 11, 2019. The total proceedsand warrants to the Company (net of underwriting commissions and offering fees) from the exercise of the over-allotment option were approximately $1.2 million.Restricted Common StockDuring the nine months ended September 30, 2019, 195,042purchase up to 23,178,509 shares of common stock related(the “Warrants”) at a combined purchase price equal to fully vested restricted$1.51 per share. Each Warrant is exercisable for 1 share of common stock units were deliveredat an exercise price of $1.80 per share. The Warrants are immediately exercisable and will expire on September 25, 2022.officeraggregate of 1,360,265 shares of common stock (the “Pre-Funded Warrants”), in lieu of shares of common stock. The purchase price of each Pre-Funded Warrant is equal to the price at which a share of common stock is sold to the public in the offering, minus $0.001, and the exercise price of each Pre-Funded Warrant is $0.001 per share. The Pre-Funded Warrants were exercised in conjunction with the issuance of common stock under the Securities Purchase Agreement. The Company received gross proceeds of approximately $35.0 million in connection with the offering, before deducting placement agent fees and related offering expenses of approximately $2.3 million.Company. Warrant to the extent that the holder would own more than 9.99% (or, at the holder’s option upon issuance, 4.99%) of the Company’s outstanding common stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant or Pre-Funded Warrant.withheld 68,069agreed to pay H.C. Wainwright & Co., LLC (the "Placement Agent") a cash fee of these common shares at6.0% of the aggregate gross proceeds raised in the offering, minus $420,000 payable by the Company to a fair value of $180,289 to cover the officer’s withholding taxesfinancial advisory firm for services related to the vestingoffering.restrictedthe aggregate gross proceeds to be received, if any, from the cash exercise of any Warrants through December 25, 2021 and (ii) 4.0% of the aggregate gross proceeds to be received, if any, from the cash exercise of any Warrants subsequent to December 25, 2021. The Company also agreed to pay the Placement Agent non-accountable expenses of $50,000 as well as $12,900 for the clearing fees of the Placement Agent in connection with the offering.units.for the 2020 Purchase Agreement as equity on the accompanying consolidated balance sheets as of September 30, 2020. The amount allocated to common stock was $26.1 million. This allocation is equal to the total proceeds of $35.0 million less the amount allocated to Warrants of $8.9 million and is also net of the direct and incremental costs associated with the 2020 Purchase Agreement of $2.3 million. The Black-Scholes pricing model was used to calculate the value of Warrants relating to the 2020 Purchase Agreement.1912.11. Stock-Based Compensationand 2018 as follows:The decreasefollows (table in stock-based compensation associated with performance based awards forthousands):Three Months Ended
September 30,Nine Months Ended
September 30,2020 2019 2020 2019 Service-based awards: Restricted stock units $ 9 $ 502 $ 243 $ 1,274 Stock option awards 243 597 1,019 1,796 252 1,099 1,262 3,070 Performance-based awards: Restricted stock units (123) (332) (1,148) 469 Stock option awards 121 110 (390) 357 (2) (222) (1,538) 825 Total $ 250 $ 877 $ (276) $ 3,895 units isawards during the result of a change in vesting criteria from probable to improbable based on the CMS Final Rule as described in Note 17 below. This change resulted in a reduction of stock-based compensation expense of $0.7 million for the three and nine months ended September 30, 2019.Restricted StockNumber of Shares Weighted Average
Grant-Date
Fair ValueUnvested at January 1, 2020 146,800 $ 5.70 Unvested at September 30, 2020 146,800 $ 5.70 Number of Shares Weighted Average
Grant-Date
Fair Value146,800 Unvested at January 1, 2019 Unvested at January 1, 2019 146,800 $ 5.70 146,800 Unvested at September 30, 2019 146,800 $ 5.70 A summary of the Company’s restricted stock awards during the nine months ended September 30, 2018 is as follows:20192020, unvested restricted stock awards of 146,800 were related to performance basedperformance-based awards.20Service BasedService-Based Restricted Stock Unitsservice basedservice-based restricted stock units during the nine months ended September 30, 2020 is as follows:Number of Shares Weighted Average
Grant-Date
Fair ValueUnvested at January 1, 2020 463,786 $ 4.26 Granted 188,904 2.09 Vested (247,561) 4.30 Forfeited (159,724) 4.26 Unvested at September 30, 2020 245,405 $ 2.72 Number of Shares Weighted Average
Grant-Date
Fair ValueUnvested at January 1, 2019 Unvested at January 1, 2019 472,959 $ 4.32 Granted 222,497 4.26 Forfeited (4,950) 4.81 Vested (96,542) 4.70 Unvested at September 30, 2019 593,964 $ 4.23 1-31 to 3 years. Stock-based compensation expense of NaN and $0.2 million was recognized during the three and nine months ended September 30, 2020, respectively. Stock-based compensation expense of $0.5 million and $1.3 million was recognized during the three and nine months ended September 30, 2019. Stock-based compensation expense of $0.2 million was recognized for each of three and nine months ended September 30, 2018.2019, respectively. As of September 30, 2019,2020, the unrecognized stock-based compensation expense was $1.3$0.3 million, which is expected to be recognized over an estimated weighted average remaining term of less than 1 year. Included in the forfeited service-based restricted stock units are 96,541 and 55,556 units related to the resignation of the Company's former President and Chief Executive Officer on April 17, 2020 and the former Chief Financial Officer on July 3, 2020, respectively. These forfeited awards reduced stock-based compensation expense by $0.4 million.Performance Basedperformance basedperformance-based restricted stock units during the nine months ended September 30, 2020 is as follows:Number of Shares Weighted Average
Grant-Date
Fair ValueUnvested at January 1, 2020 988,958 $ 4.48 Forfeited (988,958) 4.48 Unvested at September 30, 2020 0 $ 0 Number of Shares Weighted Average
Grant-Date
Fair ValueUnvested at January 1, 2019 Unvested at January 1, 2019 988,958 $ 4.48 Unvested at September 30, 2019 988,958 $ 4.48 performance basedperformance-based restricted stock units was ($0.3)0.1) million and $0.5($1.1) million during the three and nine months ended September 30, 2019. The Company did not record stock-based compensation expenses related to the performance-based grants as of September 30, 2018. As of September 30, 2019, the unrecognized stock-based compensation expense related to performance based restricted stock units was $1.0 million. The performance based restricted stock unit compensation was reduced by $0.72020 and ($0.3) million and $0.5 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, there was 0 unrecognized stock-based compensation expense related to performance-based restricted stock units. The forfeited performance-based restricted stock awards of 988,958 is due to a change in vesting criteria from probable to improbablethe resignation of the Company's former President and Chief Executive Officer on April 17, 2020 and the resignation of the Company's former Chief Financial Officer effective July 3, 2020. These forfeited awards reduced stock-based compensation expense for certain performance based awards. The Company will continue to review this performance award criteriathe three and recognize compensation costs as it relates to the probability of vesting.Service Basednine months ended September 30, 2020 by $0.1 million and $1.4 million, respectively.service basedservice-based stock options granted for the nine months ended September 30, 20192020 were based on the following assumptions:September 30,
2020Exercise price $1.17 - $2.90 Expected stock price volatility 68.2% - 75.0% Risk-free interest rate 0.31% - 1.65% Term (years) 5.5 - 6.0 21Shares
Underlying
OptionsWeighted
Average Exercise
PriceWeighted
Average
Remaining
Contractual
TermAggregate
Intrinsic
ValueOutstanding at January 1, 2020 8,210,024 $ 7.06 5.1 $ 107,150 Granted 2,252,344 1.95 5.9 — Forfeited (440,026) 3.96 — — Expired (4,090,150) 8.24 — — Outstanding at September 30, 2020 5,932,192 $ 4.54 6.7 $ 0 Exercisable at September 30, 2020 2,889,218 $ 6.95 3.8 $ 0 service basedservice-based stock option activity for the nine months ended September 30, 2019 is as follows:Shares
Underlying
OptionsWeighted
Average Exercise
PriceWeighted
Average
Remaining
Contractual
TermAggregate
Intrinsic
ValueOutstanding at January 1, 2019 Outstanding at January 1, 2019 7,856,480 $ 7.50 5.2 $ 0 Granted 576,477 4.17 9.7 12,074 Exercised (30,000) 4.93 — — Forfeited (620,700) 6.34 — — Outstanding at September 30, 2019 7,782,257 $ 7.35 5.1 $ 12,074 Exercisable at September 30, 2019 6,340,901 $ 8.07 4.2 $ 0 A summary of the Company’s service based stock option activity for the nine months ended September 30, 2018 is as follows:2019,2020, the Company granted to certain employees stock options to purchase up to 576,4772,252,344 shares of common stock.stock to certain employees. During the nine months ended September 30, 2019, forfeitures2020, 440,026 shares were 620,700.forfeited. Forfeitures are recorded in the period of occurrence; compensation expense is adjusted accordingly.service basedservice-based stock options was $0.2 million and $1.0 million for the three and nine months ended September 30, 2020, respectively. Stock-based compensation expense recognized for service-based stock options was $0.6 million and $1.8 million for the three and nine months ended September 30, 2019, and $0.4 million and $1.0 million for the three and nine months ended September 30, 2018.respectively. As of September 30, 2019,2020, total stock-based compensation expense related to unvested options not yet recognized totaled approximately $2.1$2.8 million, which is expected to be recognized over an estimated weighted average remaining term of 2.4 years. Included in the forfeited service-based stock options are 129,375 unvested options related to the resignation of the Company's former President and Chief Executive Officer on April 17, 2020 and 222,222 unvested options related to the resignation of the Company's former Chief Financial Officer effective July 3, 2020. These forfeited awards reduced stock-based compensation expense by $0.5 million. Included in the expired service-based stock options are 3,783,335 options related to the settlement with the former Chief Executive Officer, Robert Chioini, former Chief Financial Officer, Thomas Klema, and a former and then current director. See Note 14 for further details.22Number of Shares Weighted Average
