ROCKWELL MEDICAL, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes in “Item 1. Condensed Consolidated Financial Statements”. References in this report to “Rockwell,” the “Company,” “we,” “our” and “us” are references to Rockwell Medical, Inc. and its subsidiaries. Forward-Looking Statements We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission, or SEC. We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our current expectations and possible or assumed future results of our operations. When we use words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “could,” “plan,” “potential,” “predict,” “forecast,” “project,” “intend,” “is focused on” or similar expressions, or make statements regarding our intent, belief, or current expectations, we are making forward-looking statements. Our forward looking statements also include, without limitation, statements about our liquidity and capital resources; our ability to continue as a going concern; our ability to successfully integrate acquisitions; our ability to develop Ferric Pyrophosphate Citrate (“FPC”) for other indications; our ability to successfully execute on our business strategy; our ability to raise additional capital; our ability to successfully implement certain cost containment and cost-cutting measures; our ability to achieve profitability and statements regarding our anticipated future financial condition, operating results, cash flows and business plans. While we believe our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which are based on information available to us on the date of this report or, if made elsewhere, as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed in this report, “Item 1A — Risk Factors” in our Form 10-K for the year ended December 31, 2022 and from time to time in our other reports filed with the SEC. Other factors not currently anticipated may also materially and adversely affect our results of operations, cash flow and financial position. There can be no assurance future results will meet expectations. Forward-looking statements speak only as of the date of this report and we expressly disclaim any intent to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law. Overview Rockwell Medical is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide. Rockwell is a revenue-generating business and the second largest supplier of liquid and powder acid and bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is typically performed at freestanding outpatient dialysis centers, hospital-based outpatient centers, skilled nursing facilities, or in a patient’s home. This represents a large market opportunity for which we believe Rockwell's products are well-positioned to meet the needs of patients. Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S. Food and Drug Administration ("FDA"). Rockwell is ISO 13485 Certified and adheres to current Good Manufacturing Practices ("cGMP") and Association for Advancement of Medical Instrumentation ("AAMI") standards. Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. In addition, the Company manufactures hemodialysis concentrates in Minnesota under a contract manufacturing agreement with a contract manufacturing organization. (See Note 4 of the accompanying condensed consolidated interim financial statements for further detail). Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers. Rockwell has developed a core expertise in manufacturing and delivering hemodialysis concentrates, and has built a longstanding reputation for reliability, quality, and excellent customer service. In addition to its primary focus on hemodialysis concentrates, Rockwell also has a proprietary parenteral iron product, Triferic (ferric pyrophosphate citrate, ("FPC")), which is indicated to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease. While Rockwell has discontinued commercialization of Triferic in the United States, the Company has established international partnerships with companies seeking to develop and commercialize Triferic outside the United States and is working with these international partners to develop and commercialize Triferic in their respective regions. Additionally, Rockwell continues to evaluate the viability of its FPC platform and FPC's potential to treat iron deficiency, iron deficiency anemia, and acute heart failure. Rockwell’s strategy is focused on growing the Company's revenue-generating business, which currently includes hemodialysis concentrates and international partnerships for Triferic and achieving profitability to put the Company in a stronger and more stable financial position. Hemodialysis Concentrates Business : Rockwell is the second largest supplier of life-sustaining hemodialysis concentrates products to dialysis clinics in the United States. Our hemodialysis concentrates products are used to sustain a patient's life by removing toxins and balancing electrolytes in a dialysis patient’s bloodstream. A key element of our dialysis business strategy going forward is to improve the strength of our concentrates business. According to an independent