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, 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, 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, 2022. Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022. Additionally, the Company’s management, including the Chief Executive 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 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, our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022. 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, 2022. 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, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 43 Table of Contents Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 44 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 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2022, including under headings “Election of Directors,” “Directors Continuing in Office,” “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 2023 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 2023 Proxy Statement, including under heading “Security Ownership of Certain Beneficial Owners and Management.” 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, 2022: 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) 788,615 $ 12.29 107,335 Equity compensation plans not approved by security holders (2) 544,181 $ 3.50 — Total 1,332,796 $ 8.32 107,335 (1) Consists of 662,724 stock options with a weighted average exercise price of $12.29, 125,000 restricted stock units issued at $1.47 and 891 restricted stock awards issued at $62.70. (2) Consists of 544,181 stock options with a weighted average exercise price of $3.50. 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 2023 Proxy Statement, including under headings “Independence” and “Certain Relationships 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 2023 Proxy Statement, including under heading “Independent Accountants.” 45 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 ( Ex hibit 3.3 to the Company’s Form 8-K filed August 30, 2019). 3.2 Certificate of Amendment to Certificate of Incorporation of Rockwell Medical, Inc. related to the Reverse Stock Split, dated May 12, 2022 (Exhibit 3.1 to the Company’s Form 8-K filed on May 13, 2022). 3.3 Certificate of Designation of Preferences, Rights and Limitations of Series X Convertible Preferred Stock (Exhibit 3.1 to the Company’s Form 8-K filed on April 8, 2022). 3.4 Amended and Restated Bylaws (Exhibit 3.1 to the Company’s Form 10-Q filed November 14, 2022). 4.1 Form of Common Stock Warrant, dated October 17, 2018 ( Exhibit 4.1 to the Company’s Form 8-K filed October 19, 2018). 4.2 Description of Securities (Exhibit 4.2 to the Company's Form 10-K filed on April 8, 2022) 4.3 Form of Warrant ( Exhibit 4.1 to the Company's Form 8-K filed on September 25, 2020). 4.4 Form of Pre-Funded Warrant ( Exhib it 4.2 to the Company's Form 8-K filed on September 25, 2020). 4.5 Form of Warrant to Purchase Common Stock for Innovatus ( Exhibit 4.1 to the Company's Form 8-K filed March 20, 2020). 4.6 Form of Pre-Funded Warrant (Exhibit 4.1 to the Company’s Form 8-K filed on June 2, 2022). 4.7 Form of PIPE Warrant (Exhibit 4.2 to the Company’s Form 8-K filed on June 2, 2022). 4.8 Form of PIPE Pre-Funded Warrant (Exhibit 4.3 to the Company’s Form 8-K filed on June 2, 2022). 10.1 Registration Rights Agreement, dated October 17, 2018 (Exhibit 10.83 to the Company’s Form 8-K filed October 19, 2018). 10.2 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 (Exhibit 10.1 to the Company’s Form 10-Q filed on May 11, 2020). 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 (Exhibit 10.1 to the Company’s Form 8-K filed on September 30, 2021) 10.4 Second Amendment to Loan and Security Agreement dated November 10, 2022 by and among the Company, Innovatus Life Sciences Lending Fund I, LP and the lenders party thereto (Exhibit 10.3 to the Company’s Form 10-Q filed on November 14, 2022). 10.5 Sales Agreement, dated April 8, 2022, between Rockwell Medical, Inc. and Cantor Fitzgerald & Co. (Exhibit 1.1 to the Company’s Form 8-K filed on April 8, 2022). 10.6 Securities Purchase Agreement, dated April 6, 2022, by and between the Company and DaVita, Inc. (Exhibit 10.1 to the Company’s Form 10-Q filed on May 16, 2022). 10.7 RD Securities Purchase Agreement, dated May 30, 2022, by and between the Company and the Purchaser signatory therein (Exhibit 10.1 to the Company’s Form 8-K filed on June 2, 2022). 10.8 PIPE Securities Purchase Agreement, dated May 30, 2022, by and between the Company and the Purchaser signatory therein (Exhibit 10.2 to the Company’s Form 8-K filed on June 2, 2022). 10.9 Registration Rights Agreement, dated June 2, 2022, by and between the Company and the Holder signatory thereto (Exhibit 10.3 to the Company’s Form 8-K filed on June 2, 2022). 10.10+ Products Purchase Agreement, dated July 1, 2019, by and between the Company and DaVita Inc. (f/k/a DaVita Healthcare Partners Inc.) (Exhibit 10.1 to the Company’s Form 10-Q filed November 12, 2019). 10.11+ Amendment One to Products Purchase Agreement, dated April 6, 2022, by and between the Company and DaVita, Inc. (Exhibit 10.2 to the Company’s Form 10-Q filed on May 16, 2022). 10.12 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) (Exhibit 10.57 to the Company’s Form 10‑K filed March 3, 2015). 46 Table of Contents 10.13 Investment Agreement, dated October 2, 2014, by and between the Company and Baxter Healthcare Corporation ( Exhibit 10.58 to the Company’s Form 10‑K filed March 3, 2015). 10.14 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) ( Exhibit Company’s Form 10-Q filed August 9, 2017). 10.15+# Distribution Termination and Acquisition Agreement dated November 8, 2022 between the Company and Baxter Healthcare Corporation. 10.16+ Licensing Agreement, dated January 7, 2002, by and among the Company, Charak LLC and Dr. Ajay Gupta (Exhibit 10.18 to the Company’s Form 10‑KSB filed April 1, 2002). 10.17 Amending Agreement, dated January 16, 2006, by and among the Company, Charak LLC and Dr. Ajay Gupta (Exhibit 10.13 to the Company’s Form 10‑KSB filed March 21, 2006). 10.18 Master Services and IP Agreement, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Exhibit 10.34 Company's Form 10-K filed on March 18, 2019). 10.19 Amendment to License Agreement, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Exhibit 10.35 to the Company's Form 10-K filed on March 18, 2019). 10.20 Commercialization and Technology License Agreement IV Triferic, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Exhibit 10.36 to the Company's Form 10-K filed on March 18, 2019). 10.21 Technology License Agreement TPN Triferic, dated October 7, 2018, by and among the Company, Charak, LLC and Dr. Ajay Gupta (Exhibit 10.37 to the Company's Form 10-K filed on March 18, 2019). 10.22* Rockwell Medical, Inc. Amended and Restated 2007 Long Term Incentive Plan, as amended effective May 21, 2015 ( Appendix to the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders filed on April 13, 2015). 10.23* Form of Nonqualified Stock Option Agreement (2007 Long Term Incentive Plan) (Director Version) ( Exhibit 10.22 to the Company’s Form 8‑K filed December 20, 2007). 