Exercise
PriceOutstanding at January 1, 2020 388,125 $ 4.70 Granted 750,000 2.20 Forfeited (388,125) 4.70 Outstanding at September 30, 2020 750,000 $ 2.20 Exercisable at September 30, 2020 0 $ 0 Performance Based Stock Optionsperformance basedperformance-based stock options for the nine months ended September 30, 2019 is as follows:Number of Shares Weighted Average
Exercise
PriceOutstanding at January 1, 2019 Outstanding at January 1, 2019 388,125 $ 4.70 Outstanding at September 30, 2019 388,125 $ 4.70 Exercisable at September 30, 2019 0 $ 0 performance basedperformance-based stock options was $0.1 million and ($0.4) million for the three and nine months ended September 30, 2020. Stock-based compensation expense recognized for performance-based stock options was $0.1 million and $0.4 million during the three and nine months ended September 30, 2019. Stock-based compensation expense recognized for performance based stock options was $51,000 for each of the three and nine months ended September 30, 2018. As of September 30, 2019,2020, the unrecognized stock-based compensation expense related to performance basedunvested performance-based stock options was $0.6$0.4 million.13. The forfeited unvested performance-based stock options of 388,125 is due to the resignation of the Company's former President and Chief Executive Officer on April 17, 2020. These forfeited options reduced stock-based compensation expense by $0.7 million.an in-license agreement fora Licensing Agreement with Charak, LLC ("Charak") dated January 7, 2002 (the "2002 Agreement") that grants the Company exclusive worldwide rights to certain patents and information related to our Triferic® product. On October 7, 2018, the Company entered into a Master Services and IP Agreement (the “Charak MSA”) with Charak LLC and Dr. Ajay Gupta, (collectively “Charak”), who serves as Executive Vice President and Chief Scientific Officer of the Company. Pursuant to the MSA, the parties entered into three3 additional agreements described below related to the license of certain soluble ferric pyrophosphate (“SFP”) intellectual property owned by Charak, as well as the Employment Agreement (defined below). The Charak MSA providesprovided for a payment of $1.0 million to Dr. Gupta, payable in four4 quarterly installments of $250,000 each on October 15, 2018, January 15, 2019, April 15, 2019 and July 15, 2019, and reimbursement for certain legal fees incurred in connection with the Charak MSA. The Company recorded $1.1 million as Research and Development Expense – License Acquired (Related Party) for the twelve months ended December 31, 2018. As of September 30, 2019, the Company paid all four of the quarterly installments totaling $1.0 million and accrued $0.1 million for the reimbursement of certain legal expenses.expenses during the year ended December 31, 2019. As of September 30, 2019 and December 31, 2018,2020, the Company has fulfilled its reimbursement obligation of certain legal expenses and accrued $0.1 million relating to certain IP reimbursement expenses and $850,000, respectively,certain sublicense royalty fees as a related party payable on the condensed consolidated balance sheet.Licensing2002 Agreement, between the Company and Charak, dated January 7, 2002, as amended (the “2002 Agreement”), under which Charak granted the Company an exclusive, worldwide, non-transferable license to commercialize SFP for the treatment of patients with renal failure. The Charak Amendment amends the royalty payments due to Charak under the 2002 Agreement such that the Company is liable to pay Charak royalties on net sales by the Company of products developed under the license, which includes the Company’s Triferic® product, at a specified rate until December 31, 2021 and thereafter at a reduced rate from January 1, 2022 until February 1, 2034. Additionally, the Company shall pay Charak a percentage of any sublicense income during the term of the agreement, which amount shall not be less than a minimum specified percentage of net sales of the licensed products by the sub-licensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and be no less than a lower rate of the net sales of the licensed products by the sub-licensee in jurisdictions where there exists no valid claim, on a country-by-country basis.sublicensable,sub-licensable, royalty-bearing license to SFP for the purpose of commercializing certain23ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)(TPN”("TPN”) products incorporating SFP. The license grant under the TPN Agreement continues for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. During the term of the TPN Agreement, the Company is liable to pay Charak a base royalty on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the TPN Agreement, which amount shall not be less than a minimum royalty on net sales of the licensed products by the sub-licensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and not be less than a lower rate of the net sales of the licensed products by the sub-licensee in jurisdictions where there exists no valid claim, on a country-by-country basis.2017-01, 2017-1, Business Combinations (Topic 805), Clarifying the Definition of a Business,as the majority of the fair value of the assets acquired was concentrated in a group of similar assets, and the acquired assets did not have outputs or employees. The assets acquired under the Charak MSA include a license of SFP. Because SFP has not yet received regulatory approval, the $1.1 million purchase price paid and accrued for these assets has been expensed in the Company’s statement of operations for the year ended December 31, 2018. In addition, because the potential milestone payments are not yet considered probable, and no0 milestone payments have been accrued at September 30, 2019.14.2020.sevenfive years. We occupy a 51,000 square foot facility and a 17,500 square foot facility in Wixom, Michigan under a lease expiring in August 2021. We also occupy two other manufacturing facilities, a 51,000 square foot facility in Grapevine, Texas under a lease expiring in December 2020, and a 57,000 square foot facility in Greer, South Carolina under a lease expiring February 2020.2023. In addition, we occupy a 1,408 square foot office space in Greer, South Carolina under a lease expiring April 2021 and on December 28, 20182021. Finally, we executed a lease for 4,100 square feet of office space in Hackensack, New Jersey with a lease term commencing in Julybeginning on April 1, 2019 and expiring on July 1, 2024.2019,2020, the Company had operating lease liabilities of $3.0$2.2 million and right-of-use assets of $3.0$2.1 million, which are included in the consolidated balance sheet.24ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)leases:6.8% 6.8% Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Operating leases Operating lease cost $ 382 $ 532 $ 1,228 $ 1,592 Variable lease cost 90 90 403 258 Operating lease expense 472 622 1,631 1,850 Short-term lease rent expense 4 4 12 12 Total rent expense $ 476 $ 626 $ 1,643 $ 1,862 Other information Operating cash flows from operating leases $ 393 $ 494 $ 1,248 $ 1,532 Right of use assets exchanged for operating lease liabilities $ 0 $ 136 $ 0 $ 4,442 Weighted-average remaining lease term – operating leases 2.3 1.8 2.3 1.8 Weighted-average discount rate – operating leases 6.8 % 6.8 % 6.8 % 6.8 % follows:follows (in thousands):Year ending December 31, 2020 (remaining) $ 387 Year ending December 31, 2021 1,055 Year ending December 31, 2022 592 Year ending December 31, 2023 234 Year ending December 31, 2024 98 Total $ 2,366 Less present value discount (172) Operating lease liabilities $ 2,194 15. Settlement AgreementsOn August 7, 2018,a confidential settlementwith the Company in 2015. The supplier alleged the Company did not meet certain annual minimums under the supply agreement, and mutual release (the “Settlement Agreement”) with its former CEO, former CFOhas requested $3.0 million in penalties, plus payment of the cost for certain raw materials. While the Company believed it had several defenses to the supplier's claim, the Company and a formerthe supplier negotiated an amicable resolution of the dispute. On July 31, 2020, the Company and then current director. For more details see Note 10 in Form 10-K filed on March 18, 2019. This resulted in a net settlement expense of approximately $1.0 million for the nine month ended September 30, 2018.On August 7, 2019, the Companysupplier entered into a settlement agreement, which released the Company from any penalties relating to annual minimums under the class action lawsuits described below. This resulted in a2015 agreement, established new minimums under an amended supply agreement and required the Company to pay for certain raw materials with 50% of the cost to be paid upon execution of the settlement expenseagreement and the remaining 50% to be paid no later than December 31, 2020. As of approximately $0.4 million for the nine months ended September 30, 2019. See Note 16 below for further details. The2020, the Company has purchased 50% of the required raw materials under the settlement is subject to court review and approval, which is scheduled for February, 2020.16. Commitments and ContingenciesCMSCenters for Medicare & Medicaid Services (the "CMS") for separate reimbursement status for Triferic Dialysate, Triferic, the Company’s reserving methodology for expiring Triferic inventory, and the