research report from L.E.K. Consulting LLC, which was commissioned by Rockwell in 2022, the hemodialysis concentrates market in the United States alone was valued at $380 million in 2022 and is anticipated to grow to approximately $500 million by 2026. We believe we can grow our business through the addition of new customers, expanding our territory coverage, increasing the efficiency of our production, and pricing our products appropriately to drive profitability. On July 10, 2023, the Company executed and consummated the transactions contemplated by an Asset Purchase Agreement (the “Purchase Agreement”) with Evoqua Water Technologies LLC ("Evoqua") (the "Evoqua Acquisition"). Subject to the terms and conditions of the Purchase Agreement, at the closing of the transaction (the “Closing”), the Company purchased customer relationships, equipment and inventory from Evoqua, which were related to manufacturing and selling of hemodialysis concentrates products, all of which are manufactured under a contract manufacturing agreement with a third-party organization. Total consideration was $17.4 million, comprising a cash payment at Closing of $12.4 million (inclusive of transaction costs) and two $2.5 million deferred payments, the first to be paid on the first anniversary and the second to be paid on the second anniversary of the Closing. See Note 4 for further detail. On September 18, 2023, Rockwell and our long-time partner, DaVita, Inc. ("DaVita"), a leading provider of kidney care, entered into an Amended and Restated Products Purchase Agreement (the "Amended Agreement"), which amends and restates the Product Purchase Agreement, dated July 1, 2019, as amended, under which the Company supplies DaVita with certain dialysis concentrates. Under the Amended Agreement, the Company and DaVita agreed to an increase in product pricing, effective September 1, 2023 and a one-time payment to Rockwell on or after December 1, 2023. The term of the Amended Agreement will expire on December 31, 2024. DaVita will have the right, in its sole discretion upon written notice to the Company given no later than September 30, 2024, to further extend the term through December 31, 2025. In the event of such an extension, product pricing will be increased for the extended term. In addition, DaVita is required to provide the Company with nine-month purchasing forecasts and a commitment to purchase at least the forecasted amounts. In the event that DaVita does not meet its forecasts, it is required to pay the Company for the amount forecasted, purchase additional product, or the Company may terminate the Amended Agreement. Upon expiration or termination of the Amended Agreement, and upon request by DaVita, the Company has agreed to provide transition services to DaVita during a transition period. In 2022, in connection with an amendment of the original Products Purchase Agreement, DaVita invested $15 million in the Company's preferred stock in two equal tranches. The first tranche of $7.5 million was funded on April 7, 2022. The second tranche of $7.5 million was funded on June 16, 2022. Additionally, during the third quarter of 2023, Rockwell entered into several long-term product purchase agreements, which include supply and purchasing commitments from certain parties. These agreements include Sanderling Renal Services, Inc., a full-service provider of in-center, home dialysis and renal telemedicine services focusing on patients in rural and underserved communities across the United States; Centers for Dialysis Care, the largest non-profit, independent outpatient dialysis provider in Northeast Ohio; Houston Methodist, a leading health system and academic medical center; Dialyze Direct, a leading provider of home dialysis services in the skilled nursing facility setting; and Outset Medical (Nasdaq:OM), a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis with its Tablo ® Hemodialysis System, which is FDA-cleared for use from the hospital to the home. On November 9, 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and has agreed to terminate the exclusive distribution agreement dated October 2, 2014. Exclusivity and other provisions associated with the distribution agreement terminated November 9, 2022 and the remaining operational elements of the agreement terminate December 31, 2022. Under the exclusive distribution agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products in the United States and certain other countries. Rockwell manufactured all hemodialysis concentrates products and provided customer service and order delivery to nearly all U.S. customers. Following the reacquisition of these rights, Rockwell is able to sell its hemodialysis concentrates products directly to dialysis clinics throughout the United States and around the world. Additionally, Rockwell is able to independently price its products, eliminate costs associated with manufacturing covenants, improve manufacturing efficiencies, realize the full benefits from those improvements, and develop, in-license, or acquire new products to develop a broader