10.24* Form of Nonqualified Stock Option Agreement (2007 Long Term Incentive Plan) (Employee Version) ( Exhibit 10.2 3 to the Company’s Form 8-K filed December 20, 2007). 10.25* Form of Restricted Stock Award Agreement (2007 Long Term Incentive Plan) (Director Version) ( Exhibit 10.62 to the Company’s Form 10-K filed February 29, 2016). 10.26* Form of Restricted Stock Award Agreement (2007 Long Term Incentive Plan) (Executive Version) ( Exhibit 10.54 to the Company’s Form 10‑Q filed May 12, 2014). 10.27* Form of Performance Share Award Agreement March 2017 (Executive Version) ( Exhibit 10.64 to the Company’s Form 10-Q filed May 9, 2017). 10.28* Form of Performance Share Award Agreement March 2017 (Director Version) ( Exhibit 10 .65 to the Company’s Form 10-Q filed May 9, 2017). 10.29* Rockwell Medical, Inc. Amended and Restated 2018 Long Term Incentive Plan (Exhibit 10.8 to the Company’s Form 10-Q filed on August 15, 2022). 10.30* Form of Stock Option Agreement (2018 Long Term Incentive Plan) ( Exhibit 10.2 to the Company’s Form 10- Q filed on Nov ember 14, 2022 ). 10.31* Form of Contingent Option Agreement for Directors (2018 Long Term Incentive Plan) ( Exhibit 1 0.76 to the Company’s Form 8-K filed March 21, 2018). 10.32*# Form of Restricted Stock Unit Award Agreement Employee Version (2018 Long Term Incentive Plan). 10.33*# Form of Restricted Stock Unit Award Agreement Director Version (2018 Long Term Incentive Plan). 10.34* Rockwell Medical, Inc. Short Term Incentive Plan (Exhibit 10.1 to the Company’s Form 10-Q filed on November 14, 2022). 10.35* Form of Indemnification Agreement ( Exhibit 10.1 to the Company’s Form 8-K filed August 30, 2019). 10.36* Stock Appreciation Right Agreement, dated September 5, 2017, by and between the Company and John G. Cooper ( Exhibit 1 0.71 to the Company’s Form 10-Q filed November 8, 2017). 10.37* Employment Agreement, dated June 21, 2022, between Rockwell Medical, Inc. and Mark Strobeck (Exhibit 10.7 to the Company’s Form 10-Q filed on August 15, 2022). 10.38* Russell Ellison Employment Agreement, dated April 17, 2020 ( Exhibit 10.1 to the Company’s Form 8-K filed on April 20, 2020). 10.39* Russell Skibsted Employment Agreement, dated September 15, 2020 ( Exhibit 10.1 to the Company’s Form 8-K filed on September 16, 2020). 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). 32.1# Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. 47 Table of Contents 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. # Filed herewith Item 16. Form 10-K Summary. None. 48 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/ Mark Strobeck Mark Strobeck President and Chief Executive Officer Date: March 30, 2023 POWER OF ATTORNEY KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark Strobeck and Megan Timmins, 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/ Mark Strobeck President, Chief Executive Officer and Director (Principal Executive Officer and Principal Financial Officer) March 30, 2023 Mark Strobeck /s/ Paul McGarry Senior Vice President, Finance and Chief Accounting Officer March 30, 2023 Paul McGarry /s/ John G. Cooper Director March 30, 2023 John G. Cooper /s/ Robert S. Radie Director March 30, 2023 Robert S. Radie /s/ Allen Nissenson Director March 30, 2023 Allen Nissenson /s/ Andrea Heslin Smiley Director March 30, 2023 Andrea Heslin Smiley /s/ Mark H. Ravich Director March 30, 2023 Mark H. Ravich 49 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 2 and 202 1 F- 4 Consolidated Statements of Operations for the years ended December 31, 202 2 and 202 1 F- 5 Consolidated Statements of Comprehensive Loss for the years ended December 31, 202 2 and 202 1 F- 6 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 2 and 202 1 F- 7 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 and 202 1 F- 8 Notes to the Consolidated Financial Statements F- 9 – F- 31 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 The critical audit matters communicated below 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. 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 2022, 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 F-2 Table of Contents includes increasing prices with some of its customers, entering into new distribution and purchase agreements with former Baxter customers, restructuring the Company’s contract with its largest customer in the concentrates business, 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 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 analyzed the terms in the agreement to the projected financial information, such as the projected revenue and gross margins. • We evaluated and tested management’s assumptions, including, but not limited to, projected price increases to subsequent customer activity to validate the significant assumptions in the projected financial information, such as the projected revenue, gross margins, growth rates and operating expenses. • We examined the executed Distribution Termination and Acquisition Agreement and analyzed the terms in the agreement to the significant assumptions in the projected financial information, such as the projected revenue and gross margins from customers reacquired under this agreement. • We examined the executed Second Amendment to the Loan and Security Agreement and tested management’s inputs and calculations of compliance with the projected required financial covenants, such as, concentrate revenue and minimum cash requirements. • We tested certain assumptions for 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 March 30, 2023 F-3 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) December 31, 2022 December 31, 2021 ASSETS Cash and Cash Equivalents $ 10,102 $ 13,280 Investments Available-for-Sale 11,390 9,158 Accounts Receivable, net of a reserve of $ 33 for 2022 and $ 16 for 2021 6,259 5,913 Inventory 5,814 4,076 Prepaid and Other Current Assets 1,745 2,861 Total Current Assets 35,310 35,288 Property and Equipment, net 2,194 2,486 Inventory, Non-Current 1,276 1,523 Right of Use Assets, net 6,411 7,737 Goodwill 921 921 Other Non-Current Assets 523 619 Total Assets $ 46,635 $ 48,574 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts Payable $ 4,053 $ 3,739 Accrued Liabilities 7,702 5,090 Lease Liability - Current 2,005 2,004 Deferred License Revenue 1,731 2,171 Term Loan - Net of Issuance Costs 1,631 7,381 Insurance Financing Note Payable 503 437 Customer Deposits 66 144 Total Current Liabilities 17,691 20,966 Lease Liability - Long-Term 4,669 5,887 Term Loan, Net of Issuance Costs 7,555 13,186 Deferred License Revenue - Long-Term 2,600 5,986 Long Term Liability - Other 14 14 Total Liabilities 32,529 46,039 Commitments and Contingencies (See Note 14) Stockholders’ Equity: Preferred Stock, $ 0.0001 par value, 2,000,000 shares authorized, 15,000 and nil shares issued and outstanding at December 31, 2022 and 2021, respectively — — Common Stock, $ 0.0001 par value, 170,000,000 shares authorized, 12,163,673 and 8,544,225 shares issued and outstanding at December 31, 2022 and 2021, respectively 1 1 