ROCKWELL MEDICAL, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management necessarily was required to apply its judgment in evaluating the cost‑benefit relationship of possible controls and procedures. Under the supervision of and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. Additionally, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements included in this Annual Report are fairly stated, in all material respects, in accordance with generally accepting accounting principles in the United States for each of the periods presented herein. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. We maintain internal control over financial reporting designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, internal control over financial reporting determined to be effective provides only reasonable assurance regarding the 56 Table of Contents reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021. In making their assessment of internal control over financial reporting, our management used the criteria described in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. Attestation Report of the Registered Public Accounting Firm As a non-accelerated filer, we are not required to provide an attestation report on our internal control over financial reporting issued by the Company’s independent registered public accounting firm. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable 57 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item 10 is incorporated herein by reference to information in our proxy statement for our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2021, including under headings “Election of Directors,” “Executive Officers,” “Corporate Governance” and, as applicable, "Delinquent Section 16(a) Reports." Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, employees and officers, including our principal executive officer, our principal financial officer and persons performing similar functions. Our Code of Business Conduct and Ethics is available on our website at www.rockwellmed.com . To the extent required, future material amendments or waivers relating to the Code of Business Conduct and Ethics will be disclosed on our web site referenced in this paragraph with four business days following the date of such amendment or waiver. Item 11. Executive Compensation. The information required by this Item 11 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Compensation of Executive Officers” and “Director Compensation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item 12 is incorporated herein by reference to information in our 2022 Proxy Statement, including under heading “Voting Securities and Principal Holders.” Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes our compensation plans, including individual compensation arrangements, under which our equity securities are authorized for issuance as of December 31, 2021: Plan Category Number of securities to be issued upon exercise of outstanding options and restricted stock units Weighted‑average exercise price of outstanding options Number of securities remaining available for future issuance under (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1) 5,364,988 $ 3.07 1,040,339 Equity compensation plans not approved by security holders (2) 850,000 $ 1.50 — Total 6,214,988 $ 2.85 1,040,339 (1) Consists of 4,964,506 stock options with a weighted average exercise price of $3.15, 322,182 restricted stock units and 78,300 restricted stock awards. (2) Consists of 850,000 stock options with a weighted average exercise price of $1.50. Item 13. Certain Relationships and Related Transactions and Director Independence. The information required by this Item 13 is incorporated herein by reference to information in our 2022 Proxy Statement, including under headings “Independence” and “Related Party Transactions.” Item 14. Principal Accounting Fees and Services. The information required by this Item 14 is incorporated herein by reference to information in our 2022 Proxy Statement, including under heading “Independent Accountants.” 58 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The financial statements and schedule filed herewith are set forth on the Index to Financial Statements and Schedule of the separate financial section of this annual report, which is incorporated herein by reference. (b) Exhibits The following documents are filed as part of this report or were previously filed and incorporated herein by reference to the filing indicated. 3.1 Certificate of Incorporation, dated as of August 28, 2019 (Company’s Form 8-K filed August 30, 2019). 3.2 Amended and Restated Bylaws (Company’s Form 8-K filed November 5, 2020). 4.1 Form of Common Stock Warrant, dated October 17, 2018 (Company’s Form 8-K filed October 19, 2018). 4.2 Description of Securities 4.3 Form of Warrant (Company's Form 8-K filed on September 25, 2020). 4.4 Form of Pre-Funded Warrant (Company's Form 8-K filed on September 25, 2020). 4.5 For m of Warrant to Purchase Common Stock for Innovatus (Company's Form 8-K filed March 20, 2020). 10.1 Licensing Agreement, dated January 7, 2002, by and among the Company, Charak LLC and Dr. Ajay Gupta (with certain portions of the exhibit redacted pursuant to a confidential treatment order) (Company’s Form 10‑KSB filed April 1, 2002). 10.2 Amending Agreement, dated January 16, 2006, by and among the Company, Charak LLC and Dr. Ajay Gupta (Company’s Form 10‑KSB filed March 21, 2006). 10.3 Exclusive Distribution Agreement, dated October 2, 2014, by and between the Company and Baxter Healthcare Corporation (with certain portions redacted pursuant to a confidential treatment order) (Company’s Form 10‑K filed March 3, 2015). 10.4 Investment Agreement, dated October 2, 2014, by and between the Company and Baxter Healthcare Corporation (Company’s Form 10‑K filed March 3, 2015). *10.5 Rockwell Medical, Inc. Amended and Restated 2007 Long Term Incentive Plan, as amended effective May 21, 2015 (Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders filed on April 13, 2015). *10.6 Rockwell Medical, Inc. 2018 Long Term Incentive Plan (Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders filed on April 30, 2018). *10.7 Form of Nonqualified Stock Option Agreement (2007 Long Term Incentive Plan) (Director Version) (Company’s Form 8‑K filed December 20, 2007). *10.8 Form of Nonqualified Stock Option Agreement (2007 Long Term Incentive Plan) (Employee Version) (Company’s Form 8-K filed December 20, 2007). *10.9 Form of Restricted Stock Award Agreement (2007 Long Term Incentive Plan) (Director Version) (Company’s Form 10 - K filed February 29, 2016). *10.10 Form of Restricted Stock Award Agreement (2007 Long Term Incentive Plan) (Executive Version) (Company’s Form 10‑Q filed May 12, 2014). *10.11 Form of Performance Share Award Agreement March 2017 (Executive Version) (Company’s Form 10-Q filed May 9, 2017). *10.12 Form of Performance Share Award Agreement March 2017 (Director Version) (Company’s Form 10-Q filed May 9, 2017). *10.13 Form of Stock Option Agreement (2018 Long Term Incentive Plan) (Employee Version) (Company’s Form 10-K filed March 15, 2019). *10.14 Form of Contingent Option Agreement for Directors (2018 Long Term Incentive Plan) (Company’s Form 8-K filed March 21, 2018). 10.15 First Amendment to Exclusive Distribution Agreement, dated June 23, 2017, by and between the Company and Baxter Healthcare Corporation (with certain portions redacted pursuant to a confidential treatment request) (Company’s F orm 10-Q filed August 9, 2017). *10.16 Form of Indemnification Agreement (Company’s Form 8-K filed August 30, 2019). 10.17 Stock Appreciation Right Agreement, dated September 5, 2017, by and between the Company and John G. Cooper (Company’s Form 10-Q filed November 8, 2017). 59 Table of Contents *10.18 Approval of Independent Director Compensation (Company’s Form 8-K filed March 21, 2018). 10.19 Registration Rights Agreement, dated October 17, 2018 (Company’s Form 8-K filed October 19, 2018). 10.2 Master Services and IP Agreement, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Company's Form 10-K filed on March 18, 2019). 10.21 Amendment to License Agreement, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Company's Form 10-K filed on March 18, 2019). 10.22 Commercialization and Technology License Agreement IV Triferic, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Company's Form 10-K filed on March 18, 2019). 10.23 Technology License Agreement TPN Triferic, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Company's Form 10-K filed on March 18, 2019). 10.24+ Products Purchase Agreement, dated July 1, 2019, by and between the Company and DaVita Inc. (f/k/a DaVita Healthcare Partners Inc.) (Company’s Form 10-Q filed November 12, 2019). *10.25 Russell Skibsted Employment Agreement, dated September 15, 2020 (Company’s Form 8-K filed on September 16, 2020). *10.26 Russell Ellison Employment Agreement, dated April 17, 2020 (Company’s Form 8-K filed on April 20, 2020). *10.27 Rockwell Medical, Inc. Amended and Restated 2018 Long Term Incentive plan (Company’s Form 8-K filed on May 21, 2020). 10.28 Loan and Security Agreement, dated March 16, 2020, by and among the Company, Innovatus Life Sciences Lending Fund I, LP and the lenders party thereto (Company’s Form 10-Q filed on May 11, 2020). 10.29 Second Amendment to the Exclusive Distribution Agreement entered into as of March 16, 2020 between the Company and Baxter Healthcare Corporation (Company’s Form 10-Q filed on November 15, 2021). 10.3 First Amendment to Loan and Security Agreement, dated September 24, 2021, by and among the Company, Innovatus Life Sciences Lending Fund I, LP and the lenders party thereto (Company’s Form 8-K filed on September 30, 2021) 21.1 List of Subsidiaries (Company's Form 10-K filed on March 31 , 2021) . 23.1 Consent of Marcum LLP. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a‑14(a). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a‑14(a). 