basis for the Board’s termination of the former CEOChief Executive Officer, Robert Chioini, and CFO.former Chief Financial Officer, Thomas Klema, in 2018. The Company is cooperating with the SEC and is responding to the SEC’s requests for documents and information.25ROCKWELL MEDICAL, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)Klema.Klema (the "Too Complaint"). The complaintToo Complaint is a federal securities class action purportedly brought on behalf of a class consisting of all persons and entities, other than Defendants, who purchased or otherwise acquired the publicly traded securities of the Company between March 16, 2018 and June 26, 2018. The Too Complaint alleges that the Company and Messrs. Chioini and Klema violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, the Too Complaint alleges that defendants filed reports with the Securities and Exchange CommissionSEC that contained purported inaccurate and misleading statements regarding the potential for the Company’s drug, Triferic, to quality for separate reimbursement status by the Centers for Medicare and Medicaid Services.Klema.Klema (the "Spock Complaint"). The Spock complaintComplaint is a federal securities class action purportedly brought on behalf of a class consisting of persons who purchased the Company’s securities between November 8, 2017 and June 26, 2018. This complaint alleges that the Company and Messrs. Chioini and Klema violated the Exchange Act in that the Company was aware the Centers for Medicare and Medicaid ServicesCMS would not pursue the Company’s proposal for separate reimbursement for Triferic; misstated reserves in the Company’s quarterly report for the first quarter of 2018; had a material weakness its internal controls over financial reporting, which rendered those controls ineffective; Mr. Chioini withheld material information regarding Triferic from the Company’s auditor, corporate counsel, and independent directors of the Board; and, as a result of these alleged issues, statements about the Company’s business were materially false and misleading.2018, accordingly. Amount’Amount") in exchange for a full release of all liability as to all defendants. This resulted in a settlement expense of approximately $0.4 million for the year ended December 31, 2019. Of the Settlement Amount, the Company will be contributingcontributed approximately $0.4$0.1 million, which representsrepresented the remaining retention amount under the Company’s director and officer liability insurance policy.policy as of September 30, 2020. The remainder of the settlement amount will bewas funded by the Company’s director and officer insurance policy.carrier. The settlement is subject towas approved by the court review and approval, which is scheduled foron February 26, 2020.Two verified stockholder derivative complaints entitled LeClair v Rockwell Medical, Inc., and Post v Rockwell Medical, Inc. were filed in the United States District Court in the Eastern District of New York, purportedly on behalf of the Company (as nominal defendant) and against certain of the Company’s current and former directors (the “Individual Defendants”). The Derivative Complaints assert causes of actions against the Individual Defendants for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Derivative Complaints allege the Individual Defendants breached duties by, among other things, permitting alleged misstatements to be made in public filings regarding the status of separate reimbursement for Triferic from CMS, the adequacy of Rockwell’sthe Company's reserves and the adequacy of Rockwell’s internal controls. Recently,The Derivative Complaints demand a jury trial, seeking monetary damages, corporate governance and internal procedure reform, injunctive relief on the Plaintiffs have amended their derivative complaints. TheseIndividual Directors’ trading activities, restitution, and attorneys’ fees. The cases are at an early stage, and the Company anticipates filing a motionwere consolidated.dismiss the action. has tendered the above shareholder derivative actions to its D&Odirector and officer insurance carrier(s) for defense and indemnity under its applicable insurance policies. On May 18, 2020, the Company, the Individual Defendants and the Plaintiffs (the "Settling Parties") entered into a formal Stipulation of Settlement, which memorializes the terms of the Settling Parties' settlement of the Derivative Complaints. A hearing occurred before the court on August 10, 2020 and the court issued a final order approving the settlement.The Company's director and officer insurance carrier has funded the settlement on behalf of the Company.maintainsis no longer eligible to draw on a $1.0second tranche of $5.0 million, self-insured retentionwhich was tied to the achievement of certain milestones by a specific date. The Company may be eligible to draw on a third tranche of $7.5 million upon the achievement of certain additional milestones, including the achievement of certain Triferic sales thresholds. Net draw down proceeds were $21.2 million with closing costs of $1.3 million.26applicable insurance policies, which will be exhausted upon paymentschedule of principal payments on the Company’s share of the Settlement Amount from the settlement of the class action described above.17. Subsequent EventsOn October 31, 2019, CMS issued a final rule to update payment policies and rates under the ESRD Prospective Payment System for renal dialysis services furnished to beneficiaries on or after January 1, 2020 (the “2020 Final Rule”). The Final Rule contains certain revisions to the eligibility requirements for the CMS Transitional Drug Add-on Payment Adjustment (“TDAPA”) program, which has the potential to provide two years of add-on reimbursement for certain qualifying new drugs. Under the revisions to the TDAPA rules, ESRD drugs approved by the FDA under the following types of New Drug Applications (an “NDA”) are ineligible for TDAPA, effectiveTerm Loan as of January 1, 2020: (a) NDA Types 3, 5, 7 and 8, (b) NDA Type 3 in combination with NDA Type 2 or NDA Type 4, (c) NDA Type 5 in combination with NDA Type 2, or (d) NDA Type 9, when the “parent NDA” is NDA Type 3, 5, 7 or 8.As previously disclosed, we have filed an NDA for the intravenous formulation of Triferic. The FDA has informed the Company that the NDA for I.V. Triferic will be classified as Type 3. As a result, the Company believes that I.V. Triferic will not be eligible for TDAPA.Principal Payments 2020 $ 0 2021 0 2022 2,250 2023 9,000 2024 9,000 2025 2,250 $ 22,500 27relating to the commercialization of our products; our timing and ability to obtain add-on reimbursement forsuccessfully commercialize our products; our ability to obtain FDA and EMA approvalsuccessfully launch FDA-approved Triferic AVNU; our ability to develop FPC for I.V. Triferic; whether we canother indications; our ability to successfully execute on our business strategy;strategy and development of new indications; and statements regarding our anticipated future financial condition, operating results, cash flows and business plans.20182019 and from time to time in our other reports filed with the SEC, including in this Form 10-Q.are a specialty pharmaceutical company targeting end-stage renalinitiated 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 with productsstates. Our lead indication is developing FPC for the treatment of iron deficiency and hemodialysis.anemia in patients undergoing home infusion therapy. We are also a manufacturer of hemodialysis concentrates/dialysates toconcentrates for dialysis providers and distributors in the United States and abroad. We supply approximately 25% of the United States 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. To date, substantially all of our sales have been concentrate products and related ancillary items, though we initiated commercial sales of our proprietary therapeutic, Triferic, during the second quarter of 2019.business strategy is developing unique, proprietary renal drug therapies that we can commercialize or out-license, while also expanding our dialysis products business. These renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy, while decreasing drug administration costs and improving patient convenience and outcome.Triferic Triferic is the Company’s proprietary iron therapy that replaces iron and maintains hemoglobin in dialysis patients without increasing iron stores. The Company has developed Dialysate Triferic (Ferric Pyrophosphate Citrate) as the only FDA approved product indicated to replace iron and maintain hemoglobin concentration in adult HDD-CKD hemodialysis patients, and is in the process of developing and seeking FDA approval for I.V. Triferic, a novel intravenous formulation of Triferic that would be used for the same indication, if approved. A description of Dialysate Triferic and I.V. Triferic is set forth below.28Our objective for Trifericmission 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.which we believe will enablepatients without increasing iron stores. Triferic Dialysate was the first FDA approved product indicated to becomereplace iron and maintain hemoglobin concentration in adult HDD-CKD hemodialysis patients. On March 27, 2020, the standard of care for ESRD patients. Specifically, we are investing in our medical capabilities to, among other things, generate real-world data, provide medical education to the dialysis community regarding the potentinal benefitsFDA approved Triferic AVNU, a novel intravenous formulation of Triferic that would be used for the same indication. Descriptions of Triferic Dialysate and engage with key opinion leaders and centers of excellence to guide the delveopment and commercialization of Triferic.TrifericOurour dialysate formulation of Triferic, (“Dialysate Triferic”) received FDA approval in 2015 and remains the onlyfirst FDA-approved therapy indicated to replace iron and maintain hemoglobin in adult hemodialysis patients. Triferic Dialysate Triferic received a CMS reimbursement J-code on January 1, 2016 from the Centers for Medicare & Medicaid