Additional Paid-in Capital 402,701 372,562 Accumulated Deficit ( 388,759 ) ( 370,080 ) Accumulated Other Comprehensive Income 163 52 Total Stockholders’ Equity 14,106 2,535 Total Liabilities and Stockholders’ Equity $ 46,635 $ 48,574 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, 2022 and 2021 (Dollars in thousands, except per share amounts) 2022 2021 Net Sales $ 72,810 $ 61,931 Cost of Sales 68,733 64,351 Gross (Loss) Profit 4,077 ( 2,420 ) Research and Product Development 3,119 6,835 Selling and Marketing 2,094 5,733 General and Administrative 15,644 15,348 Operating Loss ( 16,780 ) ( 30,336 ) Other Expense Realized Gain on Investments 4 — Interest Expense ( 1,936 ) ( 2,360 ) Interest Income 33 22 Total Other Expense ( 1,899 ) ( 2,338 ) Net Loss $ ( 18,679 ) $ ( 32,674 ) Basic and Diluted Net Loss per Share $ ( 1.89 ) $ ( 3.83 ) Basic and Diluted Weighted Average Shares Outstanding 9,866,844 8,526,186 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, 2022 and 2021 (Dollars in Thousands) 2022 2021 Net Loss $ ( 18,679 ) $ ( 32,674 ) Unrealized Gain (Loss) on Available-for-Sale Investments 114 ( 6 ) Foreign Currency Translation Adjustments ( 3 ) 1 Comprehensive Loss $ ( 18,568 ) $ ( 32,679 ) 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, 2022 and 2021 (Dollars in Thousand) PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) TOTAL STOCKHOLDERS' EQUITY SHARES AMOUNT SHARES AMOUNT Balance as of January 1, 2021 — $ — 8,506,651 $ 1 $ 371,518 $ ( 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 — — 23,483 — ( 6 ) — — ( 6 ) Warrant Modification Expense — — 14,091 — 107 — — 107 Stock-based Compensation — — — — 943 — — 943 Balance as of December 31, 2021 — $ — 8,544,225 $ 1 $ 372,562 $ ( 370,080 ) $ 52 $ 2,535 Net Loss — — — — — ( 18,679 ) — ( 18,679 ) Unrealized Loss on Available-for-Sale Investments — — — — — — 114 114 Foreign Currency Translation Adjustments — — — — — — ( 3 ) ( 3 ) Vesting of Restricted Stock Units Issued, net of taxes withheld — — 10,958 — — — — — Issuance of Common Stock, net of Issuance Costs / Public offering — — 844,613 — 14,893 — — 14,893 Issuance of Common Stock, net of Issuance Costs / At-the-market offerings — — 7,500 — 15 — — 15 Issuance of preferred stock, net of offering costs 15,000 — — — 14,916 — — 14,916 Issuance of common stock upon exercise of prefunded warrants — — 2,756,377 — — — — — Stock-based Compensation — — — — 315 — — 315 Balance as of December 31, 2022 15,000 $ — 12,163,673 $ 1 $ 402,701 $ ( 388,759 ) $ 163 $ 14,106 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, 2022 and 2021 (Dollars in Thousands) 2022 2021 Cash Flows From Operating Activities: Net Loss $ ( 18,679 ) $ ( 32,674 ) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 576 668 Stock-based Compensation 315 943 Increase in Inventory Reserves 610 146 Amortization of Right of Use Asset 2,013 1,847 Amortization of Debt Financing Costs and Accretion of Debt Discount 369 369 Loss on Disposal of Assets ( 3 ) 8 Realized Loss on Sale of Investments Available-for-Sale ( 4 ) — Foreign Currency Translation Adjustment ( 3 ) 2 Changes in Assets and Liabilities: Increase in Accounts Receivable, net ( 346 ) ( 1,742 ) Increase in Inventory ( 2,101 ) ( 656 ) Decrease in Other Assets 2,720 1,823 (Decrease) Increase in Accounts Payable 314 ( 416 ) Decrease in Lease Liability ( 1,903 ) ( 1,771 ) (Decrease) Increase in Other Liabilities 2,534 ( 48 ) Decrease in Deferred License Revenue ( 3,826 ) ( 2,033 ) Changes in Assets and Liabilities ( 2,608 ) ( 4,843 ) Cash Used In Operating Activities ( 17,414 ) ( 33,534 ) Cash Flows From Investing Activities: Purchase of Investments Available-for-Sale ( 21,297 ) ( 26,058 ) Sale of Investments Available-for-Sale 19,182 26,891 Purchase of Equipment ( 281 ) ( 522 ) Cash (Used In) Provided By Investing Activities ( 2,396 ) 311 Cash Flows From Financing Activities: Payments on Short Term Note Payable ( 1,443 ) ( 1,530 ) Payments on Debt ( 11,750 ) ( 750 ) Proceeds from the Issuance of Common Stock / Public Offering 15,016 — Offering Costs from the Issuance of Common Stock / Public Offering ( 106 ) — Proceeds from the Issuance of Common Stock / At-the Market Offerings 15,000 — Offering Costs from the Issuance of Common Stock / At-the Market Offerings ( 85 ) — Proceeds from issuance of Common Stock for payment related to services provided — 107 Repurchase of Common Stock to Pay Employee Withholding Taxes — ( 6 ) Cash Provided By (Used in) Financing Activities 16,632 ( 2,179 ) Decrease In Cash and Cash Equivalents ( 3,178 ) ( 35,402 ) Cash and Cash Equivalents At Beginning Of Period 13,280 48,682 Cash and Cash Equivalents At End Of Period $ 10,102 $ 13,280 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 1,470 $ 1,827 Supplemental Disclosure of Noncash Investing Activities: Change in Unrealized Loss on Marketable Securities Available-for-Sale $ 114 $ ( 6 ) Insurance Financing Note Payable $ 503 $ 437 Fair Value of Warrants issued related to Debt Financing $ 501 $ 501 The accompanying notes are an integral part of the consolidated financial statements. F-8 Table of Contents ROCKWELL MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business Rockwell Medical is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide. Rockwell is a revenue-generating business and the second largest supplier of acid and bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is usually performed at freestanding outpatient dialysis centers, at hospital-based outpatient centers, at skilled nursing facilities, or in a patient’s home. This represents a large market opportunity for which Rockwell's products are well-positioned to meet the needs of patients. Rockwell manufactures hemodialysis concentrates under Current Good Manufacturing Practices ("cGMP") regulations at its three facilities in Michigan, Texas, and South Carolina totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers. Rockwell has developed a core expertise in manufacturing and delivering hemodialysis concentrates, and has built a longstanding reputation for reliability, quality, and excellent customer service. In addition to its primary focus on hemodialysis concentrates, Rockwell also has a proprietary parenteral iron product, Triferic ® (ferric pyrophosphate citrate ("FPC")), which is indicated to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease. While Rockwell has discontinued commercialization of Triferic in the United States, the Company has established several international partnerships with companies seeking to develop and commercialize Triferic outside the United States and is working closely with these international partners to develop and commercialize Triferic in their respective regions. Additionally, Rockwell continues to evaluate the viability of its FPC platform and FPC's potential to treat iron deficiency, iron deficiency anemia, and acute heart failure. Rockwell was incorporated in the state of Michigan in 1996 and re-domiciled to the state of Delaware in 2019. Rockwell's headquarters is located at 30142 Wixom Road, Wixom, Michigan 48393. 