32.1 Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Database 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included as Exhibit 101) * 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. Item 16. Form 10-K Summary. None. 60 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By: /s/ Russell Ellison Russell Ellison President and Chief Executive Officer Date: April 8, 2022 POWER OF ATTORNEY KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Russell Ellison and Russell Skibsted, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all documents in connection therewith, with the Securities and Exchange commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Russell Ellison President, Chief Executive Officer and Director (Principal Executive Officer) April 8, 2022 Russell Ellison /s/ Russell Skibsted Chief Financial Officer (Principal Financial Officer) April 8, 2022 Russell Skibsted /s/ Paul E. McGarry Principal Accounting Officer April 8, 2022 Paul E. McGarry /s/ John G. Cooper Director April 8, 2022 John G. Cooper /s/ Robert S. Radie Director April 8, 2022 Robert S. Radie /s/ Allen Nissenson Director April 8, 2022 Allen Nissenson /s/ Andrea Heslin Smiley Director April 8, 2022 Andrea Heslin Smiley /s/ Mark H. Ravich Director April 8, 2022 Mark H. Ravich 61 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets at December 31, 202 1 and 2020 F- 4 Consolidated Statements of Operations for the years ended December 31, 202 1 and 2020 F- 5 Consolidated Statements of Comprehensive Loss for the years ended December 31, 202 1 and 20 20 F- 6 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 1 and 20 20 F- 7 Consolidated Statements of Cash Flows for the years ended December 31, 202 1 and 20 20 F- 8 Notes to the Consolidated Financial Statements F- 10 – F- 30 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Rockwell Medical Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Rockwell Medical Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there was a critical audit matter as discussed below. Evaluation of Going Concern As disclosed in Note 2 to the consolidated financial statements, the Company has experienced significant net losses since inception, has an accumulated deficit and has used significant cash flows for operations during 2021, which caused management to evaluate if those factors raised substantial doubt about the Company’s ability to continue as a going concern which could be mitigated through Management’s plan. Management’s plan as disclosed in Note 2 includes increasing prices with some of its customers and implementing certain cost cutting and containment measures, all of which are significant assumptions in the Company’s projections used in its evaluation of going F-2 Table of Contents concern. The Company’s management has exercised significant judgment in their determination of how existing accounting principles generally accepted in the United States of America should be applied to the evaluation of going concern, the associated financial statement presentation and note disclosures relating to substantial doubt about the Company’s ability to continue as a going concern. We identified the evaluation of the Company’s ability to continue as a going concern as a critical audit matter due to the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatement related to the disclosure of the Company’s liquidity and ability to continue as a going concern for at least the next twelve months in the consolidated financial statements. The nature and extent of audit effort required to address the matter included significant involvement of more experienced engagement team members. The primary procedures we performed to address this critical audit matter included the following: • Understand management’s process and related internal controls in conducting the evaluation of going concern, including preparing projections. • We examined the executed Amendment to the Products Purchase Agreement and the terms in the agreement compared to the significant assumptions in the projected financial information, including, but not limited to, the projected revenue, growth rates, margins, as well as to the historical performance of the concentrates business. • We examined the executed Stock Purchase Agreement for the sale of preferred shares and traced the receipts of the proceeds to the bank account and the projected financial cash flow information. • We evaluated and tested management’s assumptions for projected price increases to subsequent customer invoices to validate the projected financial information, including, but not limited to, the projected revenue, gross margins, as well as to the historical performance of the concentrates business for cost assumptions. • We examined and tested certain assumptions reasonableness to test the changes to the expected cash flows. • We concluded on the probability of success of management’s plan. /s/ Marcum LLP Marcum LLP (PCAOB ID 688 ) We have served as the Company’s auditor since 2018. Chicago, Illinois April 8, 2022 F-3 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) December 31, 2021 December 31, 2020 ASSETS Cash and Cash Equivalents $ 13,280 $ 48,682 Investments Available-for-Sale 9,158 9,997 Accounts Receivable, net of a reserve of $ 16 for 2021 and $ 9 for 2020 5,913 4,171 Inventory 4,076 3,913 Prepaid and Other Current Assets 2,861 2,706 Total Current Assets 35,288 69,469 Property and Equipment, net 2,486 2,642 Inventory, Non-Current 1,523 1,176 Right of Use Assets, net 7,737 2,911 Goodwill 921 921 Other Non-Current Assets 619 629 Total Assets $ 48,574 $ 77,748 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts Payable $ 3,739 $ 4,155 Accrued Liabilities 5,090 5,013 Lease Liability - Current 2,004 1,167 Deferred License Revenue 2,171 2,175 Term Loan - Net of Issuance Costs 7,381 — Insurance Financing Note Payable 437 — Customer Deposits 144 152 Other Current Liability - Related Party — 131 Total Current Liabilities 20,966 12,793 Lease Liability - Long-Term 5,887 1,821 Term Loan, Net of Issuance Costs 13,186 20,949 Deferred License Revenue - Long-Term 5,986 8,015 Long Term Liability - Other 14 — Total Liabilities 46,039 43,578 Commitments and Contingencies (See Note 14) Stockholders’ Equity: Preferred Stock, $ 0.0001 par value, 2,000,000 shares authorized, no shares issued and outstanding at December 31, 2021 and 2020 — — Common Stock, $ 0.0001 par value, 170,000,000 shares authorized, 93,986,470 and 93,573,165 shares issued and outstanding at December 31, 2021 and 2020, respectively 9 9 Additional Paid-in Capital 372,554 371,510 Accumulated Deficit ( 370,080 ) ( 337,406 ) Accumulated Other Comprehensive Income 52 57 Total Stockholders’ Equity 2,535 34,170 Total Liabilities and Stockholders’ Equity $ 48,574 $ 77,748 The accompanying notes are an integral part of the consolidated financial statements. F-4 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, 2021 and 2020 (Dollars in thousands, except per share amounts) 2021 2020 Net Sales $ 61,931 $ 62,197 Cost of Sales 64,351 59,472 Gross (Loss) Profit ( 2,420 ) 2,725 Research and Product Development 6,835 7,092 Selling and Marketing 5,733 7,871 General and Administrative 15,348 16,182 Operating Loss ( 30,336 ) ( 28,420 ) Other Expense Realized Gain on Investments — 8 Warrant Modification Expense — ( 837 ) Interest Expense ( 2,360 ) ( 1,879 ) Interest Income 22 238 Total Other Expense ( 2,338 ) ( 2,470 ) Net Loss $ ( 32,674 ) $ ( 30,890 ) Basic and Diluted Net Loss per Share $ ( 0.35 ) $ ( 0.41 ) Basic and Diluted Weighted Average Shares Outstanding 93,788,050 75,621,674 The accompanying notes are an integral part of the consolidated financial statements. F-5 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For The Years Ended December 31, 2021 and 2020 (Dollars in Thousands) 2021 2020 Net Loss $ ( 32,674 ) $ ( 30,890 ) Unrealized Loss on Available-for-Sale Investments ( 6 ) ( 3 ) Foreign Currency Translation Adjustments 1 8 Comprehensive Loss $ ( 32,679 ) $ ( 30,885 ) The accompanying notes are an integral part of the consolidated financial statements. F-6 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For The Years Ended December 31, 2021 and 2020 (Dollars in Thousand) COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) TOTAL STOCKHOLDERS' EQUITY SHARES AMOUNT Balance as of January 1, 2020 65,378,890 $ 7 $ 326,777 $ ( 306,516 ) $ 52 $ 20,320 Net Loss — — — ( 30,890 ) — ( 30,890 ) Unrealized Loss on Available-for-Sale Investments — — — — ( 3 ) ( 3 ) Foreign Currency Translation Adjustments — — — — 8 8 Issuance of Common Stock — — — — — — Vesting of Restricted Stock Units Issued, net of taxes withheld 216,646 — ( 19 ) — — ( 19 ) Issuance of Common Stock, net of Issuance Costs/Public offering 26,849,021 2 40,677 — — 40,679 Issuance of Common Stock, net of Issuance Costs / At-the-market 1,128,608 — 2,262 — — 2,262 Issuance of Warrants related to Debt Financing — — 501 — — 501 Warrant Modification Expense — — 837 — — 837 Stock-based Compensation — — 475 — — 475 Balance as of December 31, 2020 93,573,165 $ 9 $ 371,510 $ ( 337,406 ) $ 57 $ 34,170 Net Loss — — — ( 32,674 ) — ( 32,674 ) Unrealized Loss on Available-for-Sale Investments — — — — ( 6 ) ( 6 ) Foreign Currency Translation Adjustments — — — — 1 1 Vesting of Restricted Stock Units Issued, net of taxes withheld 258,305 — ( 6 ) — — ( 6 ) Issued shares for services 155,000 — 107 — — 107 Stock-based Compensation — — 943 — — 943 Balance as of December 31, 2021 93,986,470 $ 9 $ 372,554 $ ( 370,080 ) $ 52 $ 2,535 The accompanying notes are an integral part of the consolidated financial statements. F-7 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, 2021 and 2020 (Dollars in Thousands) 2021 2020 Cash Flows From Operating Activities: Net Loss $ ( 32,674 ) $ ( 30,890 ) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 668 834 Stock-based Compensation 943 475 Warrant Modification Expense — 837 Increase in Inventory Reserves 146 305 Amortization of Right of Use Asset 1,847 1,455 Amortization of Debt Financing Costs and Accretion of Debt Discount 369 294 Loss on Disposal of Assets 8 7 Realized Loss on Sale of Investments Available-for-Sale — ( 8 ) Foreign Currency Translation Adjustment 2 8 Changes in Assets and Liabilities: (Increase) Decrease in Accounts Receivable, net ( 1,742 ) 32 Increase in Inventory ( 656 ) ( 1,306 ) Decrease in Other Assets 1,823 76 (Decrease) Increase in Accounts Payable ( 416 ) 1,136 Decrease in Settlement Payable — ( 104 ) Decrease in Lease Liability ( 1,771 ) ( 1,439 ) (Decrease) Increase in Other Liabilities ( 48 ) 534 Decrease in Deferred License Revenue ( 2,033 ) ( 1,887 ) Changes in Assets and Liabilities ( 4,843 ) ( 2,958 ) Cash Used In Operating Activities ( 33,534 ) ( 29,641 ) Cash Flows From Investing Activities: Purchase of Investments Available-for-Sale ( 26,058 ) ( 29,307 ) Sale of Investments Available-for-Sale 26,891 33,565 Purchase of Equipment ( 522 ) ( 1,046 ) Cash Provided By Investing Activities 311 3,212 Cash Flows From Financing Activities: Proceeds from Term Loan — 22,500 Debt Issuance Costs — ( 1,343 ) Payments on Short Term Note Payable ( 1,530 ) ( 763 ) Payments on Debt ( 750 ) — Proceeds from the Issuance of Common Stock / Public Offering — 43,148 Offering Costs from the Issuance of Common Stock / Public Offering — ( 2,469 ) Proceeds from the Issuance of Common Stock / At-the Market Offerings — 2,325 Offering Costs from the Issuance of Common Stock / At-the Market Offerings — ( 63 ) Proceeds from issuance of Common Stock for payment related to services provided 107 — Repurchase of Common Stock to Pay Employee Withholding Taxes ( 6 ) ( 19 ) Cash (Used in) Provided By Financing Activities ( 2,179 ) 63,316 (Decrease) Increase In Cash and Cash Equivalents ( 35,402 ) 36,887 Cash and Cash Equivalents At Beginning Of Period 48,682 11,795 Cash and Cash Equivalents At End Of Period $ 13,280 $ 48,682 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 1,827 $ 1,558 Supplemental Disclosure of Noncash Investing Activities: Change in Unrealized Loss on Marketable Securities Available-for-Sale $ ( 6 ) $ ( 3 ) Insurance Financing Note Payable $ 437 $ — Fair Value of Warrants issued related to Debt Financing $ 501 $ 501 F-8 Table of Contents The accompanying notes are an integral part of the consolidated financial statements. F-9 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business Rockwell Medical, Inc. ("Rockwell Medical," "Rockwell" or the "Company") is a commercial-stage, biopharmaceutical company developing and commercializing our next-generation parenteral iron technology platform, ferric pyrophosphate citrate (“FPC”), which we believe has significant potential to lead to transformative treatments for iron deficiency in multiple disease states, that we believe could reduce