Services (the "CMS"), providing that Triferic Dialysate Triferic would be reimbursed for administration to dialysis patients within the existing fixed-price “bundle” of payments that CMS provides to dialysis providers. Because Dialysate Triferic reimbursement would be included in this bundled payment, we commenced efforts in early 2016 to seek so-called “add-on” or “separate” reimbursement for Dialysate Triferic, which is sometimes available for certain new, innovative therapies. Following receipt of the reimbursement J-code in early 2016 until June 2018, the Company’s commercialization strategy for Dialysate Triferic was primarily focused on obtaining add-on reimbursement status from CMS for Dialysate Triferic, at which point the Company planned to commence commercializing the drug.In June 2018, the Company determined, based on feedback from CMS’s Innovation Center (“CMMI”), that Dialysate Triferic was unlikely to obtain add-on reimbursement in the near term. As a result, the Company changed its commercialization strategy to plan for the commercial launch of Dialysate Triferic with initial reimbursement within the bundle of payments to dialysis providers, while continuing to pursue add-on reimbursement, if possible, and while continuing to develop I.V. Triferic (discussed below). As part of our strategy to launch Dialysate Triferic within the bundle, we requested that CMS provide us with a separate J-code for our powder packet formulation of Dialysate Triferic to distinguish it from our liquid formulation of Dialysate Triferic. On April 26, 2019, pursuant to a request we submitted earlier in 2019, we were notified of a preliminary recommendation by CMS to grant our powder packet formulation of Triferic Dialysate Triferic a separate J-Code, which became effective on July 1, 2019. On May 6, 2019, we announced the commencement of commercial sales of Dialysate Triferic.WhileAs a result, the Company was pursuingchanged its commercialization strategy to plan for the earlier strategy of delaying commercialization until receipt of add-on reimbursement approval, we built up significant inventory of active pharmaceutical ingredient (“API”) and Dialysate Triferic finished goods. However, due to the delays in launching Triferic and taking into account feedback received from CMMI in March 2018 regarding the prospects for near-term approval of add-on reimbursement for Triferic, we increased our inventory reserves for Triferic by a total of $8.1 million during 2018 from $3.5 million as of December 31, 2017 to $11.6 million as of December 31, 2018. For the nine months ended September 30, 2019, Triferic inventory reserves increased by approximately $0.9 million. After deducting inventory destroyed or used for samples, as of September 30, 2019 we had $0.5 million of Dialysate Triferic Finished Goods inventory with $0.4 million reserved leaving a net value of $0.1 million. As of September 30, 2019, we also had approximately $3.0 million of Triferic API against which we have reserved $2.0 million leaving a net value of $1.0 million. Depending on the timing and success of our commercial launch of Triferic Dialysate with reimbursement within the bundle of payments to dialysis providers, while continuing to develop Triferic AVNU (discussed below). We commercially launched Triferic Dialysate in 2019 andMay 2019.degreeCompany determined, based on feedback provided from CMMI, that Triferic Dialysate was unlikely to obtain add-on reimbursement in the near term. As a result, the Company changed its commercialization strategy to plan for the commercial launch of uptakeTriferic Dialysate with reimbursement within the bundle of the drugpayments to dialysis providers, while continuing to develop Triferic AVNU (discussed below). We commercially additional amounts or all of our current investmentlaunched Triferic Dialysate in Dialysate May 2019.finished goods inventory and some or all of our API inventory may need to be written off in future periods. Additional write-offs of existingAVNU (formerly I.V. Triferic)inventory will not have a material negative impact on our cash flow, but could potentially have a material adverse impact on our reported results of operations and financial position. I.V. TrifericWe are also developingAVNU, an intravenous injection formulation of Triferic, (“I.V. Triferic”) for use by hemodialysis patientsclinics in the United States as well as international markets. A clinical equivalence study of I.V. Triferic infusion presentation has been completed and, on the basis of the clinical and non-clinical data prepared by the Company,On March 27, 2020, we submitted a New Drug Application (“NDA”) seekingreceived FDA approval for Triferic AVNU, with the same indications as the dialysate formulation (indicated to market I.V.replace iron and maintain hemoglobin concentration in adult HDD-CKD hemodialysis patients) and we began recruiting clinics for participation in a sample evaluation program for Triferic AVNU during the third quarter of 2020. Due to a minor scheduling delay in the United Statesproduction of packaging for salable product, commercialization will likely be postponed until the clinical indicationfirst quarter of replacing iron and maintaining hemoglobin in adult hemodialysis patients on May 28, 2019. The NDA for I.V.2021. Like Triferic was accepted for filing byDialysate, Triferic AVNU will be reimbursed within the FDA on August 2, 2019 with a Prescription Drug User Fee Act (“PDUFA”) dateexisting fixed-price bundle of March 28, 2020. In November 2018payments that CMS provided interpretative guidance (“CMS Guidance”) regarding the TDAPA program and its potential applicationprovides to I.V. Triferic. Based on the CMS Guidance, the Company believed that, if approved by the29FDA on or after January 1, 2020, I.V. Triferic would possibly be eligible for separate add-on reimbursement under CMS’s TDAPA program for a period of two years On October 31, 2019, CMS issued its final rule to update payment policies and rates under the ESRD Prospective Payment System (PPS) for 2020 (the “2020 Final Rule”). The 2020 Final Rule included updates to TDAPA program eligibility, specifically excluding from eligibility for TDAPA, effective as of January 1, 2020: (a) NDA Types 3, 5, 7 and 8, (b) NDA Type 3 in combination with NDA Type 2 or NDA Type 4, (c) NDA Type 5 in combination with NDA Type 2, or (d) NDA Type 9, when the “parent NDA” is NDA Type 3, 5, 7 or 8.As previously disclosed, the Company has submitted an NDA for the intravenous formulation of Triferic. The FDA has informed the Company that the classification for the I.V. Triferic NDA is Type 3. Accordingly, the Company believes that I.V. Triferic is adversely impacted by the 2020 Final Rule, because it is not eligible for TDAPA reimbursement under the 2020 Final Rule.and I.V. TrifericAVNU directly in the United States, our international strategy is to partner with and license these products to established companies in other regions of the world to assist in the further development (primarily clinical trials and regulatory activities), if necessary, and commercialize in those regions. We continue to pursue international licensing opportunities in a number of countries and specific regions.97%96% of our revenues for the threenine months ended September 30, 2019,2020, with ancillary products and Triferic accounting for most of the remainder. We receive a pre-defined gross profit margin on our concentrate products sold pursuant to the Baxter Agreement, subject to an annual true-up of costs. On August 1, 2019, we entered into a Products Purchase Agreement with DaVita (the “DaVita Agreement”). The Davita Agreement supersedes and replaces that certain First Amended and Restated Products Purchase Agreement, effective as of May 8, 2013 (as subsequently amended) by and between the Company and DaVita, which agreement expired effective as of July 31, 2019 (the “Prior Agreement”). The DaVita Agreement is effective from July 1, 2019 through December 31, 2023. Generally, the DaVita Agreement is similar to the Prior Agreement, except that it provides for an increase in the product sale prices relative to the prices charged for these products under the Prior Agreement.Calcitriol (Active Vitamin D) InjectionCalcitriol, an active Vitamin D injection for the management of hypocalcemia in patients undergoing chronic hemodialysis, is FDA approved under an Abbreviated New Drug Application. To date, we have not commercially launched Calcitriol. Following a strategic review of this product, including pricing, commercial distribution and marketing, manufacturing efficiencies and capacity (including potential capital investment), we have determined commercialization of Calcitriol in the U.S. would not be viable at this time. The decision was based, in part, on the fact that prevailing market prices for similar Vitamin D products are lower than our cost to produce Calcitriol on a dose-equivalent basis, and as a result it would be difficult for us to market Calcitriol profitably. As a result of this decision, we recorded an inventory reserve reflecting the remainder of our Calcitriol inventory. As of December 31, 2018 and September 30, 2019, this reserve totaled $0.7 million. Dialysate Triferic is approved for commercial sale in the United States, Trifericit is not approved for sale in other major markets globally. We have received regulatory guidance from the European Medicines Agency (“EMA”("EMA") regarding the clinical studies that are needed to file for approval of I.V. Triferic AVNU in Europe. At the present time, we do not intend to commence these clinical studies absent findingwithout a development partner in Europe or raising additional capital.Europe. In conjunction with our licensee in the People’s Republic of China, Wanbang Biopharmaceutical, (“Wanbang”Co., Ltd. ("Wanbang"), we completed two clinical pharmacology studies were completed earlier in 2019 andChina during 2019. We expect Wanbang has requested a meeting with the National Medical Products Administration (NMPA) (formerly, China Food and Drug Administration or CFDA) to review the