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, 2022, Rockwell had an accumulated deficit of approximately $ 388.8 million and stockholders' equity of $ 14.1 million. As of December 31, 2022, Rockwell had approximately $ 21.5 million of cash, cash equivalents and investments available-for-sale, and working capital of $ 17.6 million. Net cash used in operating activities for the year ended December 31, 2022 was approximately $ 17.4 million. 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, if needed, and remain in compliance with financial and reporting covenants under the Company’s secured loan. 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, under which the Company supplies DaVita with certain dialysis concentrates. Under the Amendment, the Company and DaVita agreed to certain price increases, 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 of $ 10 million, or the Company will be in default under the Products Purchase Agreement. An event of default could result in termination of that agreement. On April 6, 2022, the Company and DaVita entered into a Securities Purchase Agreement (the “SPA”), pursuant to which the Company issued $ 15 million of preferred stock to DaVita in two separate tranches. The Company initially issued 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 . On June 15, 2022, the Company issued 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 . The Second F-9 Table of Contents Tranche was conditioned upon the Company raising an additional $ 15,000,000 in capital within a certain timeline, which took place on June 2, 2022. On April 8, 2022, 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 up to $ 12,200,000 of shares of Company’s common stock through the Agent. During the year ended December 31, 2022, the Company sold 7,500 shares of its common stock pursuant to the Sales Agreement for gross proceeds of $ 15,135 , at a weighted average selling price of approximately $ 2.02 The Company paid $ 378 in commissions and offering fees. Approximately $ 12.2 million remains available for sale under the ATM facility. On May 30, 2022, the Company entered into a Securities Purchase Agreement (the “RD Purchase Agreement”) with the purchaser named therein (the “Purchaser”), pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Offering”), 844,613 shares of its common stock at price of $ 1.39 per share, and prefunded warrants to purchase up to an aggregate of 7,788,480 shares of common stock (the “Pre-Funded Warrants” and the shares of common stock underlying the Pre-Funded Warrants, the “Warrant Shares”). The purchase price of each Pre-Funded Warrant was equal to the price at which a share of common stock was sold to the public in the Offering, minus $ 0.0001 , and the exercise price of each Pre-Funded Warrant is $ 0.0001 per share. Also on May 30, 2022, concurrently with the Offering, the Company entered into a Securities Purchase Agreement with the Purchaser (the “PIPE Purchase Agreement”) relating to the offering and sale (the “Private Placement”) of warrants to purchase up to a total of 9,900,990 shares of common stock and pre-funded warrants to purchase up to a total of 1,267,897 shares of common stock (the “PIPE Warrants”). Each warrant was sold at a price of $ 0.125 per underlying warrant share and is exercisable at an exercise price of 1.39 per share. The purchase price of each Pre-Funded Warrant was equal to the price at which a share of common stock was sold to the public in the Offering, minus $ 0.0001 , and the exercise price of each prefunded warrant is $ 0.0001 per share. The Offering and the Private Placement closed on June 2, 2022. The net proceeds to the Company from the Offering and the Private Placement were approximately $ 14.9 million, after deducting fees and expenses. On November 10, 2022, the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) dated as of November 14, 2022 with Innovatus, which amended the Loan Agreement. Pursuant to the Second Amendment, the Company (i) prepaid an aggregate principal amount of $ 5.0 million in Term Loans (as defined in the Loan Agreement) in one installment on November 14, 2022; (ii) shall pay interest only payments until September 2023 at which time will resume scheduled debt payments (See Note 16 for more information on our debt facility). Management evaluated it's going concern by reviewing the Company's operational plans which include executing on the projected financial information including price increases, acquisition of new customers, projected growth of margins and cost containment activities. Additionally, the Company's operational plans also include raising capital, if needed, by using our ATM facility or other methods or forms of financings, subject to existing limitations. Based on the currently available working capital, expectation of the ability of management to execute on the Company's operational plans noted above, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report. Accordingly, management believes that the factors noted above which raised substantial doubt about the Company’s ability to continue as a going concern have been alleviated . The Company may require additional capital to sustain its operations and make the investments it needs to execute its strategic plan. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all. Currently, because the Company's public float is less than $75 million, it is subject to the baby shelf limitations under Form S-3, which limits the amount the Company may offer pursuant to its registration statement on Form S-3. In addition, the Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus. As of December 31, 2022, the Company is in compliance with all financial covenants (See Note 16 for further detail). F-10 Table of Contents Global Economic Conditions The COVID-19 pandemic and resulting domestic and global disruptions, particularly in the supply chain and labor market, among other areas, have adversely affected the Company's business and operations, including, but not limited to, its sales and marketing efforts and its research and development activities, its plant and transportation operations and the operations of third parties upon whom the Company relies. The Company's international business development activities may also continue to be negatively impacted by COVID-19. In addition, the global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine and other political tensions, and lingering effects of the COVID-19 pandemic. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on our future operations. Rockwell has utilized a range of financing methods to fund its operations in the past; however, current conditions in the financial and credit markets may limit the availability of funding, refinancing or increase the cost of funding. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future. 