kidney care products portfolio. This is expected to improve Rockwell's overall profitability and set the Company on a positive growth trajectory. Collectively, we believe this affords Rockwell the opportunity to expand its leadership position within a large market opportunity. Triferic : Our first two branded products from our FPC platform, Triferic (dialysate) and Triferic AVNU, are indicated to maintain hemoglobin in patients undergoing hemodialysis. We began commercializing Triferic and Triferic AVNU in the United States in the second half of 2019 and in early 2021, respectively. In addition, Rockwell established six international partnerships to develop and commercialize Triferic in China, India, Korea, Turkey, Peru and Chile. In 2022, Rockwell undertook a strategic review of Triferic's viability in the United States. Triferic was launched into a very competitive marketplace with well-entrenched products and a lack of consensus regarding unmet medical needs for dialysis patients with anemia. Due to its limited market adoption, unfavorable reimbursement, and absence of interest from other companies to license or acquire Triferic despite Rockwell's significant effort to partner the program, the Company discontinued its NDAs for Triferic and Triferic AVNU in the United States in the fourth quarter of 2022. Sustaining Triferic commercially in the United States resulted in annual losses to Rockwell. The decision to discontinue the NDAs was not made lightly as the Company realizes the direct impact this action had on patients using the products. Triferic and its approved presentations were not discontinued for safety reasons. Rockwell continues to support its partners outside the United States that have exclusive license agreements to develop and commercialize Triferic in India, Korea, Turkey, Peru and Chile. Partnering in these regions allows us to better leverage the development, regulatory, commercial presence, and expertise of business partners to increase sales of our products throughout the world. Currently, India, Peru and Chile development work has been put on hold. However, we believe there is still potential opportunity for Triferic internationally and will work diligently to support our partners, which requires minimal financial commitment from Rockwell and provides us with potential for near- and long-term revenue. On August 7, 2023, Rockwell was informed by Wanbang, the Company’s commercialization partner in China for Triferic, that the main efficacy results of Wanbang’s clinical trial for Triferic (dialysate) compared with placebo were not obtained and Wanbang will not will not bring the product forward to registration. Research and Development Pipeline : FPC for Home Infusion is Rockwell's follow-up to Triferic and utilizes the FPC platform in the home infusion setting. In late 2021, Rockwell filed an Investigational New Drug (“IND”) application with the United States Food and Drug Administration (“FDA”) for the treatment of iron deficiency anemia in patients, who are receiving medications in the home infusion setting. During the second quarter 2022, Rockwell provided the FDA with supplemental data to be used in Rockwell’s clinical studies and to clinically support the Company’s IND application for home infusion. The FDA placed this program on Clinical Hold and requested that additional data related to the microbiology and short-term stability of this formulation be provided to support the application. During the third quarter of 2022, Rockwell conducted a microbiological and short-term stability study of FPC for Home Infusion, in accordance with FDA guidance, to support the Company’s IND application. Preliminary results from the microbiology and short-term stability study indicated that the program would likely not meet the FDA’s requirements to support the IND application and would require significant capital expenditure and resources to support additional re-formulation work and conduct a Phase 2 trial. As a result, Rockwell has put development work associated with FPC for Home Infusion on hold. Rockwell is also exploring FPC’s impact on the treatment of hospitalized acute heart failure patients, which affects more than one million people in the United States annually. Rockwell conducted a pre-IND meeting with the FDA in 2022 and will determine the path forward for FPC in acute heart failure as the Company works toward profitability. Results of Operations for the Three Months Ended September 30, 2023 and 2022 19 The following table summarizes our operating results for the periods presented below (dollars in thousands): Three Months Ended September 30, 2023 % of Revenue 2022 % of Revenue % Change Net Sales $ 23,771 $ 18,691 27 % Cost of Sales 21,569 91 % 17,914 96 % 20 % Gross Profit 2,202 9 % 777 4 % 183 % Research and Product Development 494 2 % 469 3 % 5 % Selling and Marketing 556 2 % 762 4 % (27) % General and Administrative 2,889 12 % 3,254 17 % (11) % Operating Loss $ (1,737) (7) % $ (3,708) (20) % (53) % Net Sales During the three months ended September 30, 2023, our net sales were $23.8 