results of these studies and discuss whether these studies are sufficientinitiate an additional, pivotal, clinical study that is required to support a submission for regulatory approval for Dialysate Triferic. Pursuantin China. In addition, pursuant to our licensethe licensing agreement with Wanbang, we are entitledSun Pharmaceutical Industries Ltd. ("Sun Pharma"), our licensee in India, meetings between Sun Pharma and the regulatory authorities in India have been initiated. Sun Pharma continues to follow$35 million of regulatory and sales-based milestones, including an $8 million milestone payment upon regulatorydetermine the requirements for approval of Triferic in China.India. Lastly, pursuant to the licensing agreement with Jeil Pharmaceutical Co., Ltd ("Jeil Pharma"), our licensee in South Korea, meetings between Jeil Pharma and the regulatory authorities in South Korea will be initiated. Jeil Pharma has informed us they do not believe they would need to perform a clinical trial in advance of approval. We will supply the finished dosage form of Triferic to Wanbang at a transfer price comprising cost of goods sold, a mark-up and a percentage of netanticipate sales in South Korea to begin in early 2022. See "Item 1A — Risk Factors" below for a discussion of the low-to-mid 20% range.potential impact of COVID-19 our overall business and such clinical studies.30study, which we intend to commence in 2019, assuming westudy. We have the liquidity and capital resources to do so. In April 2019, we entered intoengaged a contract with a CRO for the conductresearch organization and are in process of the pediatric study and prepaid approximately $0.8 million for future work under the contract. We expect to begin enrollment of patientsselecting sites in the pediatric study in the first half of 2020.United States and selected EU countries. We expect that the data from this study could be used as part of the overall clinical data package to support approval by the EMA, if and when we are able to complete the other clinical trials needed to support making such a filing.Additionally, See "Item 1A — Risk Factors" below for a discussion of the potential impact of COVID-19 on such clinical studies.believe that Dialysate Trifericinitiated our plan to leverage our development and I.V. Triferic have potential to be developedregulatory experience with our FPC platform for use in other indications. We plan to meet with the FDA for a Type C meeting to discuss our plan for developing FPC for the treatment of iron deficiency anemia indications,in patients undergoing home infusion therapy. Over 3.2 million patients are treated annually using home infusion therapy. The incidence of iron deficiency is estimated to be as wellhigh as other product presentations60% in this patient population.other clinical applications, including peritoneal dialysisinconvenient. As a result, physicians are often hesitant to proactively treat iron deficiency and totalthe majority of patients are left to deal with the disease on their own. Those who become severely anemic are reactively given blood transfusions, which comes with significant risk.nutrition.20192020 and 2018For the Three Months Ended September 30, 2020 % of Revenue 2019 % of Revenue % Change Net Sales $ 15,280 $ 15,407 (0.8) % Cost of Sales 14,934 97.7 % 15,424 100.1 % (3.2) Gross Profit (Loss) 346 2.3 (17) (0.1) (2,135.3) Selling and Marketing 1,669 10.9 1,827 11.9 (8.6) General and Administrative 3,622 23.7 4,623 30.0 (21.7) Research and Product Development 1,745 11.4 1,475 9.6 18.3 Operating Loss $ (6,690) (43.8) % $ (7,942) (51.5) % (15.8) % 2019,2020, our net sales were $15.4$15.3 million compared to net sales of $16.7$15.4 million during the three months ended September 30, 2018. Net sales of hemodialysis concentrates to dialysis providers and distributors in the U.S. and abroad were $15.2 million for the three months ended September 30, 2019 compared to $16.6 million for the three months ended September 30, 2018. 2019. The decrease of $1.4$0.1 million was primarily due to lower sales toa decrease in international customers offset by an increase in sales pursuant to the Company’s contract with DaVita Inc. Net sales of dialysis concentrates products. Triferic were $166,000 for the three months ended September 30, 2019 compared to $68,000 for the three months ended September 30, 2018. For each of the three months ended September 30, 2019 and September 30, 2018, Triferic net sales included approximately $68,000 of deferred revenue recognized under the Company’s license in the People’s Republic of China with Wanbang Biopharmaceutical. TrifericDialysate net sales for the three months ended September 30, 2019 also2020 included approximately $98,000$0.2 million of Triferic Dialysate product sales to U.S.United States customers.. (Loss)20192020 was $15.4$14.9 million, resulting in gross loss of $16,000 during the three months ended September 30, 2019, compared to cost of sales of $14.7 million and a gross profit of $2.0$0.4 million during the three months ended September 30, 2018. Cost2020, compared to cost of sales forof a $15.4 million and a gross loss of $17,000 during the three months ended September 30, 2019. Gross profit increased by $0.4 million in the third quarter of 2020 compared to the third quarter of 2019, included $14.3 milliondue primarily to a large inventory reserved of manufacturing and distribution costs associated with the Company’s concentrates products and $1.1 million of inventory reserve expenses and product costs for Triferic, compared to $14.6 million and $0.1 million, respectively, for the three months ended September 30, 2018. Gross profit decreased by $2.0 millionrecorded in the third quarter of 2019 compared to $0.3 million inventory reserve recorded in the third quarter of 2018, due primarily to a decrease in sales of $1.3 million;2020; offset by an increase in inventory reserve expenselabor and material costs $0.3 million to address protocols put in place from the ongoing COVID-19 pandemic. Gross profits are primarily related to our concentrates business at this time. The Company anticipates that potential future sales of $1.1 million; increase in labor, maintenance and recruitingTriferic will impact the mix of $0.4 million; offset by a decrease in distribution and materials and overhead of $0.7 million. 2019 compared2019. The decrease of $0.1 million is primarily due to a decrease in marketing costs related to Triferic Dialysate offset by an increase in costs associated with $0.1the launch of Triferic AVNU, our new FDA-approved intravenous formula.2018. The increase of $1.7 million was due to the investments the Company made in developing a commercial platform to support the commercial launch of Triferic. General and Administrative ExpenseGeneral and administrative expenses were2020, compared with $4.6 million during the three months ended September 30, 20192019. The decrease of $1.0 million is due primarily to a decrease in stock compensation of $0.6 million, relating to a decrease in incentive compensation from forfeited equity awards associated with the departure of our former Chief Financial in July 2020; a decrease in consulting expense of $0.3 million, relating to strategic development; a decrease in accounting costs of $0.2 million , relating to a decrease in internal audit fees; and a decrease in legal expense of $0.1 million, relating to previous litigation that has since been resolved; partially offset by an increase of $0.3 million for increased training cost and severance pay related to our former President and Chief Executive Officer.$6.0$1.5 million during the three months ended September 30, 2018. 2019. The decreaseincrease of $1.4$0.2 million iswas due primarily due to a decrease in legal and related costs associated with various matters, including litigation activities, related to the departure of certain executives and directors during 2018, partially offset by increases in insurance premiums.Settlement ExpenseSettlement expense was nil for each of the three months ended September 30, 2019 and 2018, respectively.31Research and Product Development ExpenseResearch and product development expenses were $1.5 millionOther income for the three months ended September 30, 2019 compared with $0.8 million during the three months ended September 30, 2018. The increase2020 was $5,861, consisting of $0.7 million was due to the Company’s commitment to investing ininterest income of $1,767 and building its medical capabilities mentioned above, including generating data from studies and real-world use$4,094 of Triferic to support medical education and development efforts for Triferic, as well as the expansion of the Company’s internal medical affairs staff. The Company expects its research and product development expenses to increase in the future due to additional clinical development of Dialysate and I.V. Triferic, including the pediatric clinical trial for Triferic, and investments we are making in our medical platform to support medical education efforts and the collection and analysis of real-world data for Triferic Other Income, Net$0.1 million,$103,386, consisting primarilyof $97,100 of interest income.income and $6,268 of realized gains on investments. Other incomeexpense for the three months ended September 30, 20182020 was $29,000, consisting of $0.13$0.7 million of interest income, offset by $0.1 millionexpense related to our debt facility (see Note 15 for more information on our debt facility). Other expense for the three months ended September 30, 2019 was $16,365 of realized gains on investments. 