healthcare costs and improve patients’ lives. We are also one of the two major suppliers of life saving hemodialysis concentrate products to kidney dialysis clinics in the United States. We have two novel, FDA approved therapies, Triferic and Triferic AVNU, which are the first two products developed from our FPC platform. We market both products to kidney dialysis centers for their patients receiving dialysis. In late 2021, we filed an IND with the United Stated Food and Drug Administration ("FDA") with the goal to advance our FPC platform strategy by conducting a Phase II trial for the treatment of iron deficiency anemia in patients outside of dialysis, who are receiving intravenous ("IV") medications in the home infusion setting. The trend toward providing medical care, including the delivery of infused medications, at home make the home infusion market a rapidly growing area of healthcare. We believe that the home infusion setting is a natural path for expansion of our platform as many of the patients suffer from diseases that are associated with iron deficiency and anemia. In our R&D pipeline, we are also investigating FPC’s impact in the treatment of hospitalized patients with acute heart failure. We are the second largest supplier of hemodialysis concentrates in the United States, with a reputation for excellent service, quality, and reliability. We believe that this reputation, which is based on over 25 years of service to the kidney dialysis centers, combined with about $ 60 million in annual revenue, approximately 300 dedicated employees, expertise in manufacturing and logistics and the added expertise in pharmaceutical development and commercialization brought to the Company by recent additions to our management team, gives us a solid foundation on which to grow. Note 2. Liquidity and Going Concern Considerations Since inception, Rockwell has incurred significant net losses and has funded its operations primarily through revenue from commercial products, proceeds from the issuance of debt and equity securities and payments from partnerships. At December 31, 2021, Rockwell had an accumulated deficit of approximately $ 370.1 million and stockholders' equity of $ 2.5 million. As of December 31, 2021, Rockwell had approximately $ 22.4 million of cash, cash equivalents and investments available-for-sale, and working capital of $ 14.3 million. Net cash used in operating activities for the year ended December 31, 2021 was approximately $ 33.5 million. Prior to filing our Form 10-K for the year ended December 31, 2021, the Company had experienced significant inflationary pressures in its dialysis concentrates business, particularly in recent months, which has resulted in an accelerated operating loss associated with this business line. As a result of these inflationary pressures, and in light of the fact that the Company's concentrates business continued to operate at a loss in 2021, the Company sought to renegotiate certain terms of its supply contracts with the Company’s two largest customers in an effort to allow the Company to stabilize its concentrates business. These factors raised substantial doubt about the Company’s ability to continue as a going concern and depended, in part, on the degree of success in addressing inflationary pressures affecting the Company’s concentrates business, as well as the Company’s ability to contain costs, raise additional working capital and remain in compliance with financial and operating covenants under the Company’s secured loan. On April 6, 2022, the Company was able to execute an amendment to one of its supply agreements that restructures the supply relationship, which management expects to result in improved financial performance of the Company's concentrate business. The Company also entered into an equity investment agreement with one of the contracting parties for up to $ 15 million of investment in two tranches of $ 7.5 million each. The first tranche of $ 7.5 million was funded on April 7, 2022. The second $ 7.5 million tranche is to be funded subject to the Company raising $ 15 million in additional capital by June 30, 2022. The Company’s existing liquidity, taking into account the two executed agreements described above and implementing increases to product pricing, containing certain costs, and reducing expenses, management believes that the Company has sufficient capital to fund its operations and is sufficient to fund its operations and anticipated capital expenditures for the next 12 months. F-10 Table of Contents The Company expects it will require additional capital to sustain its operations and make the investments it needs to execute its strategic plan in developing FPC for iron deficiency anemia in patients undergoing home infusion and for progressing our pipeline development program of new indications for our FPC platform. If the Company is unable to generate sufficient cash flows from operations as described above, 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. Currently, because the Company's public float is less than $75 million, we are subject to the baby shelf limitations under our current registration statement on Form S-3, which limit the amount we may offer under our Form S-3. This could limit our ability to raise capital under this registration statement. As previously reported, on June 11, 2021, the Company received written notice (the “Notification Letter”) from the Nasdaq Stock Market ("Nasdaq") notifying the Company that it is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5450(a)(1) for continued listing on The Nasdaq Global Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities maintain a minimum closing bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s common stock for the 30 consecutive business days prior to the date of the Notification Letter, the Company did not meet the minimum closing bid price requirement. The Notification Letter provided for 180 calendar days, or until December 8, 2021, for the Company to regain compliance with Nasdaq Listing Rule 5450(a)(1). To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time prior to December 8, 2021. The Company was not able to meet the minimum compliance requirements set forth by Nasdaq by December 8, 2021. On December 9, 2021, the Company received a written notice from Nasdaq indicating that the Company’s application to transfer its listing venue from The Nasdaq Global Market to The Nasdaq Capital Market for its common stock had been approved. The Company’s common stock commenced trading on The Nasdaq Capital Market at the opening of business on December 10, 2021 under the symbol “RMTI.” Also on December 9, 2021, the Company received written notice that Nasdaq has determined the Company is eligible for an additional 180-day extension, or until June 6, 2022, to regain compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time prior to June 6, 2022. In addition, 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 believes that it will either be able to satisfy such covenants or, in the event of a breached covenant, exercise cure provisions to avoid an event of default. If Rockwell is unable to avoid an event of default, any required repayments could have an adverse effect on its liquidity (See Note 16 for further detail). The COVID-19 pandemic and resulting domestic and global disruptions have adversely affected Rockwell's business and operations, including, but not limited to, its sales and marketing efforts and our research and development activities, and the operations of third parties upon whom the Company relies. Quarantines, shelter-in-place, executive and similar government orders and the recent surge in infections domestically have negatively impact Rockwell's sales and marketing activities. The Company's international business development activities may also be negatively impacted by COVID-19, especially with the recent surge in infections and resulting quarantines or shelter-in-place orders. The COVID-19 pandemic, the domestic and international surge in infections and resulting global disruptions have caused significant volatility in financial and credit markets. 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. Note 3. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited. Rockwell Medical India Private F-11 Table of Contents Limited was formed in 2018 for the purpose of conducting certain commercial activities in India. All intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: • Step 1: Identify the contract with the customer • Step 2: Identify the performance obligations in the contract • Step 3: Determine the transaction price • Step 4: Allocate the transaction price to the performance obligations in the contract • Step 5: Recognize revenue when the company satisfies a performance obligation Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer. Nature of goods and services The following is a description of principal activities from which the Company generates its revenue. Product sales – The Company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost plus margin approach. Drug and dialysis concentrate products are sold directly to dialysis clinics and to wholesale distributors in both domestic and international markets. Distribution and license agreements for which upfront fees are received are evaluated upon execution or modification of the agreement to determine if the agreement creates a separate performance obligation from the underlying product sales. For all existing distribution and license agreements, the distribution and license agreement is not a distinct performance obligation from the product sales. In instances where regulatory approval of the product has not been established and the Company does not have sufficient experience with the foreign regulatory body to conclude that regulatory approval is probable, the revenue for the performance obligation is recognized over the term of the license agreement (over time recognition). Conversely, when regulatory approval already exists or is probable, revenue is recognized at the point in time that control of the product transfers to the customer. The Company received upfront fees under five distribution and license agreements that have been deferred as a contract liability. The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”), Sun Pharmaceutical Industries Ltd. ("Sun Pharma"), Jeil Pharmaceutical Co., Ltd. ("Jeil Pharma") and Drogsan Pharmaceuticals ("Drogsan 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, South Korea and Turkey, respectively, to determine that regulatory approval was probable as of the execution of the agreement. The amounts received from Baxter Healthcare Corporation (“Baxter”) are recognized as revenue at the point in time that the estimated product sales under the agreement occur. For the business under the Company’s distribution agreement with Baxter (the “Baxter Agreement”) and for the majority of the Company’s international customers, the Company recognizes revenue at the shipping point, which is generally the Company’s plant or warehouse. For other business, the Company recognizes revenue based on when the customer takes control 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. F-12 Table of Contents Disaggregation of revenue Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition. In thousands of US dollars ($) Year Ended December 31, 2021 