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 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. F-11 Table of Contents 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. On November 9, 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and agreed to terminate the exclusive distribution agreement dated October 2, 2014. Exclusivity and other provisions associated with the distribution agreement terminated November 9, 2022 and the remaining operational elements of the agreement terminated December 31, 2022. Rockwell agreed to provide certain services to a group of Baxter customers until March 31, 2023.Remaining upfront fees will continue to be recognized through March 31, 2023 as Rockwell continues to have product sales obligations to a group of specific Baxter customers. 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, 2022 Products By Geographic Area Total U.S. Rest of World Drug Revenues Product Sales - Point-in-time $ 903 $ 561 $ 342 License Fee – Over time 256 — 256 Total Drug Products 1,159 561 598 Concentrate Products Product Sales – Point-in-time 69,162 62,715 6,447 License Fee – Over time 2,489 2,489 — Total Concentrate Products 71,651 65,204 6,447 Net Revenue $ 72,810 $ 65,765 $ 7,045 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 – Over time 1,942 1,942 — Total Concentrate Products 60,855 54,556 6,299 Net Revenue $ 61,931 $ 55,391 $ 6,540 For the years ended December 31, 2022 and 2021, license fee revenue was $ 2.7 million and 2.2 million respectively. For the years ended December 31, 2022 and 2021, product sales revenue was $ 70.1 million and $ 59.7 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, 2022 December 31, 2021 Receivables, which are included in "Trade and other receivables" $ 6,259 $ 5,913 Contract liabilities $ 4,331 $ 8,157 There were no impairment losses recognized related to any receivables arising from the Company’s contracts with customers for the years ended December 31, 2022 and 2021. For the years ended December 31, 2022 and 2021, 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, 2022 and 2021. 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, 2022 or 2021. 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, 2022, 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 $ 2.9 million and $ 8.2 million as of December 31, 2022 and 2021, 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. Reverse Stock Split On May 9, 2022, the stockholders of the Company authorized the Board of Directors to effect a reverse stock split of all outstanding shares of common stock. The Board of Directors subsequently approved the implementation of a reverse stock split as a ratio of one-for-eleven shares, which became effective on May 13, 2022. The Company’s outstanding stock options were also adjusted to reflect the one-for-eleven reverse stock split of the Company’s common stock. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The reverse stock split resulted in an adjustment to the Series X convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. All share and per share data in these condensed consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of the reverse stock split for the periods ended December 31, 2022 and 2021, respectively. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. F-14 Table of Contents 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 and debt securities at the time of purchase and reevaluates such determination at each balance sheet date. Marketable equity 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. 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, 2022 and 2021, 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. F-15 Table of Contents 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 In October 2014, the Company entered into a Distribution Agreement with Baxter, which had 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. On November 9, 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and terminated the Distribution Agreement. Under the Distribution Agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all United States customers. Following the reacquisition of these rights, Rockwell will now be able to sell its hemodialysis concentrates products to dialysis clinics throughout the United States and around the world. Rockwell will pay Baxter a fee for the reacquisition of its distribution rights. This fee is payable in two equal installments on January 1, 2023 and April 1, 2023. To ensure that customer needs continue to be met after January 1, 2023, Baxter and Rockwell are working closely together to transition customers’ purchases of Rockwell’s hemodialysis concentrates from Baxter to Rockwell. The Company recognized revenue of approximately $ 2.5 million and $ 1.9 million for the years ended December 31, 2022 and 2021, respectively. Deferred revenue related to the Distribution Agreement totaled $ 1.5 million and $ 5.2 million as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2016, the Company entered into a distribution agreement with Wanbang Biopharmaceuticals (the "Wanbang 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 each of the years ended December 31, 2022 and 2021. Deferred revenue related to the Wanbang Agreement totaled $ 2.3 million and $ 2.5 million as of December 31, 2022 and 2021, respectively. In January 2020, the Company entered into license and supply agreements with Sun Pharma (the "Sun Agreements"), for the rights to commercialize Triferic (dialysate) in India. Under the terms of the Sun 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 each of the years ended December 31, 2022 and 2021. Deferred revenue related to the Sun Pharma Agreement totaled $ 0.1 million as of December 31, 2022 and 2021, respectively. In September 2020, the Company entered into a license and supply agreements with Jeil Pharmaceutical (the "Jeil Agreements"), for the rights to commercialize Triferic (dialysate) in South Korea. Under the terms of the Jeil Agreements, Jeil Pharmaceutical will be the exclusive development and commercialization partner for Triferic (dialysate) in South Korea, and the Company will supply the product to Jeil Pharmaceutical. In consideration for the license, the Company received an upfront fee of $ 0.4 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 Pharmaceutical, will guide the development and execution for Triferic (dialysate) in South Korea. Jeil Pharmaceutical 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 $ 18,158 and $ 10,000 during the years ended December 31, 2022 and 2021, respectively. Deferred revenue related to the Jeil Agreement totaled $ 0.4 million and $ 0.2 million as of December 31, 2022 and 2021, respectively. F-16 Table of Contents In June 2021, the Company entered into license and supply agreements with Drogsan Pharmaceuticals (the "Drogsan Agreements"), for the rights to commercialize Triferic (dialysate) and Triferic AVNU in Turkey. Under the terms of the Drogsan Agreements, Drogsan Pharmaceuticals 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 Pharmaceuticals, will guide the execution for Triferic (dialysate) and Triferic AVNU in Turkey. Drogsan Pharmaceuticals will be responsible for all regulatory approval and commercialization activities, and the Company will supply the product to Drogsan Pharmaceuticals 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 $ 15,000 and $ 7,500 during the years ended December 31, 2022 and 2021, respectively. Deferred revenue related to the Drogsan Agreements totaled approximately $ 0.1 million as of December 31, 2022 and 2021, respectively. 