20192020 and 2018For the Nine Months Ended September 30, 2020 % of Revenue 2019 % of Revenue % Change Net Sales $ 47,033 $ 45,812 2.7 % Cost of Sales 44,693 95.0 % 44,085 96.2 % 1.4 Gross Profit 2,340 5.0 1,727 3.8 35.5 Selling and Marketing 5,738 12.2 7,149 15.6 (19.7) General and Administrative 11,767 25.0 16,341 35.7 (28.0) Settlement Expense, net of Reimbursement — — 430 0.9 (100.0) Research and Product Development 5,183 11.0 4,930 10.8 5.1 Operating Loss $ (20,348) (43.3) % $ (27,123) (59.2) % (25.0) % 2019,2020, our net sales were $45.8$47.0 million compared to net sales of $46.5$45.8 million during the nine months ended September 30, 2018. Net2019. The increase of $1.2 million was primarily due to higher domestic dialysis concentrate sales of hemodialysis concentrates to dialysis providers$0.8 million and distributorsan increase in the U.S. and abroad were $45.5Triferic Dialysate sales of approximately $0.4 million for the nine months ended September 30, 2019 compared to $46.3 million for the nine months ended September 30, 2019. The decreaseTriferic was launched in the third quarter of $0.7 million was primarily due to lower sales to international customers offset by an increase in sales pursuant to2019 via the Company’s contract with DaVita Inc. Net sales of Trifericsample evaluation program and there were $0.3 millionnominal revenues for the nine months ended September 30, 2019 compared to $0.2 million for the nine months ended September 30, 2018. For each of the nine months ended September 30, 2019 and September 30, 2018, Triferic net sales included approximately $0.2 million of deferred revenue recognized under the Company’s licensesame period in the People’s Republic of China with Wanbang Biopharmaceutical. Triferic net sales for the nine months ended September 30, 2019 also included approximately $112,000 of Triferic product sales to U.S. customers. (Loss)20192020 was $44.7 million, resulting in gross profit of $2.3 million during the nine months ended September 30, 2020, compared to cost of sales of $44.1 million resulting inand a gross profit of $1.7 million during the nine months ended September 30, 2019, compared to cost of sales of $49.3 million and a gross loss of $2.82019. Gross profit increased by $0.6 million during the nine months ended September 30, 2018.2020 compared to the nine months ended September 30, 2019. The increase was due primarily to a gross margin increase of $0.3 million in our Triferic Dialysate product in 2020. In comparison, the launch and sales of Triferic Dialysate occurred in the third quarter of 2019 and had no to minimal impact during the nine months ended September 30, 2019. Gross profit increasedprofits are primarily related to our concentrates business at this time. The Company anticipates that potential future sales of Triferic will impact the mix of future gross profits.compared to the nine months ended September 30, 2018, due primarily to a non-cash charge taken for an inventory reserve for Trifericincrease of $8.3 million$0.3 million. Research and product development expenses for the nine months ended September 30, 2018, partially offset by a gross profit decrease2020 included clinical trials and other product development expenses of $1.2$1.8 million in our dialysis concentrates products. The decrease in gross profit for our dialysis concentrates products was primarily attributableTriferic, compared to increased labor, materials and overhead costs. Selling and Marketing ExpenseSelling and Marketing Expenses were $7.2$1.4 million during the nine months ended September 30, 2019 compared with $0.7 million during the nine months ended September 30, 2018. 2019. The increase of $6.5 million was dueCompany is continuing to the investments the Company madeinvest in developing a commercial platformits medical and scientific programs to support the commercialglobal launch of Triferic, which included $3.4 million in marketing costs and $2.8 million in hiring, training and educating new employees.General and Administrativethe advancement of our FPC technology platform.General and administrative expenses were $16.3 million during the nine months ended September 30, 2019 compared with $14.5 million during the nine months ended September 30, 2018. The $1.8 million increase net of Reimbursementdriven primarily by increases to stock compensation, insurance premium expense, annual reporting and consulting fees; offset by a decrease legal and related costs associated with various matters, including litigation activities, related to the departure of certain executives and directors during 2018.32Research and Product Development ExpenseResearch and product development expenses were $4.9 millionnil for the nine months ended September 30, 2019 compared with $4.0 million during the nine months ended September 30, 2018. The increase of $0.9 million was due to the Company’s commitment to investing in and building its medical capabilities mentioned above, including generating data from studies and real-world use of Triferic to support medical education and development efforts for Triferic, as well as the expansion of the Company’s internal medical affairs staff. The Company expects its research and product development expenses to increase in the future due to additional clinical development of Dialysate and I.V. Triferic, including the pediatric clinical trial for Triferic, and investments we are making in our medical platform to support medical education efforts and the collection and analysis of real-world data for Triferic. Settlement ExpenseSettlement Expense was $0.4 million for the nine months ended September 30, 2019,2020, compared to $1.0$0.4 million in for the nine months ended September 30, 2018.2019. Settlement Expenseexpense for the nine months ended September 30, 20182019 reflected the terms of the confidential settlement agreement and mutual release entered into within August 2018 relating to the Company’s former CEO,Chief Executive Officer, Robert Chioini, former CFOChief Financial Officer, Thomas Klema, and a former and then current director. Settlement Expense for the third quarter of 2019 reflected the Company’s contribution of the Settlement Amount relating to the consolidated class action. See Note 16 on the condensed consolidated financial statements herein for more detail.Neteachthe nine months ended September 30, 2020 was $247,682, consisting of interest income of $239,594 and $8,088 of realized gains on investments. Other income for the nine months ended September 30, 2019 and 2018 was $0.3 million, respectively. The amounts consist primarily$313,393, consisting of $289,101 of interest income. 2019,2020, we had approximately $29.0$67.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $28.2$65.2 million. Net cash used in operating activities for the nine months ended September 30, 20192020 was approximately $21.9$21.1 million. 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. On July 9, 2019, the underwriters of the public offering partially exercised their over-allotment option to purchase an additional 425,800 shares of common stock at a price of $3.00 per share, which closed on July 11, 2019. $40,000,000. In April$40.0 million. As of December 31, 2019, the Company sold 437,0431,840,443 shares of its common stock pursuant to the Sales Agreement for gross proceeds of $2,296,235,approximately $5.4 million, at a weighted average selling price of approximately $5.25.$2.92. The Company did not issue anpaid approximately $0.3 million in commissions and offering fees related to the sale of the common stock.duringwith the third quarterAgent for proceeds of 2019.$2.3 million, net of issuance costs. As of September 30, 2019,2020, approximately $37.7$32.3 million wasremains available for issuancesale under this facility.Sales Agreement. We are not requiredCompany entered into an underwriting agreement with Cantor Fitzgerald & Co., as underwriter, pursuant to which the Company agreed to issue and sell anyup to 3,670,212 shares of its common stock, which included 478,723 shares 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. On February 19, 2020, the underwriter exercised its over-allotment option to purchase an additional 478,723 shares at any time duringa 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 termsale of the facility.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.facility may be limited by several factors, including, among other things,Securities Purchase Agreement. The Company received gross proceeds of approximately $35.0 million in connection with the trading volumeoffering, before deducting placement agent fees and related offering expenses of our common stockapproximately $2.3 million.certain black-out periods that we may impose upondebt financing described above, management believes the facility, among other things.The Company’s recurringCompany currently has sufficient funds to meet its operating losses, net operating cash flow deficits, and an accumulated deficit, raise substantial doubt aboutrequirements for at least the Company’s ability to continue as a going concern for one yearnext twelve months from the issuancedate of the accompanying consolidated financial statements. The 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 consolidated financial statements related to the recoverability and classificationfiling of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.commercializationcommercial launch and medical education programs of Triferic Dialysate and Triferic AVNU, and I.V. Triferic, if approved, and executing plans for enhancing its medical capabilities and generating additional data for Triferic.the further development of our FPC pipeline programs. If the Company is unable to generate sufficient revenue from its existing long-term business plan, the Company will need to obtain additional33commercializationcommercial launch of Triferic Dialysate and investments we are making in our medical capabilities to support Dialysate Triferic and I.V. Triferic, if approved, in the United States;AVNU; the timing and magnitude of cash received from drug product sales; and the timing and expenditures associated with the development of Triferic for international markets; the timing and expenditures associated with the development of further innovative administration techniques of Triferic for dialysis patients; the timing and expenditures associated with the development of our FPC technology for patients with iron-deficiency anemia in other disease states; and the costs associated with ongoing litigation and investigatory matters. In particular, our Baxter Agreement