Products By Geographic Area Total U.S. Rest of World Drug Revenues Product Sales - Point-in-time $ 835 $ 835 $ — License Fee – Over time 241 — 241 Total Drug Products 1,076 835 241 Concentrate Products Product Sales – Point-in-time 58,913 52,614 6,299 License Fee – Point-in-time 1,942 1,942 — Total Concentrate Products 60,855 54,556 6,299 Net Revenue $ 61,931 $ 55,391 $ 6,540 In thousands of US dollars ($) Year Ended December 31, 2020 Products By Geographic Area Total U.S. Rest of World Drug Revenues Product Sales - Point-in-time $ 910 $ 910 $ — License Fee – Over time 226 — 226 Total Drug Products 1,136 $ 910 226 Concentrate Products Product Sales – Point-in-time 59,100 53,707 5,393 License Fee – Point-in-time 1,961 1,961 — Total Concentrate Products 61,061 55,668 5,393 Net Revenue $ 62,197 $ 56,578 $ 5,619 For each of the years ended December 31, 2021 and 2020, license fee revenue was $ 2.2 million. For the years ended December 31, 2021 and 2020, product sales revenue was $ 59.7 million and $ 60.0 million, respectively. Contract balances The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers. In thousands of US dollars ($) December 31, 2021 December 31, 2020 Receivables, which are included in "Trade and other receivables" $ 5,913 $ 4,171 Contract liabilities $ 8,157 $ 10,190 There were no impairment losses recognized related to any receivables arising from the Company’s contracts with customers for the years ended December 31, 2021 and 2020. For the years ended December 31, 2021 and 2020, the Company did no t recognize material bad-debt expense and there were no material contract assets recorded on the consolidated balance sheets as of December 31, 2021 and 2020. The Company does not generally accept returns of its concentrate products and no reserve for returns of concentrate products was established as of December 31, 2021 or 2020. The contract liabilities primarily relate to upfront payments and consideration received from customers that are received in advance of the customer assuming control of the related products. Transaction price allocated to remaining performance obligations F-13 Table of Contents For the year ended December 31, 2021, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, totaled $ 8.2 million and $ 10.2 million as of December 31, 2021 and 2020, respectively. 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 ASC 606, 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. As of December 31, 2021 unfulfilled performance obligations related to the Baxter Agreement are product sales totaling $ 5.2 million, which will be amortized through expiration of the agreement on October 2, 2024. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with fair value and classification of warrants, revenue recognition, allowance for doubtful accounts, inventory reserves, accrued expenses, deferred license revenue, stock-based compensation, impairments of long-lived assets, and accounting for income taxes. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents excluding items held in Investments - Available for Sale as noted below. Cash and cash equivalents include cash held in banks, money market mutual funds and unrestricted certificates of deposit. The Company’s cash and cash equivalents exceeds the Federal Deposit Insurance Corporation insured limits. The Company has not experienced any credit losses for amounts in excess of insured limits. Currently the Company does not reasonably believe a significant risk of credit loss exists. Fair Value Measurement The Company applies the guidance issued with ASC 820, Fair Value Measurements , which provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace. Level 3: Unobservable inputs which are supported by little or no market activity ad values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. Investments – Available for Sale The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Marketable securities that are bought and held principally for the purpose of selling them in the near term are reported at fair value, with unrealized gains and losses recognized in earnings. F-14 Table of Contents Marketable debt securities classified as available for sale securities are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in stockholders’ equity. All of the Company's investments available-for-sale are subject to periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other than temporary. Accounts Receivable Accounts receivable are stated at invoice amounts. The carrying amount of trade accounts receivable is reduced by an allowance for doubtful accounts that reflects our best estimate of accounts that may not be collected. The Company reviews outstanding trade accounts receivable balances and based on its assessment of expected collections, the Company estimates the portion, if any, of the balance that may not be collected as well as a general valuation allowance for other accounts receivable based primarily on historical experience. All accounts or portions thereof deemed to be uncollectible are written off to the allowance for doubtful accounts. Inventory Inventory is stated at the lower of cost or net realizable value. Cost is determined on the first‑in first‑out (FIFO) method. Inventory that is not expected to be converted to cash over the next year is classified as non-current. The Company's policy is to reserve for its drug product inventory that it determines is unlikely to be sold to, or if sold, unlikely to be utilized by its customers on or before its expiration date. Property and Equipment Property and equipment is recorded at cost and is depreciated using the straight‑line method over the useful lives of the assets, which range from three to ten years . Expenditures for routine maintenance and repairs are expensed as incurred. Leasehold improvements are amortized using the straight‑line method over the shorter of the useful lives or the related lease term. Impairment of Long-lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment losses on long-lived assets, such as real estate and equipment, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts. For the years ended December 31, 2021 and 2020, there were no impairments of long-lived assets. Goodwill and Intangible Assets Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. Intangible assets with indefinite useful lives are measured at their respective fair values as of the acquisition date. Rockwell reviews goodwill and indefinite-lived intangible assets at least annually for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or the indefinite-lived intangible assets below their carrying values. Intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Definite-lived intangible assets consist of our license fees related to the technology, intellectual property and marketing rights for Triferic covered under certain issued patents have been capitalized and are being amortized over the life of the related patents which is generally 17 years. Deferred Revenue F-15 Table of Contents In October 2014, the Company entered into the Baxter Agreement, which has a term of 10 years 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 Distribution Agreement. The Company recognized revenue of approximately $ 1.9 million and $ 2.0 million for the years ended December 31, 2021 and 2020, respectively. Deferred revenue related to the Baxter agreement totaled $ 5.2 million and $ 7.2 million as of December 31, 2021 and 2020, respectively. During the year ended December 31, 2016, the Company entered into a distribution agreement with Wanbang (the "Wangbang Agreement") and received an upfront fee of $ 4.0 million. The upfront fee was recorded as deferred revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $ 0.2 million during the years ended December 31, 2021 and 2020, respectively. Deferred revenue related to the Wanbang Agreement totaled $ 2.5 million and $ 2.7 million as of December 31, 2021 and 2020, respectively. In January 2020, the Company entered into license and supply agreements with Sun Pharma (the "Sun Pharma Agreements"), for the rights to commercialize Triferic (dialysate) (ferric pyrophosphate citrate) in India. Under the terms of the Sun Pharma Agreements, Sun Pharma will be the exclusive development and commercialization partner for Triferic (dialysate) in India, and the Company will supply the product to Sun Pharma. In consideration for the license, the Company received an upfront fee of $ 0.1 million, and will be eligible for milestone payments and royalties on net sales. A Joint Alliance Committee, comprised of members from the Company and Sun Pharma, will guide the development and execution for Triferic (dialysate) in India. Sun Pharma will be responsible for all clinical and regulatory approval, as well as commercialization activities. The upfront fee was recorded as deferred revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $ 10,000 for both of the years ended December 31, 2021 and 2020. Deferred revenue related to the Sun Pharma Agreement totaled $ 80,000 and $ 90,000 as of December 31, 2021and 2020, respectively. In September 2020, the Company entered into a license and supply 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 $ 10,000 and $ 2,500 during the year ended December 31, 2021 and 2020, respectively. Deferred revenue related to the Jeil Pharma Agreement totaled $ 187,500 and $ 197,500 as of December 31, 2021 and 2020, respectively. In June 2021, the Company entered into license and supply agreements with Drogsan Pharma (the "Drogsan Agreements"), for the rights to commercialize Triferic (dialysate) and Triferic AVNU in Turkey. Under the terms of the Drogsan Agreements, Drogsan Pharma will be the exclusive commercialization partner for Triferic (dialysate) and Triferic AVNU in Turkey. In consideration for the license, the Company received an upfront fee of $ 0.15 million, and will be eligible for milestone payment and royalties on net sales. A Joint Alliance Committee, comprised of members from the Company and Drogsan Pharma, will guide the execution for Triferic (dialysate) and Triferic AVNU in Turkey. Drogsan Pharma will be responsible for all regulatory approval and commercialization activities, and the Company will supply the product to Drogsan Pharma for Turkey. The upfront fee will be recorded as deferred revenue and will be recognized as revenue based on the agreement term. The Company recognized revenue of $ 7,500 during the year ended December 31, 2021. Deferred revenue related to the Drogsan Agreements totaled approximately $ 0.1 million as of December 31, 2021. Income Taxes Rockwell accounts for income taxes in accordance with the provisions of ASC 740‑10, Income Taxes. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the year. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between book and tax accounting and operating loss and tax credit carryforwards. A valuation allowance is established for deferred tax assets if the Company determine it to be more likely than not that the deferred tax asset will not be realized. The effects of tax positions are generally recognized in the financial statements consistent with amounts reflected in returns filed, or expected to be filed, with taxing authorities. For tax positions that the Company considers to be uncertain, current and deferred tax liabilities are recognized, or assets derecognized, when it is probable that an income tax liability has F-16 Table of Contents been incurred and the amount of the liability is reasonably estimable, or when it is probable that a tax benefit, such as a tax credit or loss carryforward, will be disallowed by a taxing authority. The amount of unrecognized tax benefits related to current tax positions is insignificant. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense. Research and Product Development The Company recognizes research and product development expenses as incurred. The Company incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products aggregating approximately $ 6.8 million and $ 7.1 million for the years ended December 31, 2021 and 2020, respectively. Stock-Based Compensation Service-Based Stock Unit Awards The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards. For stock-based compensation awards to non-employees, the Company re-measures the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. Changes in the estimated fair value of these non-employee awards are recognized as compensation expense in the period of change. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. For the years ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense on its options granted under the Company’s equity compensation plans to its directors and officers, and its employees (See Note 12). Market and Performance-Based Stock Unit Awards In addition to awards with service-based vesting conditions, the Company has granted performance share units with market and performance conditions, to certain of its executives. The fair value of awards with performance conditions are based on the fair value of the Company’s common stock on the date of grant. The fair value of awards with market conditions are based on a Monte Carlo simulation model. Assumptions and estimates utilized in the calculation of the fair value of the market awards include the risk-free interest rate, dividend yield, average closing price, expected volatility based on the historical volatility of the Company, and the remaining period of the award. The awards with performance conditions vest and result in issuance, at settlement, of common stock for each recipient based upon the recipient’s continued employment with the Company through the settlement date of the award and the Company’s achievement of specified milestones. The requisite service period of the awards with performance conditions is generally 1 - 2 years. In the case of awards with performance conditions, the Company recognizes stock-based compensation expense based on the grant date fair value of the award when achievement of the underlying performance-based targets become probable. The awards with market conditions vest and result in the issuance of common stock based upon the recipient’s continuing employment with the Company through the settlement date of the award related to the market capitalization criteria. The fair value related to the awards with market conditions is recorded as stock-based compensation expense over the period from date of grant to the settlement date regardless of whether the market capitalization is achieved. Commitments and Contingencies In the normal course of business, the Company may become subject to loss contingencies, such as legal proceedings and claims arising out of its business, including government investigations. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. The Company expenses legal costs associated with loss contingencies as they are incurred. Loss Per Share ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”), with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other F-17 Table of Contents contracts to issued common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then shared in the earnings of the entity. Basic net loss per share of common stock excludes dilution and is computed by dividing the net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. The Company has only incurred losses, therefore, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share for the years ended December 31, 2021 and 2020 were as follows: As of December 31, 2021 2020 Options to purchase common stock 5,814,506 6,467,956 Unvested restricted stock awards 78,300 146,800 Unvested restricted stock units 322,182 265,494 Warrants to purchase common stock 26,426,863 26,426,863 Total 32,641,851 33,307,113 Accumulated Other Comprehensive Income Accumulated other comprehensive income includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Accumulated other comprehensive income refers to revenues, expenses, gains and losses that are included in comprehensive income, but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. Accumulated other comprehensive income consists of unrealized gains and losses on available‑for‑sale investment securities and foreign currency translation adjustments. Adoption of Recent Accounting Pronouncements The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change. Note 4. Investments - Available-for-Sale Investments available-for-sale consisted of the following as of December 31, 2021 and 2020 (table in thousands): December 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 9,143 $ 1 $ — $ 14 $ 9,158 December 31, 2020 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 9,987 $ 3 $ — $ — $ 9,997 The fair value of investments available-for-sale are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date and are classified as Level 1, as described in Note 3, Fair Value Measurement to our consolidated financial statements. As of December 31, 2021 and 2020, the amortized cost and estimated fair value of our available-for-sale securities were due in one year or less. F-18 Table of Contents Note 5. Significant Market Segments and Customers Rockwell operates in one market segment, the hemodialysis market, which involves the manufacture, sale and distribution of hemodialysis products to hemodialysis clinics, including pharmaceutical, dialysis concentrates, dialysis kits and other ancillary products used in the dialysis process. One customer, DaVita, Inc. ("DaVita"), accounted for 47 % of Rockwell's sales in 2021 and 50 % of its sales in 2020. Rockwell's accounts receivable from this customer were $ 1.0 million and $ 1.1 million as of December 31, 2021 and 2020, respectively. In October 2014, Rockwell entered into the Baxter Distribution Agreement, which was amended in June 2017 and March 2020, pursuant to which Baxter received exclusive distribution rights for the Company's concentrate products in the United States, a commitment by Rockwell to maintain a specified manufacturing capacity for Baxter, a cap upon the net amount of reimbursable transportation expenses and modified extension terms. Rockwell's domestic customer contracts for the supply of dialysis concentrate products that permitted assignment to Baxter without consent have been assigned to Baxter. As a result, for 2021 and 2020, Rockwell's direct sales to Baxter aggregated approximately 26 % and 25 % of sales, respectively, and the Company had a receivable from Baxter of $ 3.5 million and $ 1.6 million as of December 31, 2021 and 2020, respectively. DaVita and Baxter and the accounts administered by Baxter are important to Rockwell's business, financial condition and results of operations. The loss of any significant accounts could have a material adverse effect on the Company's business, financial condition and results of operations. No other domestic customers accounted for more than 10% its our sales in any of the last two years. The majority of Rockwell's international sales in each of the last two years were sales to domestic distributors that were resold to end users outside the United States. Rockwell's sales to foreign customers and distributors accounted for approximately 10 % and 9 % of its total sales in 2021 and 2020, respectively. One international customer, Nipro Medical Corporation, accounted for 8 % and 7 % of its sales for 2021 and 2020, respectively. Note 6. Distribution Agreement In October 2014, Rockwell entered into the Baxter Distribution Agreement, pursuant to which Baxter became Rockwell's exclusive agent for commercializing its hemodialysis concentrate and ancillary products in the United States and various foreign countries for an initial term of 10 years ending October 2, 2024. Rockwell retains sales, marketing and distribution rights for its hemodialysis concentrate products for its international customers and in those countries in which its has an established commercial presence. During the term of the Distribution Agreement, Baxter has agreed not to manufacture or sell any competitive concentrate products in the United States hemodialysis market, other than specified products. The Distribution Agreement does not include any of the Company’s drug products. In June 2017, Rockwell entered into the First Amendment to Exclusive Distribution Agreement with Baxter (the “Amendment”). The Amendment provides for, among other things, reduced pricing on certain accounts and incentives to Baxter to pursue new customers and increase future sales. In March 2020, Rockwell entered into the Second Amendment to the Exclusive Distribution Agreement with Baxter (the “Second Amendment”). The Second Amendment provides for, among other things, a commitment by Rockwell to maintain a specified manufacturing capacity for Baxter, a cap upon the net amount of reimbursable transportation expenses and modified extension terms. Under the Distribution Agreement, Baxter purchases concentrate-related products from Rockwell at pre-determined gross margin-based prices per unit adjusted each year during the term and subject to an annual true up. The Distribution Agreement also requires Baxter to meet minimum annual purchase levels, subject to a cure period and certain other relief, in order to maintain its exclusive distribution rights. The minimum purchase levels increase each year over the term of the Distribution Agreement. Purchases in any calendar year that exceed the minimum may be carried forward and applied to future years’ minimum requirements. The Distribution Agreement, as amended by the Second Amendment, also contains provisions regarding Rockwell's obligations to maintain specified manufacturing capacity and quality levels. Rockwell continues to manage customer service, transportation and certain other functions for its current customers. For customer service, Baxter pays Rockwell an amount equal to our related costs plus a slight mark-up for these services. For transportation costs, Baxter pays Rockwell an amount equal to its related costs, subject to the defined caps contained within the Second Amendment, which are based upon defined percentages of liquid concentrate product being shipped. The Distribution Agreement also provides that, upon the mutual determination of Rockwell and Baxter, Baxter will pay Rockwell up to $ 10 million to build a new manufacturing facility in the Pacific time-zone that would serve customers in the western United States. The fee payable in connection with construction of the facility will be reduced to the extent that the F-19 Table of Contents facility is not operational within 12 months after the start of construction. Except for any leased components, Rockwell will own and operate the facility when completed. Either party may terminate the Distribution Agreement upon the insolvency or material breach