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 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 $ 3.1 million and $ 6.8 million for the years ended December 31, 2022 and 2021, 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, 2022 and 2021, 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. F-17 Table of Contents 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 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, 2022 and 2021 were as follows: As of December 31, 2022 2021 Options to purchase common stock 1,206,905 528,591 Unvested restricted stock awards 891 7,118 Unvested restricted stock units 125,000 29,289 Convertible Preferred Stock 1,363,636 — Common stock issuable under pre-funded warrants 6,300,000 — Warrants to purchase common stock 10,196,268 2,402,442 Total 19,192,700 2,967,440 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 debt 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 F-18 Table of Contents 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, 2022 and 2021 (tables in thousands): December 31, 2022 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 11,315 $ 75 $ — $ — $ 11,390 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 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, 2022 and 2021, the amortized cost and estimated fair value of our available-for-sale securities were due in one year or less. 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 46 % of Rockwell's sales in 2022 and 47 % of its sales in 2021 (see Note 12). Rockwell's accounts receivable from DaVita were $ 1.9 million and $ 1.0 million as of December 31, 2022 and 2021, 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 had been assigned to Baxter. On November 9, 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and has agreed to terminate the exclusive distribution agreement dated October 2, 2014. Exclusivity and other provisions associated with the distribution agreement terminated November 9, 2022 and the remaining operational elements of the agreement terminate December 31, 2022. Rockwell agreed to provide certain services to a group of Baxter customers until March 31, 2023.Under the exclusive distribution agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all United States customers. Following the reacquisition of these rights, Rockwell will now be able to sell its hemodialysis concentrates products to dialysis clinics throughout the United States and around the world. For 2022 and 2021, Rockwell's direct sales to Baxter aggregated approximately 29 % and 26 % of sales, respectively, and the Company had a receivable from Baxter of $ 2.3 million and $ 3.5 million as of December 31, 2022 and 2021, respectively. DaVita and the accounts previously 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 sales in any of the last two years. F-19 Table of Contents 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 9 % and 10 % of its total sales in 2022 and 2021, respectively. One international customer, Nipro Medical Corporation, accounted for 7 % and 8 % of its total sales for 2022 and 2021, respectively. Note 6. Distribution Agreement In October 2014, Rockwell entered into the Distribution Agreement with Baxter, 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 retained sales, marketing and distribution rights for its hemodialysis concentrate products for its international customers and in those countries in which it had an established commercial presence. Pursuant to the Distribution Agreement, Rockwell received an upfront fee of $ 20 million in October 2014. The upfront fee was deferred and was 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. Rockwell recognized revenue associated with the upfront fee totaling $ 2.5 million and $ 1.9 million for the years ended December 31, 2022, and 2021, respectively. On November 9, 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and terminated the Distribution Agreement. Exclusivity and other provisions associated with the distribution agreement terminated November 9, 2022 and the remaining operational elements of the agreement terminate December 31, 2022. Rockwell agreed to provide certain services to a group of Baxter customers until March 31, 2023.Under the Distribution Agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all United States customers. Following the reacquisition of these rights, Rockwell is able to sell its hemodialysis concentrates products to dialysis clinics throughout the United States and around the world. Rockwell will pay Baxter a fee for the reacquisition of its distribution rights. This fee is payable in two equal installments on January 1, 2023 and April 1, 2023. To ensure that customer needs continue to be met after January 1, 2023, Baxter and Rockwell are working closely together to transition customers’ purchases of Rockwell’s hemodialysis concentrates from Baxter to Rockwell through March 31, 2023. Note 7. Inventory Components of inventory, net of reserves as of December 31, 2022 and 2021 are as follows (table in thousands): December 31, 2022 December 31, 2021 Raw Materials $ 4,627 $ 3,434 Work in Process 351 201 Finished Goods 2,112 1,964 Total $ 7,090 $ 5,599 As of December 31, 2022 and 2021, the Company classified $ 1.3 million and $ 1.5 million, respectively, of inventory as non-current all of which was related to Triferic raw materials. This Triferic inventory will be utilized for the Company's international partnerships. The Company has discontinued its NDAs for Triferic and Triferic AVNU in the United States. As a result, Rockwell reserved an additional $ 606,000 representing all remaining API and finished goods related to Triferic. As of December 31, 2022 and 2021, Rockwell had total Concentrate inventory aggregating $ 5.8 million and $ 4.0 million, respectively, against which Rockwell had reserved $ 25,000 and $ 21,000 , respectively. Note 8. Property and Equipment As of December 31, 2022 and 2021, the Company’s property and equipment consisted of the following (table in thousands): F-20 Table of Contents 2022 2021 Leasehold Improvements $ 1,256 $ 1,204 Machinery and Equipment 5,922 5,864 Information Technology & Office Equipment 1,845 1,845 Laboratory Equipment 807 676 9,830 9,589 Accumulated Depreciation ( 7,636 ) ( 7,103 ) Net Property and Equipment $ 2,194 $ 2,486 Depreciation expense during the years ended December 31, 2022 and 2021 is as follows (table in thousands): 2022 2021 Depreciation expense $ 576 $ 668 Note 9. Goodwill and Intangible Assets Total goodwill was $ 0.9 million at each of December 31, 2022 and 2021. Rockwell completed its annual impairment tests as of December 31, 2022 and 2021, and determined that no adjustment for impairment of goodwill was required during the years ended December 31, 2022 and 2021. Note 10. Accrued Liabilities Accrued liabilities as of December 31, 2022 and 2021 consisted of the following (table in thousands): 2022 2021 Accrued Research & Development Expense $ 43 $ 366 Accrued Compensation and Benefits 2,568 