prohibits us from entering into a contract that would encumber the assets used in our concentrate business without the prior written consent of Baxter. Due to the fact that the assets used in our concentrate business currently constitute a substantial portion of the tangible assets we own other than our drug inventory, we may not be able to, or we may find it difficult, to obtain secured debt financing without the consent of Baxter. commercializelaunch Triferic Dialysate and Triferic and to obtain regulatory approval for, and successfully launch, I.V. Triferic.AVNU. Our commercialization of Triferic Dialysate and Triferic and I.V. Triferic (if approved)AVNU is subject to significant risks and uncertainties, including risks we will be successful in the commercialization of Triferic in accordance with our plans. If our commercialization of Triferic Dialysate Triferic and/or I.V. Triferic AVNU should be delayed for any reason or not proceed in accordance with our plans, we may be forced to implement cost-saving measures that may potentially have a negative impact on our activities and potentially the results of our research and development programs. If our launch of Triferic Dialysate and/or Triferic AVNU is unsuccessful or our commercial launch does not proceed as planned, we may be unable to secure the additional capital that we will require to continue our research and development activities and operations, which could have a material adverse effect on our business. If we are unable to raise the required capital, we may be forcedrequired toshareholders’stockholders’ interests and, in such event, the market price of our common stock may decline.$21.9$21.1 million for the nine months ended September 30, 2020. The net loss for this period was higher than net cash used in operating activities by $1.1 million, which was primarily attributable to non-cash expenses of $2.8 million, consisting primarily of $1.1 million of amortization of the right to use assets, $0.8 million of warrant modification expense, $0.6 million of depreciation and amortization, ($0.3) million of stock-based compensation and a ($1.6) million net change in assets and liabilities. primarily of $3.9 million of stock-based compensation, $1.4 million of amortization of the right to use assets, $1.3 million of inventory reserves, $0.6 million of depreciation and amortization, and a $2.3($2.3) million net change in assets and liabilities.used in operatingprovided by investing activities was $14.6$2.6 million forduring the nine months ended September 30, 2018.2020. The net loss for this period was higher than net cash used in operating activities by $8.1 million, whichprovided was primarily attributabledue to non-cash expensesthe sales of $6.6our available-for-sale investments of $27.1 million, consisting of $3.4offset by $23.5 million of inventory reserves, $2.4 million of stock-based compensation, $0.5 million of depreciation and amortization, and $0.2 million of realized losses on saleused for the purchase of investments available-for-sale offset by a decrease of $3.7and $1.0 million in inventory related to the destruction of Triferic finished goods inventory, a decrease of $2.1 million in other liabilities related to the reduction in bonus and other payroll accruals, a decrease of $1.7 million in deferred revenue relating to the recognition of revenue from our licensing agreements, an increase of $1.2 million in accounts receivable related to increases in revenue related to our international sales, an increase in accounts payable of $2.7 million, as well as increased legal fee accrued, an increase of $0.7 million related to settlement payable, comprised of the $1.5 million accrued in the third quarter of 2018 for the settlement fee related to the Settlement Agreement between the Company and its former directors and officers, offset by settlement paymentspurchase of $0.8 million, and a $0.5 million increase due to an insurance settlement receivable related to the Settlement Agreement.equipment.34Cash (Used in) Provided by Investing Activities cash used in investing activities was $4.9 million during the nine months ended September 30, 2019. The net cash used was primarily due to the purchase of our available-for-sale investments available-for-sale of $34.2$30.5 million, offset by $30.5$34.2 million provided by the sale of ourinvestments available-for-sale, investments, $0.4 million for the purchase of equipment and $0.8 million for the purchase of research and development licenses acquired from a related party.investingfinancing activities was $10.5$63.3 million during the nine months ended September 30, 2018.2020. The net cash provided was primarily due to net proceeds of $21.2 million related to the Loan Agreement and $40.7 million and $2.3 million from the sale of our available-for-sale investments of $29.6 million, offset by $18.5 million used for the purchase of investments available-for-salecommon stock, related to our public offerings and $0.6 million for the purchase of equipment.Cash Provided by (Used in) Financing Activities$18.5$18.6 million during the nine months ended September 30, 2019. The net cash provided was primarily due to net proceeds of $17.3 million and $2.1 million from the sale of our common stock, related to our public offering and our at-the market offering, respectively. Net cash usedactivities was $1,978 duringmethods to fund our operations in the nine months ended September 30, 2018, forpast; however, current conditions in the repurchasefinancial and credit markets may limit the availability of common stockfunding or increase the cost of funding. Due to pay the employee withholding taxes on a stock option exerciserapidly 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 September 2018.JudgementsJudgmentsand Estimates2018.2019. Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2018 Annual Report on Form 10-K for the year ended December 31, 2019, except for those subjects mentioned in the section of the notes to the condensed consolidated financial statements titled Adoption of Recent Accounting Pronouncements.2019.2019.2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that because of the material weaknesses in our internal controls over financial reporting described in our December 31, 2018 Annual Report, our disclosure controls and procedures were not effective.effective as of September 30, 2020.2019,2020, are fairly stated, in all material respects, in accordance with generally accepted accounting principles in the United States for each of the periods presented herein.352018.2019. During nine monthsthe quarter ended June 30, 2020, the Company remediated the ITGC control deficiencies in connection with change management and third-party management and enhanced evidentiary review and documentation of key ITGC controls and implemented new programs and policies to provide improved control over change management and third-party management controls to the ERP system.20192020, we continued our improvements by remediating the ITGC control deficiencies in connection with user access security and throughsegregation of duties as it relates to user access controls.date of this report, we implemented the following:
pervasive impact on other ITGC dependent business activity level internal control cycles.·Hired staff required to address and improve financial and information technology capabilities, including (i) a Vice President, Corporate Controller and Principal Accounting Officer; (ii) an internal audit consultant; and (iii) a Manager of Information Technology.·Developed our preliminary 2019 audit program, which includes an in-house audit of entity level and IT general controls.·Implemented new programs and policies to provide improved control over the accounting for discretionary bonuses and stock-based compensation.·Updated our process of obtaining information for calculation of our inventory reserves, including a comprehensive sales and operations planning process.·Migrated the hosting of our ERP system and performed testing of the system before and after the completion of the migration.·Preparation of our SEC reporting on Form 10-Q for the quarter ended September 30, 2019, was completed by our Principal Accounting Officer, supported by internal and external resources.1614 (Commitments and Contingencies –Litigation) to our unaudited condensed consolidated financial statements is incorporated herein by reference.3620182019 under “Item 1A — Risk Factors”.$299.2$328.7 million since inception and expect to incur further losses for the foreseeable future. As of September 30, 2019,2020, we had approximately $29.0$67.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $28.2$65.2 million. Net cash used in operating activities for the nine months ended September 30, 20192020 was approximately $21.9$21.1 million. 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. On July 9, 2019, the underwriters of the public offering partially exercised their over-allotment option to purchase an additional 425,800 shares of common stock at a price of $3.00 per share, which closed on July 11, 2019. $40,000,000. We are not required3,670,212 shares of its commonsell anyan 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 any time duringa 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 termsale of the facility.common stock in the Offering.facility may be limited by several factors, including, among other things,Securities Purchase Agreement. The Company received gross proceeds of approximately $35.0 million in connection with the trading volumeoffering, before deducting placement agent fees and related offering expenses of our common stockapproximately $2.3 million.certain black-out periods that we may impose upon the facility, among other things.The Company’s recurringLoan Agreement described above, management believes the Company currently has sufficient funds to meet its operating losses, net operating cash flow deficits, and an accumulated deficit, raise substantial doubt aboutrequirements for at least the Company’s ability to continue as a going concern for one yearnext twelve months from the issuancedate of the accompanying consolidated financial statements. The 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 consolidated financial statements related to the recoverability and classificationfiling of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. this report.dialysate Triferic Dialysate and I.V. Triferic.Triferic AVNU. 