of the other party or in the event of a force majeure. In addition, Baxter may also terminate the Distribution Agreement at any time upon 270 days’ prior written notice to Rockwell or if (i) prices increase beyond certain thresholds and notice is provided within 45 days after the true up payment is due for the year in which the price threshold is exceeded, (ii) a change of control of the Company occurs and 270 days’ notice is provided, or (iii) upon written notice that Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product. If Baxter terminates the Distribution Agreement under the discretionary termination or the price increase provisions, it would be subject to a limited non-compete obligation in the United States with respect to certain products for a period of two years . Pursuant to the Distribution Agreement, Rockwell received an upfront fee of $ 20 million in October 2014. In December 2021, Baxter sent us a letter reserving its right to assert that it could claim a refund of a portion of its upfront payment if it terminates the Distribution Agreement as a result of certain price increases. While management believes that the claims in Baxter’s letter are without merit and that Baxter cannot recoup any portion of its upfront payment, management cannot assure you what a mediator or arbitrator may decide if it pursues such claim. Rockwell intends to vigorously defend against any such claim. The Upfront Fee has been deferred and is being recognized as revenue based on the proportion of product shipments to Baxter in each period to total expected sales volume over the term of the Distribution Agreement. We recognized revenue associated with the upfront fee totaling $ 1.9 million and $ 2.0 million for the years ended December 31, 2021, and 2020, respectively. The Distribution Agreement may be extended for an additional five years by Baxter if Baxter achieves a specified sales target and pays an extension fee of $ 7.5 million. If the first extension occurs, the Distribution Agreement term may later be extended an additional five years at Baxter’s option at no additional cost. Note 7. Inventory Components of inventory, net of reserves as of December 31, 2021 and 2020 are as follows (table in thousands): December 31, 2021 December 31, 2020 Raw Materials $ 3,434 $ 3,112 Work in Process 201 172 Finished Goods 1,964 1,805 Total $ 5,599 $ 5,089 As of December 31, 2021 and 2020, the Company classified $ 1.5 million and $ 1.2 million, respectively, of inventory as non-current all of which was related to Triferic or the active pharmaceutical ingredient for Triferic. As of December 31, 2021 and 2020, Rockwell had total Triferic inventory aggregating $ 1.7 million and $ 3.9 million, respectively, against which Rockwell had reserved $ 0.1 million and $ 2.6 million, respectively. The $ 1.6 million net value of Triferic inventory consisted of $ 0.3 million of Triferic (dialysate) finished goods with expiration dates ranging from July 2022 to December 2023, $ 0.4 million of Triferic API with estimated useful lives extending through 2023, and $ 0.9 million of Triferic raw material with an estimated useful live of 25 years. Note 8. Property and Equipment As of December 31, 2021 and 2020, the Company’s property and equipment consisted of the following (table in thousands): F-20 Table of Contents 2021 2020 Leasehold Improvements $ 1,204 $ 1,196 Machinery and Equipment 5,864 5,475 Information Technology & Office Equipment 1,845 1,831 Laboratory Equipment 676 676 9,589 9,178 Accumulated Depreciation ( 7,103 ) ( 6,536 ) Net Property and Equipment $ 2,486 $ 2,642 Depreciation expense during the years ended December 31, 2021 and 2020 is as follows (table in thousands): 2021 2020 Depreciation expense $ 668 $ 834 Note 9. Goodwill and Intangible Assets Total goodwill was $ 0.9 million at December 31, 2021 and 2020. Rockwell completed its annual impairment tests as of December 31, 2021 and 2020, and determined that no adjustment for impairment of goodwill was required during the years ended December 31, 2021 and 2020. Note 10. Accrued Liabilities Accrued liabilities as of December 31, 2021 and 2020 consisted of the following (table in thousands): 2021 2020 Accrued Research & Development Expense $ 366 $ 232 Accrued Compensation and Benefits 1,791 2,500 Accrued Unvouchered Receipts 796 755 Accrued Workers Compensation 382 395 Other Accrued Liabilities 1,755 1,131 Total Accrued Liabilities $ 5,090 $ 5,013 Note 11. Insurance Financing Note Payable On July 3, 2021, the Company entered into a short-term note payable for $ 2.0 million, bearing interest at 3.93 % per annum to finance various insurance policies. Principal and interest payments related to this note began on July 3, 2021 and are paid on a straight-line amortization over 9 month with the final payment due on March 3, 2022. As of December 31, 2021, the Company's insurance note payable balance was $ 0.4 million. Note 12. Stockholders’ Equity Preferred Stock As of December 31, 2021 and 2020, there were 2,000,000 shares of preferred stock, $ 0.0001 par value per share, authorized and no shares of preferred stock issued or outstanding. Common Stock As of December 31, 2021 and 2020, there were 170,000,000 shares of common stock, $ 0.0001 par value per share, authorized and 93,986,470 and 93,573,165 shares issued and outstanding, respectively. During the years ended December 31, 2021 and 2020, no vested employee stock options were exercised. Controlled Equity Offering F-21 Table of Contents On March 22, 2019, the Company entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time shares of the Company’s common stock through the Agent. The offering and sale of up to $ 40.0 million of the shares has been registered under the Securities Act of 1933, as amended, pursuant to the Company’s registration statement on Form S-3 (File No. 333-227363), which was originally filed with the SEC on September 14, 2018 and declared effective by the SEC on October 1, 2018. The base prospectus contained within the registration statement, and a prospectus supplement was filed with the SEC on March 22, 2019. The registration statement on Form S-3 expired on October 1, 2021 and no further sales may be made under the Sales Agreement. During the year ended December 31, 2021, the Company did not sell any shares of its common stock pursuant to the Sales Agreement. Note 13. Stock-Based Compensation The Board of Directors adopted the Rockwell Medical, Inc., 2007 Long Term Incentive Plan (“2007 LTIP”) on April 11, 2007. The 2007 LTIP expired on April 11, 2017 and no equity awards were granted under the 2007 LTIP following its expiration. There were 11,500,000 shares of common stock reserved for issuance under the 2007 LTIP. The Board of Directors adopted the 2018 Long-Term Incentive Plan (“2018 LTIP”) on January 29, 2018 as a replacement for the 2007 LTIP. Initially there were 3,300,000 shares of common stock reserved for issuance under the 2018 LTIP. On May 18, 2020, at the 2020 Annual Meeting, the Company’s stockholders approved the amendment and restatement of the Rockwell Medical, Inc. 2018 Long Term Incentive Plan to increase the number of shares of common stock issuable thereunder by 2,900,000 shares bringing common stock reserve for issuance up to 6,200,000 under the 2018 LTIP. The Compensation Committee of the Board of Directors (the “Committee”) is responsible for the administration of the 2007 LTIP and 2018 LTIP, including the grant of stock based awards and other financial incentives including performance based incentives to employees, non‑employee directors and consultants. The Company's standard stock option agreement under the 2007 LTIP and 2018 LTIP allows for the payment of the exercise price of vested stock options either through cash remittance in exchange for newly issued shares, or through non‑cash exchange of previously issued shares held by the recipient for at least six months in exchange for our newly issued shares. The 2007 LTIP and 2018 LTIP also allow for the retention of shares in payment of the exercise price and income tax withholding. The latter method results in no cash being received by the Company, but also results in a lower number of total shares being outstanding subsequently as a direct result of this exchange of shares. Shares returned to the Company in this manner would be retired. The Company recognized total stock-based compensation expense during the years ended December 31, 2021 and 2020 as follows (table in thousands): Year Ended December 31, 2021 2020 Service based awards: Restricted stock units $ 344 $ 372 Stock option awards 1,354 1,491 $ 1,697 $ 1,863 Performance based awards: Restricted stock awards $ ( 390 ) $ — Restricted stock units — ( 1,148 ) Stock option awards ( 364 ) ( 240 ) ( 754 ) ( 1,388 ) Total $ 943 $ 475 Restricted Stock Awards A summary of the Company’s restricted stock awards during the years ended December 31, 2021 and 2020 is as follows: F-22 Table of Contents Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2020 146,800 $ 5.70 Unvested at December 31, 2020 146,800 5.70 Forfeited ( 68,500 ) 5.70 Unvested at December 31, 2021 78,300 $ 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 December 31, 2021, unvested restricted stock awards of 78,300 were related to performance based awards. The forfeited performance-based restricted stock awards of 68,500 was due to the termination of the Company's former Chief Science Officer on January 19, 2021. These forfeited awards reduced stock-based compensation expense by $ 0.4 million. Stock-based compensation expense of nil was recognized for both the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there is no unrecognized stock-based compensation expense related to restricted stock awards. Service Based Restricted Stock Units A summary of the Company’s service based restricted stock units during the year ended December 31, 2021 and 2020 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2020 463,786 $ 4.26 Granted 208,993 2.00 Forfeited ( 159,724 ) 4.26 Vested ( 247,561 ) 4.30 Unvested at December 31, 2020 265,494 2.60 Granted 310,050 0.90 Forfeited ( 11,799 ) 4.81 Vested ( 241,563 ) 2.27 Unvested at December 31, 2021 322,182 $ 1.17 The fair value of service based restricted stock units are measured based on their fair value on the date of grant and amortized over the vesting period. The vesting periods range from 1 - 3 years. Stock-based compensation expense of 0.3 million and $ 0.4 million was recognized during the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the unrecognized stock-based compensation expense was $ 0.1 million over the next 12 months. Performance Based Restricted Stock Units As of December 31, 2021, there were no outstanding performance-based restricted stock units A summary of the Company’s performance based restricted stock units during the year ended December 31, 2020 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2020 988,958 $ 4.48 Forfeited ( 988,958 ) 4.48 Unvested at December 31, 2020 — $ — F-23 Table of Contents Stock-based compensation expense recognized for performance based restricted stock units was nil and $( 1.1 ) million for the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was no unrecognized stock-based compensation expense related to performance-based restricted stock units. Service Based Stock Options The fair value of the service based stock options granted