1,791 Accrued Unvouchered Receipts 585 796 Accrued Workers Compensation 306 382 Other Accrued Liabilities 4,200 1,755 Total Accrued Liabilities $ 7,702 $ 5,090 Note 11. Insurance Financing Note Payable On July 3, 2022, the Company entered into a short-term note payable for $ 2.0 million, bearing interest at 5.40 % per annum to finance various insurance policies. Principal and interest payments related to this note began on July 3, 2022 and are paid on a straight-line amortization over 9 month and the final payment is due on March 3, 2023. As of December 31, 2022, the Company's insurance note payable balance was $ 0.5 million. Note 12. Stockholders’ Equity Reverse Stock Split On May 9, 2022, the stockholders of the Company authorized the Board of Directors to effect a reverse stock split of all outstanding shares of common stock. The Board of Directors subsequently approved the implementation of a reverse stock split as a ratio of one-for-eleven shares, which became effective on May 13, 2022. The Company’s outstanding stock options were also adjusted to reflect the one-for-eleven reverse stock split of the Company’s common stock. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. Preferred Stock On April 6, 2022, the Company and DaVita entered into the SPA, which provided for the issuance by the Company of up to $ 15 million of preferred stock to DaVita. On April 6, 2022, the Company issued 7,500 shares of Series X Preferred Stock for gross proceeds of $ 7.5 million. On June 2, 2022, the Company met the conditions for the Second Tranche through a Registered Direct and Private Placement Offering by raising $ 15 million in additional capital. As a result, on June 16, 2022 the F-21 Table of Contents Company issued an additional 7,500 shares of the Series X Preferred Stock to DaVita for gross proceeds of $ 7.5 million (by virtue of this transaction, DaVita rises to the level of related party). The Series X Preferred Stock was issued for a price of $ 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 $ 22.00 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 $ 11.00 per share (subject to adjustment for future stock splits, reverse stock splits and similar recapitalization events). As a result, each share of Series X Preferred Stock will initially convert into approximately 91 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. 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. Additionally, the Series X Preferred Stock has a deemed liquidation event and redemption clause which could be triggered if the sale of all or substantially all of the Company's assets relating to the Company's dialysis concentrates business line. Since the Series X Preferred Stock may be redeemed if certain assets are sold at the option of the holder, but is not mandatorily redeemable, the preferred stock has been classified as permanent equity and initially recognized at fair value of $ 15 million (the proceeds on the date of issuance) less issuance costs of $ 0.1 million, resulting in an initial value of $ 14.9 million. The Company will assess at each reporting period whether conditions have changed to now meet the mandatorily redemptive definition which could trigger liability classification. As of December 31, 2022 and 2021, there were 2,000,000 shares of preferred stock, $ 0.0001 par value per share, authorized and 15,000 and nil shares of preferred stock issued or outstanding, respectively. Common Stock As of December 31, 2022 and 2021, there were 170,000,000 shares of common stock, $ 0.0001 par value per share, authorized and 12,163,673 and 8,544,225 shares issued and outstanding, respectively. As of December 31, 2022 and 2021, the Company has reserved for issuance the following shares of common stock related to the potential exercise of employee stock options, unvested restricted stock, convertible preferred stock, pre-funded warrants and all other warrants: As of December 31, 2022 2021 Options to purchase common stock 1,206,905 528,591 Unvested restricted stock awards 891 7,118 Unvested restricted stock units 125,000 29,289 Convertible Preferred Stock 1,363,636 — Common stock issuable under pre-funded warrants 6,300,000 — Warrants to purchase common stock 10,196,268 2,402,442 Total 19,192,700 2,967,440 During the years ended December 31, 2022 and 2021, 2,756,377 and nil pre-funded warrants were exercised, respectively. During the years ended December 31, 2022 and 2021, no vested employee stock options were exercised. Controlled Equity Offering F-22 Table of Contents On April 8, 2022, the Company entered into the Sales Agreement with Cantor Fitzgerald & Co. as Agent, pursuant to which the Company may offer and sell from time to time up to $ 12,200,000 of shares of Company’s common stock through the Agent (subject to restrictions under General Instruction I.B.6 to Form S-3) . In May 2022, the Company sold $ 7,500 shares of its common stock pursuant to the Sales Agreement for gross proceeds of $ 15,135 , at a weighted average selling price of approximately $ 2.02 per share. The Company paid $ 378 in commissions and offering fees related to the sale of shares of common stock. Registered Direct Offering On May 30, 2022, the Company entered into the RD Purchase Agreement with the Purchaser named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Offering”), 844,613 shares of its common stock at price of 1.39 per share, and pre-funded warrants to purchase up to an aggregate of 7,788,480 shares of common stock (the “Pre-Funded Warrants” and the shares of common stock underlying the Pre-Funded Warrants, the “Warrant Shares”). The purchase price of each Pre-Funded Warrant is equal to the price at which a share of common stock was sold to the public in the Offering, minus $ 0.0001 , and the exercise price of each Pre-Funded Warrant is $ 0.0001 per share. A holder (together with its affiliates) may not exercise any portion of the Pre-Funded Warrants to the extent the holder would own more than 9.99 % of the Company’s outstanding common stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrant. The RD Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties. A total of 6,300,000 Pre-Funded Warrants remained outstanding as of December 31, 2022. Private Placement Also on May 30, 2022, concurrently with the Offering, the Company entered into the PIPE Purchase Agreement relating to the offering and sale (the “Private Placement”) of warrants to purchase up to a total of 9,900,990 shares of common stock and pre-funded warrants to purchase up to a total of 1,267,897 shares of common stock (the “PIPE Warrants”). Each warrant was sold at a price of $ 0.125 per underlying warrant share and is exercisable at an exercise price of $ 1.39 per share. The warrants to purchase up to a total of 9,900,990 shares of common stock which expire in November 2027 contain certain valuation provisions on unexercised outstanding warrants if the Company were to experience a fundamental transaction as described in section 3(d) of the warrant agreement. The purchase price of each Pre-Funded Warrant was equal to the price at which a share of common stock was sold to the