million compared to net sales of $18.7 million during the three months ended September 30, 2022. The increase of $5.1 million was primarily due to the Evoqua Asset Acquisition (see Note 4) which, through the acquisition of customer lists, resulted in new revenue during the third quarter of 2023 of $3.4 million, and the recognition of deferred license revenue of $2.2 million related to the Wanbang Agreement (see Note 10 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). Overall, product revenue for the three months ended September 30, 2023 was $21.6 million compared to product revenue of $18.1 million for the three months ended September 30, 2022. Gross Profit Cost of sales for the three months ended September 30, 2023 was $21.6 million, resulting in gross profit of $2.2 million for the three months ended September 30, 2023, compared to cost of sales of $17.9 million and a gross profit of $0.8 million for the three months ended September 30, 2022. Cost of sales for the three months ended September 30, 2023 included a $1.1 million increase to Triferic inventory reserves due to the decision by Wanbang not to pursue registration in China. Gross profit increased by $1.4 million primarily due to $1.1 million net impact of Wanbang revenue and inventory reserves, as well as lower distribution costs associated with the concentrates business. Research and Product Development Expense Research and product development expenses were $0.5 million for each of the three months ended September 30, 2023 and 2022. Employee compensation expense decreased as a result of lower headcount, but was offset by severance costs. Selling and Marketing Expense Selling and marketing expenses were $0.6 million and $0.8 million for the three months ended September 30, 2023 and 2022, respectively. We continue to evaluate marketing spend and focus on target opportunities for greater return on investments. General and Administrative Expense General and administrative expenses were $2.9 million for the three months ended September 30, 2023, compared with $3.3 million for the three months ended September 30, 2022. The decrease of $0.4 million was primarily due to lower employee compensation as a result of reduced headcount, decreased government fees related to Triferic and lower administrative costs. 20 Other Expense Total other expense of $0.1 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively, was primarily driven by $0.4 million and $0.5 million of other expense for the three months ended September 30, 2023 and 2022, respectively, largely due to interest expense related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). Results of Operations for the Nine Months Ended September 30, 2023 and 2022 The following table summarizes our operating results for the periods presented below (dollars in thousands): Nine Months Ended September 30, 2023 % of Revenue 2022 % of Revenue % Change Net Sales $ 61,519 $ 53,497 15 % Cost of Sales 55,685 91 % 51,760 97 % 8 % Gross Profit 5,834 9 % 1,737 3 % 236 % Research and Product Development 939 2 % 2,963 6 % (68) % Selling and Marketing 1,584 3 % 1,743 3 % (9) % General and Administrative 9,434 15 % 11,845 22 % (20) % Operating Loss $ (6,123) (10) % $ (14,814) (28) % (59) % Net Sales During the nine months ended September 30, 2023, our net sales were $61.5 million compared to net sales of $53.5 million during the nine months ended September 30, 2022. The increase of $8.0 million was primarily due to the restructuring of our products purchase agreement with DaVita, the reacquired rights to commercialize and distribute our products, the asset acquisition of Evoqua, onboarding of new customers and increased pricing to other customers. Overall, product revenue for the nine months ended September 30, 2023 was $57.7 million compared to product revenue of $51.9 million for the nine months ended September 30, 2022, an increase of $5.8 million. Gross Profit Cost of sales during the nine months ended September 30, 2023 was $55.7 million, resulting in gross profit of $5.8 million during the nine months ended September 30, 2023, compared to cost of sales of $51.8 million and a gross profit of $1.7 million during the nine months ended September 30, 2022. Gross profit increased by $4.1 million primarily due to the restructuring of our supply contract with DaVita in 2022, recognition of the remaining deferred license revenue related to the termination of the Baxter distribution agreement (See Note 10 to the condensed condensed consolidated financial statements included elsewhere in this Form 10-Q), onboarding of new customers, increased pricing to other customers and net impact of Wanbang revenue and inventory reserves. Research and Development Expense Research and product development expenses were $0.9 million and $3.0 million for the nine months ended September 30, 2023 and 2022, respectively. Research and product development expenses decreased by $2.1 million due to a reduction in wages and project costs resulting from the decision to pause all research related to our FPC for Home Infusion program. Approximately 44% of research and development expenses for the nine months ended September 30, 2023 were comprised of severance costs. Selling and Marketing Expense Selling and marketing expenses were $1.6 million and $1.7 million for the nine months ended September 30, 2023, and 2022, respectively. We continue to evaluate marketing spend and focus on target opportunities for greater return on investments. 