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.Becauseunableable to complete our development, manufacturingcommercialize either product successfully.products,commercialization strategy for Triferic Dialysate and Triferic AVNU or whether our new business strategy will ultimately be successful.could face significant harmmust work to our business plans, prospects, resultsshow dialysis providers that improved patient outcomes, the reduction of operations, financial conditionutilization in other therapies and liquidity.Commercializing Dialysatethe resulting savings offset the costs associated with Triferic. Additionally, Triferic dependscompetes against current anemia therapies (including intravenous iron and the ESA class of drugs) and possibly other future products. Additionally, it may be difficult to gain market acceptance from dialysis chains, anemia managers and nephrologists and such acceptance may be slower than expected, if at all.to:·further product and manufacturing process development;·completion, refinement and management ofto our supply chain and distribution channels;·regulatory requirements for clinical information;·differentiation of our products from competitive therapies, including those in development by other companies;·demonstration of efficiencies that will make our products attractively priced; and·development of an adequate sales force and sales channels necessary to distribute our products and achieve our desired revenue goals. We cannot commercialize I.V. Triferic unless and untilmarketing efforts and our research and development activities, could be adversely affected by health epidemics in regions where we receive FDA approvalhave business operations, and such health epidemics could cause significant disruption in the operations of third parties upon whom we rely. In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to other countries, including the United States, and has been declared a pandemic by the World Health Organization. In response to public health directives and orders related to COVID-19, we have implemented work-from-home policies for substantially all employees, excluding our planned NDA submission for this drug. Even ifessential manufacturing and distribution employees. The effects of executive and similar government orders, shelter-in-place orders and our work-from-home policies may negatively impact our growth and productivity, disrupt our business, including our sales and marketing activities, and delay our clinical programs and timelines, the FDA approves I.V. Triferic for commercialization, the degreemagnitude of success in37commercializing this drugwhich will depend, uponin part, on the length and severity of the restrictions and other limitations on our ability to receive add-on reimbursement status,conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.as throughorders, shutdowns or other restrictions on the TDAPA program. Under the 2020 Final Rule published by CMS in October 2019, it appears that I.V. Triferic is not be eligible for add-on reimbursement, meaning I.V. Triferic would be requiredconduct of business operations could occur, related to be sold within the bundled payment for dialysis treatment, if approved. This could significantly limit the overall commercial opportunityCOVID-19 or other infectious diseases, may impact personnel at our manufacturing facilities and third-party manufacturing facilities in the United States, Europe and other countries, or the availability or cost of materials we use or require to conduct our business, including product development, which would disrupt our supply chain. If the COVID-19 pandemic were to negatively affect our manufacturing facilities, the costs related to such manufacturing may increase and the productivity of our facilities may decrease. Furthermore, some of our manufacturers and suppliers are in Europe and may be impacted by port closures and other restrictions resulting from the COVID-19 pandemic, which may disrupt our supply chain or limit our ability to obtain sufficient materials for I.V.our drug products.investorsyou that we can maintain compliance with the strategiescovenants under our Loan Agreement, which may result in an event of default. Our ability to comply with these covenants may be adversely affected by events beyond our control. For example, the Loan Agreement contains certain financial covenants relating to sales and, as a result of the ongoingintendmay not be able to employ will enable us to supportsatisfy such covenants in the manufacture, distribution and sellingfuture. Based on our annualized Triferic sales through September 30, 2020, we may not satisfy this covenant as of Dialysate Triferic or I.V. Triferic (if approved).December 31, 2020. If we are unable to implementcomply with the necessary stepscovenants under our Loan Agreement, we intend to pursue all available cure options in order to regain compliance. However, we may not be able to mutually agree with Innovatus on appropriate remedies to cure a breach of our business plan, our prospects, resultsa covenant, which could give rise to an event of operations and financial condition will suffer.Our business and operations would sufferdefault.security breach, system failure, invasion, corruption, destructionbankruptcy event), or interruptionmay become (in the case of all other events of default and at the option of Innovatus), immediately due and payable.orcash accounts, and take other remedies permitted under the Loan Agreement. Even if we are able to repay the indebtedness on an event of default, the repayment of these sums may significantly reduce our business partners’ critical information technology systems or infrastructure.In the ordinary courseworking capital and impair our ability to operate as planned. The occurrence of business, we and our business partners store sensitive data, including intellectual property and proprietary information related to our business, our customers and our business partners, on our information technology systems. Despite the implementationany of security measures, these systems are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, terrorism, war and telecommunication, electrical and other system failures due to employee error, malfeasance or other disruptions. We could experience a business interruption, intentional theft of confidential information or reputational damage, including damage to key customer and partner relationships, from system failures, espionage attacks, malware, ransomware or other cyber-attacks. Such cyber-security breaches may compromise our system infrastructure or lead to data leakage, either internally or at our contractors or consultants. In particular, system failures or cyber-security breaches could result in the loss of nonclinical or clinical trial data from completed, ongoing or planned trials, whichevents could cause delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.The risk of a security breach or disruption, particularly through cyber-attacks, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. We have experienced cyber-security attacks in the past, including attacks targeting our e-mail systems, which to date have not had a materialsignificant adverse impact on our operations or development programs; however; there is no assurance that such impacts willbusiness and financial condition.be materialanticipate paying dividends in the foreseeable future.Toextent that any disruption or security breach wereforeseeable future. In addition, the terms of our Loan Agreement with Innovatus restrict our ability to pay dividends to limited circumstances. As a result, investors in our common stock may only receive a lossreturn if the market price of or damage to, our data or applications, or inappropriate disclosurecommon stock increases.confidential or proprietary information, including protected health information or personal datadividends is within the discretion of employees or former employees, we could beour Board of Directors, subject to legal claims or proceedings, liability under lawsthe restrictions in the Loan Agreement, and regulations governing the protection of healthdepends upon our earnings, capital requirements, financial condition and requirements, future prospects, restrictions in future financing agreements, business conditions and other personally identifiable informationfactors deemed relevant by the Board. We intend to retain earnings and related regulatory penalties. In any such event,cash resources to finance our business, resultsoperations. Therefore, it is highly unlikely we will pay cash dividends.operations, financial positionEquity Securities and cash flows could be materially adversely affected.Use of Proceeds.38following documents areexhibits filed or furnished as part of this report or were previously filed andQuarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference to the filing indicated. Exhibits not required for this report have been omitted. Our Commission file number is 000-23661.EXHIBIT INDEXExhibit No.DescriptionExhibit No. Description 3.14.1 3.210.1§31.131.1* 31.232.1101.INS101.SCH101.CAL101.DEF101.LAB101.PRE104* The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (included as Exhibit 101) * Filed herewith #** Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act # Indicates management contracts or compensatory plans or arrangements. §Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.39Date: November 9, 2020 /s/ Russell Ellison Date: November 12, 2019/s/ Stuart PaulStuart Paul
Chief Executive Officer (Principal Executive Officer)Date: November 9, 2020 /s/ Russell Skibsted Date: November 12, 2019/s/ Angus SmithAngus Smith
Chief Financial Officer (Principal Financial Officer)40