for the years ended December 31, 2021 and 2020 were based on the following assumptions: December 31, 2021 2020 Exercise price $ 0.54 - $ 0.54 $ 0.92 - $ 2.90 Expected stock price volatility 75.0 % - 77.7 % 68.2 % - 75.8 % Risk-free interest rate 0.47 % - 1.30 % 31.00 % - 1.70 % Term (years) 5.5 - 6.0 5.5 - 6.0 A summary of the Company’s service based stock option activity for the years ended December 31, 2021 and 2020 is as follows: Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in $1,000's) Outstanding at January 1, 2020 8,210,024 $ 7.06 5.1 $ — Granted 2,288,386 1.94 9.0 — Expired ( 4,249,596 ) ( 8.07 ) Forfeited ( 530,858 ) ( 3.88 ) — Outstanding at December 31, 2020 5,717,956 $ 4.55 6.6 $ — Granted 1,947,162 0.88 — — Expired ( 1,408,709 ) ( 7.00 ) — Forfeited ( 441,903 ) ( 2.22 ) — Outstanding at December 31, 2021 5,814,506 $ 2.91 7.5 $ — Exercisable at December 31, 2021 2,612,079 $ 4.81 5.7 $ — 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. During the year ended December 31, 2021 and 2020, the service based stock options granted consisted of 1,947,162 and 2,288,386 options granted to employees, respectively. As of December 31, 2021, 2,612,079 vested options were exercisable at a weighted average price of $ 4.81 per share. During the year ended December 31, 2021 and 2020, stock-based compensation expense of $ 1.4 million and $ 1.5 million was recognized, respectively. As of December 31, 2021, total stock-based compensation expense related to 3,202,427 unvested options not yet recognized totaled approximately $ 1.3 million over the next 3.1 years. F-24 Table of Contents Performance Based Stock Options A summary of the performance based stock options granted for the year ended December 31, 2021, is as follows: Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2020 388,125 $ 4.70 Granted 750,000 2.20 Forfeited ( 388,125 ) ( 4.70 ) Outstanding at December 31, 2020 750,000 $ 2.20 Cancelled ( 750,000 ) 2.20 Outstanding at December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — Stock-based compensation expense recognized for performance-based stock options was $( 0.4 ) million and $( 0.2 ) million for the year ended December 31, 2021 and 2020. As of December 31, 2021, there were no performance based stock options outstanding. The canceled unvested performance-based stock options of 750,000 is due to management determining that the performance goal will not be achieved. Note 14. License Agreements Product License Agreements The Company is a party to a Licensing Agreement between the Company and 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 and Dr. Ajay Gupta, a former Officer of the Company. Pursuant to the MSA, the parties entered into three 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). As of December 31, 2021 and 2020, the Company has accrued $ 86,400 and $ 100,700 , respectively, relating to certain IP reimbursement expenses and certain sublicense royalty fees as an accrued liability on the condensed consolidated balance sheet. Pursuant to the Charak MSA, the aforementioned parties entered into an Amendment, dated as of October 7, 2018 (the “Charak Amendment”), to 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 sublicensee 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 sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis. Also pursuant to the Charak MSA, the Company and Charak entered into a Commercialization and Technology License Agreement IV Triferic®, dated as of October 7, 2018 (the “IV Agreement”), under which Charak granted the Company an exclusive, sublicensable, royalty-bearing license to SFP for the purpose of commercializing certain 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 country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the IV Agreement, which amount shall not be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there F-25 Table of Contents 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 sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis. Also pursuant to the Charak MSA, the Company and Charak entered into a Technology License Agreement TPN Triferic®, dated as of October 7, 2018 (the “TPN Agreement”), pursuant to which Charak granted the Company an exclusive, sublicensable, royalty-bearing license to SFP for the purpose of commercializing worldwide certain 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 sublicensee 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 sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis. The potential milestone payments are not yet considered probable, and no milestone payments have been accrued at December 31, 2021. Note 15. Commitments and Contingencies Leases Rockwell leases its production facilities and administrative offices as well as certain equipment used in its operations including leases on transportation equipment used in the delivery of its products. The lease terms range from monthly to seven years . Rockwell occupies a 51,000 square foot facility and a 17,500 square foot facility in Wixom, Michigan under a lease expiring in August 2024. Rockwell also occupies two other manufacturing facilities, a 51,000 square foot facility in Grapevine, Texas under a lease expiring in December 2025, and a 57,000 square foot facility in Greer, South Carolina under a lease expiring February 2023. In addition, Rockwell occupies 4,100 square feet of office space in Hackensack, New Jersey under a lease expiring on October 31, 2024. This lease was subleased on December 15, 2021 with an expiration date of October 31, 2024. F-26 Table of Contents The following summarizes quantitative information about the Company’s operating leases (dollars in thousands): For the year ended December 31, For the year ended December 31, 2021 2020 Operating leases Operating lease cost $ 1,793 $ 1,609 Variable lease cost 373 488 Operating lease expense 2,166 2,097 Finance leases Amortization of right-of-use assets 313 18 Interest on lease obligations 99 5 Finance lease expense 412 23 Short-term lease rent expense 17 17 Total rent expense $ 2,595 $ 2,137 Other information Operating cash flows from operating leases $ 1,772 $ 1,648 Operating cash flows from finance leases $ 99 $ 5 Financing cash flows from finance leases $ 255 $ 17 Right of use assets exchanged for operating lease liabilities $ 4,217 $ 268 Right of use assets exchanged for finance lease liabilities $ 2,431 $ 930 Weighted-average remaining lease term - operating leases 3.5 2.3 Weighted-average remaining lease term – finance leases 5.4 5.8 Weighted-average discount rate - operating leases 6.3 % 6.4 % Weighted-average discount rate – finance leases 6.4 % 5.1 % Future minimum rental payments under operating lease agreements are as follows (table in thousands): Operating Finance Year ending December 31, 2022 $ 1,772 $ 660 Year ending December 31, 2023 1,455 668 Year ending December 31, 2024 1,114 671 Year ending December 31, 2025 637 676 Year Ended December 31, 2026 259 665 Remaining future payments 120 311 Total 5,357 3,651 Less present value discount $ ( 555 ) $ ( 562 ) Operating and Finance lease liabilities. $ 4,802 $ 3,089 Insurance The Company evaluates various kinds of risk that it is exposed to in its business. In its evaluation of risk, the Company evaluates options and alternatives to mitigating such risks. For certain insurable risks, Rockwell may acquire insurance policies to protect against potential losses or to partially insure against certain risks. For the Company's subsidiary, Rockwell Transportation, Inc., Rockwell maintains a partially self-insured workers' compensation policy. Under the policy, its self‑insurance retention is $ 350,000 per occurrence and $ 599,000 in aggregate coverage for the policy year ending July 1, 2022. The total amount at December 31, 2021 by which retention limits exceed the claims paid and accrued is approximately $ 431,000 for the policy year ending July 1, 2022. Estimated loss and additional future claims of approximately $ 382,000 have been reserved and accrued for the year ended December 31, 2021. F-27 Table of Contents As of December 31, 2021, approximately $ 0.4 million was held in cash collateral and escrow by the insurance carrier for workers’ compensation insurance. At December 31, 2021, amounts held in cash collateral and escrow are included in prepaid expenses and other non-current assets in the consolidated financial statements. Purchase Obligations Rockwell has contracts for anticipated future obligations through December 31, 2022 of approximately $ 32.6 million, which include $ 31.2 million for concentrate manufacturing and $ 1.4 million in ancillary supplies. Litigation SEC Investigation As a follow up to certain prior inquiries, the Company received a subpoena from the SEC during the Company’s quarter ended September 30, 2018 requesting, among other things, certain information and documents relating to the status of the Company’s request to the Centers for Medicare & Medicaid Services for separate reimbursement status for Triferic (dialysate), the Company’s reserving methodology for expiring Triferic inventory, and the basis for the Board’s termination of the former Chief Executive Officer, Robert Chioini, and former Chief Financial Officer, Thomas Klema, in 2018. On January 31, 2022, the Company received a letter from the United States Securities and Exchange Commission (the "Commission") concluding it’s investigation and stating that it does not intend to recommend an enforcement action by the Commission against the Company. Note 16. Loan and Security Agreement On March 16, 2020, Rockwell and Rockwell Transportation, Inc., as Borrowers, entered into a Loan and Security Agreement (the "Loan Agreement") with Innovatus Life Sciences Lending Fund I, LP ("Innovatus"), as collateral agent and the lenders party thereto, pursuant to which Innovatus, as a lender, agreed to make certain term loans to the Company in the aggregate principal amount of up to $ 35.0 million (the "Term Loans"). Funding of the first $ 22.5 million tranche was completed on March 16, 2020. The Company is no longer eligible to draw on a second tranche of $ 5.0 million, which 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. The Company is entitled to make interest-only payments for thirty months , or up to thirty-six months if certain conditions are met. The Term Loans will mature on March 16, 2025, and will bear interest at the greater of (i) Prime Rate (as defined in the Loan Agreement) and (ii) 4.75 %, plus 4.00 % with an initial interest rate of 8.75 % per annum and an effective interest rate of 10.90 %. The Company has the option, under certain circumstances, to add 1.00 % of such interest rate amount to the then outstanding principal balance in lieu of paying such amount in cash. For the year ended December 31, 2021, interest expense amounted to $ 2.0 million. The Loan Agreement is secured by all assets of the Company and Rockwell Transportation, Inc. Proceeds will be used for working capital purposes. The Loan Agreement contains customary representations and warranties and covenants, subject to customary carve outs, and includes financial covenants related to liquidity and trailing twelve months sales of Triferic, with the latter beginning with the period ending December 31, 2021. We cannot assure you that we can maintain compliance with the covenants 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 ongoing