21 General and Administrative Expense General and administrative expenses were $9.4 million during the nine months ended September 30, 2023, compared with $11.8 million during the nine months ended September 30, 2022. The decrease of $2.4 million is primarily driven by lower employee compensation as a result of reduced headcount, decreased government fees related to Triferic, reduced professional fees and lower administrative costs. Other Expense Total other expense of $0.8 million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively, was primarily driven by $1.2 million and $1.5 million of other expense for the nine months ended September 30, 2023 and 2022, respectively, largely due to interest expense related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). Liquidity and Capital Resources As of September 30, 2023, we had approximately $11.7 million of cash, cash equivalents and investments available-for-sale, and working capital of $6.8 million. Net cash used in operating activities for the nine months ended September 30, 2023 was approximately $9.4 million. Based on the currently available working capital, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report. On July 10, 2023, Armistice Capital Master Fund Ltd. (“Armistice”) exercised its warrant to purchase 9,900,990 shares of common stock with an exercise price of $1.39 per share and the Company received gross proceeds of approximately $13.8 million (See Note 11 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). On July 10, 2023, the Company completed the Evoqua Acquisition. Total consideration was $17.4 million, comprising a cash payment at Closing of $12.2 million (inclusive of transaction costs) and two $2.5 million deferred payments, the first to be paid on the first anniversary and the second to be paid on the second anniversary of the Closing. See Note 4 for further detail. The Company continues to review its operational plans and execute on the acquisition of new customers and cost containment activities. The Company may require additional capital to sustain its operations and make the investments it needs to execute its strategic plan. Additionally, the Company's operational plans include raising capital, if needed, by using our ATM facility or other methods or forms of financings, subject to existing limitations. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all. In addition, any debt financing is limited by the terms of our Securities Purchase Agreement with DaVita. Specifically, until DaVita owns less than 50% of its investment, the Company may only incur additional debt in the form of a purchase money loan, a working capital line of up to $5 million or to refinance existing debt, unless DaVita consents. In 2023, the Company is no longer subject to the "baby shelf" limitations under Form S-3, which limit the amount the Company may offer pursuant to its registration statement on Form S-3. The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus. As of the date of this report, the Company is in compliance with all covenants (See Note 15 to the accompanying condensed consolidated interim financial statements). The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, recent bank failures in the United States, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the Israel-Hamas conflict and other political tensions, and lingering effects of the COVID-19 pandemic. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on our future operations. Rockwell has utilized a range of financing methods to fund its operations in the past; however, current conditions in the financial and credit markets may limit the availability of funding, refinancing or increase the cost of funding. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future. General The actual amount of cash that we will need to execute our business strategy is subject to many factors, including, but not limited to the costs associated with our manufacturing and transportation operations related to our concentrate business. We may elect to raise capital in the future through one or more of the following: (i) equity and debt raises through the equity and capital markets, though there can be no assurance we will be able to secure additional capital or funding on acceptable terms, or if at all; and (ii) strategic transactions, including potential alliances and collaborations focused on markets outside the United States, as well as potential combinations (including by merger or acquisition) or other corporate transactions. We believe our ability to fund our activities in the long term will be highly dependent upon i) our ability to execute on the growth strategy of our hemodialysis concentrates business, ii) our ability to achieve profitability, and iii) our ability to identify, develop, in-license, or acquire new products in developing our renal care product portfolio. All of these strategies are subject to significant risks and uncertainties such that there can be no assurance we will be successful in achieving them. If we are unsuccessful in executing our business plan and we are unable to raise the required capital, we may be forced to curtail all of our activities and, ultimately, cease operations. Even if we are able to raise sufficient capital, such financings may only be available on unattractive terms, or result in significant dilution of stockholders’ interests and, in such event, the market price of our common stock may decline. Cash Used in Operating Activities Net cash used in operating activities was $9.4 million for the nine months ended September 30, 2023 compared to net cash used in operating activities of $16.8 million for the nine months ended September 30, 2022. The decrease in cash used from operating activities during the current period was primarily due to a decrease in net loss, offset by changes in current balance sheet accounts in the ordinary course of business of approximately $6.7 million, including a decrease in deferred license revenue of $3.8 million for recognition of the remaining deferred license revenue related to the termination of the Baxter distribution agreement, a decrease in net accounts receivable of $3.1 million, a decrease in other liabilities of $1.0 million and a decrease in prepaid and other assets of $0.9 million. Cash Used In Investing Activities Net cash used in investing activities was $5.1 million during the nine months ended September 30, 2023 compared to net cash used in investing activities of $5.6 million for the nine months ended September 30, 2022. Net cash used in investing activities during the nine months ended September 30, 2023 was primarily due to the cash paid in connection with the Evoqua Asset Acquisition of $12.4 million, partially offset by the net cash proceeds from sales and purchase of available-for-sale investments during the period of $7.4 million. Net cash used in investing activities during the nine months ended September 30, 2022 were primarily related to the purchase and sale of investments. Cash Provided by Financing Activities Net cash provided by financing activities was $12.1 million during the nine months ended September 30, 2023 compared to net cash provided by financing activities of $22.1 million for the nine months ended September 30, 2022. Net cash provided financing activities during the nine months ended September 30, 2023 was primarily due to the gross proceeds from the issuance of common stock in connection with the exercise of the Prior Warrant and Pre-Funded Warrants of $13.8 million. Net cash provided by financing activities for the nine months ended September 30, 2022 was primarily due to the gross proceeds from the issuance of common and preferred stock of $15.0 million each, offset by debt repayment of $6.8 million. Contractual Obligations and Other Commitments See Note 13 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for additional disclosures. There have been no other material changes from the contractual obligations and other commitments disclosed in Note 14 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. 22 Critical Accounting Policies and Significant Judgments and Estimates Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, our critical accounting policies and significant estimates related to the Evoqua Asset Acquisition, including changes to our existing accounting policies, are detailed below. Fair Value Measurements Nonrecurring Valuations. The assets acquired through the Evoqua Asset Acquisition were recorded at relative fair value, which required the determination of the fair values of assets acquired as of the acquisition date. In making these fair value determinations, we were required to make estimates and assumptions that affected the recorded amounts, including, but not limited to, (i) for the customer relationships intangible asset, expected future cash flows, discount rates and remaining useful life and (ii) for the equipment, replacement cost. To assist us in making these fair value determinations, we engaged third-party valuation specialists. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain. Intangible Assets Definite-lived intangible assets consist of our customer relationships intangible asset, which has been capitalized and is being amortized over 20 years. Recently issued and adopted accounting pronouncements : We have evaluated all recently issued accounting pronouncements and believe such pronouncements do not have a material effect our financial statements. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Item 3 . Quantitative and Qualitative Disclosures about Market Risk Per §229.305 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in §229.10(f)(1) of Regulation S-K, is not required to provide the disclosure required by this Item.