COVID-19 pandemic and its effect on our sales activities, among other factors, we may not be able to satisfy such covenants in the future. If the Company is unable to comply with the covenants under the Loan Agreement, it would pursue all available cure options in order to regain compliance. The Company previously failed to satisfy a revenue covenant for the period ended December 31, 2020 and then subsequently agreed to an appropriate remedy during the applicable cure period. However, the Company may not be able to mutually agree with Innovatus on appropriate remedies to cure a future breach of a covenant, which could give rise to an event of default. If the Company is unable to avoid an event of default, any required repayments could have an adverse effect on its liquidity. The financial statements for December 31, 2021 have been prepared with the assumption that the Company will be able to agree to an appropriate remedy during the applicable cure period for any future breaches of operating covenants. In connection with each funding of the Term Loans, the Company is required to issue to Innovatus a warrant (the “Warrants”) to purchase a number of shares of the Company’s common stock equal to 3.5 % of the principal amount of the relevant Term Loan funded divided by the exercise price, which will be based on the lower of (i) the volume weighted average F-28 Table of Contents closing price of the Company’s stock for the 5 -trading day period ending on the last trading day immediately preceding the execution of the Loan Agreement or (ii) the closing price on the last trading day immediately preceding the execution of the Loan Agreement (or for the second and third tranches only at the lower of (i) $ 1.65 per share or (ii) the volume weighted average closing price of the Company’s stock for the 5 -trading day period ending on the last trading day immediately preceding the relevant Term Loan funding). The Warrants may be exercised on a cashless basis and are immediately exercisable through the seventh anniversary of the applicable funding date. The number of shares of common stock for which each Warrant is exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in such Warrant. In connection with the first tranche of the Term Loans, the Company issued a Warrant to Innovatus, exercisable for an aggregate of 477,273 shares of the Company’s common stock at an exercise price of $ 1.65 per share. The Company evaluated the warrant under ASC 470, Debt, and recognized an additional debt discount of approximately $ 0.5 million based on the relative fair value of the base instruments and warrants. The Company calculated the fair value of the warrant using the Black-Scholes model. In September 2021, the Company entered into an amendment to the Loan Agreement in which the Company, in exchange for Innovatus lowering the sales covenants, agreed to (i) prepay an aggregate principal amount of $ 7,500,000 in ten installments commencing on December 1, 2021; (ii) pay an additional prepayment premium of 5 % on prepaid amounts if the Company elects to prepay all outstanding term loans on or before September 24, 2023 and (iii) maintain minimum liquidity of no less than $ 5,000,000 if the aggregate principal amount of term loans is greater than $ 15,000,000 pursuant to the liquidity covenant in the Loan Agreement. As of December 31, 2021, the Company was in compliance with its financial covenants and was not in compliance with its reporting covenant related to the delivery of the financial statements. As disclosed in Note 18, the Company and Innovatus entered into an agreement to waive this non-compliance. As of December 31, 2021, the outstanding balance of the Term Loan was $ 20.6 million, net of unamortized issuance costs and discount of $ 1.2 million. The following table reflects the schedule of principal payments on the Term Loan as of December 31, 2021 (in thousands): Year Principal Payments 2022 $ 7,750 2023 6,000 2024 6,000 2025 2,000 $ 21,750 Note 17. Income Taxes A reconciliation of income tax expense at the statutory rate to income tax expense at our effective tax rate is as follows (dollars in thousands): 2021 2020 Tax Expense (Benefit) Computed at 22.62 % and 22.67 % of Pretax Income (Loss) $ ( 6,744 ) $ ( 6,373 ) Changes in Tax Laws — — Foreign Income Tax Expense — — Effect of Change in Valuation Allowance 6,744 6,373 Total Income Tax Expense $ — $ — The details of the net deferred tax asset are as follows (dollars in thousands): F-29 Table of Contents December 31, 2021 2020 Deferred tax assets: Net Operating Loss Carryforward $ 66,895 $ 59,586 Stock Based Compensation 7,726 7,582 Deferred Revenue 1,846 2,310 General Business Credit 6,872 6,872 Accrued Expenses 174 185 Inventories 88 666 Book over Tax Depreciation 6 25 Other Deferred Tax Assets 865 387 Total Deferred Tax Assets 84,472 77,613 Deferred Tax Liabilities: Goodwill & Intangible Assets 183 155 Prepaid Expenses 381 294 Total Deferred Tax Liabilities 564 449 Subtotal 83,908 77,164 Valuation Allowance ( 83,908 ) ( 77,164 ) Net Deferred Tax Asset $ — $ — The Tax Cuts and Jobs Act of 2017 ("TCJA") impacted how net operating losses are utilized. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") temporarily suspends the TCJA limitation, allowing a net operating loss carryforward to fully offset taxable income in tax years beginning before January 1, 2021. The CARES Act also temporarily reinstated a carryback period for all net operating losses generated in years beginning after December 31, 2017 and before January 1, 2021. The carryback period for those years is five years under the CARES Act. Deferred tax assets result primarily from net operating loss carryforwards. For federal tax purposes, we have net operating loss carryforwards of approximately $ 294.8 million that expire between 2022 and 2038. In assessing the potential for realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company recognized no income tax expense or benefit for the years ended December 31, 2021, and 2020. While the Company anticipates generating income within the next year or two, it expects to incur operating losses until its drug products are marketed and generating sufficient profits to offset its operating expenses. Considered together with the Company's limited history of operating income and its net losses in 2021 and 2020, management has placed a full valuation allowance against the net deferred tax assets as of December 31, 2021 and 2020. The portion of the valuation allowance resulting from excess tax benefits on share based compensation that would be credited directly to contributed capital if recognized in subsequent periods is $ 4.2 million. Rockwell accounts for its uncertain tax positions in accordance with ASC 740‑10, Income Taxes and the amount of unrecognized tax benefits related to tax positions is not significant at December 31, 2021 and 2020. The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2021 and 2020. Tax examination years of 2017 to 2020 remain open. Note 18. Subsequent Events On March 14, 2022, Raymond Pratt notified the Company of his decision to resign as the Company’s Chief Development Officer, effective as of March 25, 2022. On March 20, 2022, John P. McLaughlin notified the board of directors (the “Board”) of the Company of his intent to resign as a member of the Board and as Chairman of the Board effective as of April 1, 2022. The size of the Board will be reduced to six directors effective upon Mr. McLaughlin’s resignation. The Board intends to appoint a replacement for Mr. McLaughlin on the Audit Committee of the Board prior to the effective date of his resignation. Mr. McLaughlin’s decision was F-30 Table of Contents not the result of any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices. On March 31, 2022, the Company requested the Collateral Agent and Lenders to consent to the delivery to Collateral Agent and Lenders of its annual audited financial statements for the fiscal year 2021, as required pursuant to Debt Agreement, by April 15, 2022 as opposed to within 90 days of the December 31, 2021 and Collateral Agent and Lenders agreed to such request. Amended Supply Agreement The Company has been working to renegotiate certain terms of its supply contracts with the Company’s two largest customers in an effort to allow the Company to stabilize its concentrates business. On April 6, 2022, the Company and DaVita Inc. ("DaVita") entered into an amendment (the "Amendment") to the Products Purchase Agreement, dated July 1, 2019 (the "Supply Agreement") under which the Company supplies DaVita with certain dialysis concentrates. Under the Amendment, the Company and DaVita agreed to a price increase, effective May 1, 2022, as well as the pass-through of certain inflationary costs, determined on a quarterly basis. Certain costs are subject to a cap. The Amendment also requires the Company to implement certain cost containment and cost-cutting measures. The Amendment contains certain covenants with respect to the Company’s ongoing operations, including a minimum cash covenant, and the requirement to raise $ 15 million in additional capital by June 30, 2022. The Amendment also establishes a joint committee that will oversee certain efficiency and cost-savings activities to be undertaken by the Company. Certain cost savings that are realized by the Company will be shared with DaVita in the manner set forth in the Amendment. Securities Purchase Agreement Also on April 6, 2022, the Company and DaVita entered into a Securities Purchase Agreement (the "SPA"), pursuant to which the Company will issue up to $ 15 million of preferred stock to DaVita. The Company initially issue 7,500 shares of a newly designated series of preferred stock, which is designated “Series X Convertible Preferred Stock” (the "Series X Preferred Stock") for gross proceeds of $ 7,500,000 . The Company will issue to DaVita an additional 7,500 shares of Series X Preferred Stock in a second closing (the "Second Tranche") for an additional $ 7,500,000 if the Company raises $ 15 million in additional capital by June 30, 2022. The Series X Preferred Stock will be issued for a price $ 1,000 per share (the "Face Amount"), subject to accretion at a rate of 1 % per annum, compounded annually. If the Company’s common stock trades above $ 2.00 for a period of 30 calendar days, the accretion will thereafter cease. The Series X Convertible Preferred Stock is convertible to common stock at rate equal to the Face Amount, divided by a conversion price of $ 1.00 per share (subject to adjustment for stock splits, reverse stock splits and similar recapitalization events). As a result, each share of Series X Preferred Stock will initially convert into 1,000 shares of common stock. DaVita’s right to convert to common stock is subject to a beneficial ownership limitation, which is initially set at 9.9 % of the outstanding common stock, which limitation may be reset (not to exceed 19.9 %) at DaVita’s option and upon providing prior written notice to the Company. The shares issued in the Second Tranche will have a lower conversion price if the Company raises capital through the issuance of convertible preferred stock prior to the closing of the Second Tranche and the conversion price of the securities sold in such preferred stock offerings is below $ 1.00 per share. 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. F-31