public in the Offering, minus $ 0.0001 , and the exercise price of each prefunded warrant is $ 0.0001 per share. As of December 31, 2022, 9,900,990 PIPE Warrants and no Pre-Funded PIPE Warrants remained outstanding. In connection with the Private Placement, the Company entered into a Registration Rights Agreement with the Purchaser, dated as of June 2, 2022 (the “RRA”). Pursuant to the RRA, the Company was required to prepare and file a registration statement with the SEC no later than July 1, 2022, and to use its reasonable best efforts to have the registration statement declared effective as promptly as possible, subject to certain specified penalties if timely effectiveness is not achieved. The Company filed a registration statement on June 22, 2022 which became effective on July 5, 2022. The Offering and the Private Placement closed on June 2, 2022. The net proceeds to the Company from the Offering and the Private Placement were approximately $ 14.9 million, after deducting fees and expenses. Subject to certain ownership limitations, the PIPE Warrants are exercisable upon issuance. The Company has accounted for the common stock related to the Offering and Private Placement as equity on the accompanying consolidated balance sheets as of December 31, 2022. The amount allocated to common stock was $ 2.0 million. This allocation is equal to the total proceeds of $ 15.0 million less the amount allocated to Warrants of $ 12.9 million and is also net of the direct and incremental costs associated with the Offering and Private Placement of $ 0.1 million. The Black-Scholes pricing model was used to calculate the value of Warrants relating to the Offering and Private Placement. 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 F-23 Table of Contents expiration. There were 1,045,455 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 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 263,636 and on May 9,2022, at the 2021 Annual Meeting, the Company's stockholders approved the amended and restatement of the Rockwell Medical, Inc. 2018 Long Term Incentive Plan to increase the number of shares of common stock issuable thereunder by 454,546 shares bringing common stock reserve for issuance up to 1,018,182 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, 2022 and 2021 as follows (table in thousands): Year Ended December 31, 2022 2021 Service based awards: Restricted stock units $ 129 $ 344 Stock option awards 576 1,354 $ 705 $ 1,697 Performance based awards: Restricted stock awards $ ( 390 ) $ ( 390 ) Stock option awards — ( 364 ) ( 390 ) ( 754 ) Total $ 315 $ 943 Restricted Stock Awards A summary of the Company’s restricted stock awards during the years ended December 31, 2022 and 2021 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2021 13,345 $ 62.70 Forfeited ( 6,227 ) $ 62.70 Unvested at December 31, 2021 7,118 62.70 Forfeited ( 6,227 ) — Unvested at December 31, 2022 891 $ 62.70 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, 2022, all unvested restricted stock awards were related to performance based awards. The 6,227 forfeited performance-based restricted stock awards were due to the termination of the Company's former Chief Development Officer on March 25, 2022. These forfeited awards reduced stock-based compensation expense by $ 0.4 million. Stock-based compensation expense of nil was recognized for each of the years ended December 31, 2022 and 2021. As of December 31, 2022, there is no unrecognized stock-based compensation expense related to restricted stock awards. F-24 Table of Contents Service Based Restricted Stock Units A summary of the Company’s service based restricted stock units during the year ended December 31, 2022 and 2021 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2021 24,136 $ 28.60 Granted 28,186 9.90 Forfeited ( 1,073 ) 52.91 Vested ( 21,960 ) 24.97 Unvested at December 31, 2021 29,289 12.87 Granted 125,000 1.47 Forfeited ( 5,774 ) 19.00 Vested ( 23,515 ) 11.33 Unvested at December 31, 2022 125,000 $ 1.47 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 $ 0.1 million was recognized for each of the years ended December 31, 2022 and 2021. As of December 31, 2022, the unrecognized stock-based compensation expense was $ 0.1 million over the next 12 months. Performance Based Restricted Stock Units As of December 31, 2022, there were no issued or outstanding performance-based restricted stock units. As a result, 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, 2022 and 2021 were based on the following assumptions: December 31, 2022 2021 Exercise price $ 1.28 - $ 1.66 $ 5.94 - $ 5.94 Expected stock price volatility 76.2 % - 78.5 % 75.0 % - 77.7 % Risk-free interest rate 1.97 % - 3.44 % 0.47 % - 1.30 % 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, 2022 and 2021 is as follows: F-25 Table of Contents Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in $1,000's) Outstanding at January 1, 2021 519,814 $ 50.05 6.6 $ — Granted 177,014 9.68 6.0 — Expired ( 128,064 ) ( 77.00 ) Forfeited ( 40,173 ) ( 24.42 ) — Outstanding at December 31, 2021 528,591 $ 32.01 7.5 $ — Granted 898,659 1.49 — — Expired ( 96,199 ) ( 78.06 ) — Forfeited ( 124,146 ) ( 5.70 ) — Outstanding at December 31, 2022 1,206,905 $ 28.31 8.9 $ — Exercisable at December 31, 2022 243,088 $ 4.81 6.8 $ — 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, 2022 and 2021, the service based stock options granted consisted of 898,659 and 177,014 options granted to employees, respectively. As of December 31, 2022, 243,088 vested options were exercisable at a weighted average price of $ 28.31 per share. During the year ended December 31, 2022 and 2021, stock-based compensation expense of $ 0.6 million and $ 1.4 million was recognized, respectively. As of December 31, 2022, total stock-based compensation expense related to 963,817 unvested options not yet recognized totaled approximately $ 0.9 million over the next 3.7 years. Performance Based Stock Options As of December 31, 2022, there were no performance based stock options outstanding. 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, 2022 and 2021, the Company has accrued $ 87,900 and $ 86,400 , 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. F-26 Table of Contents 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 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, 2022. 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 2026. 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-27 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, 2022 2021 Operating leases Operating lease cost $ 1,710 $ 1,793 Variable lease cost 388 373 Operating lease expense 2,098 2,166 Finance leases Amortization of right-of-use assets 565 313 Interest on lease obligations 179 99 Finance lease expense 744 412 Short-term lease rent expense 17 17 Total rent expense $ 2,859 $ 2,595 Other information Operating cash flows from operating leases $ 1,772 $ 1,772 Operating cash flows from finance leases $ 179 $ 99 Financing cash flows from finance leases $ 482 $ 255 Right of use assets exchanged for operating lease liabilities $ 768 $ 4,217 Right of use assets exchanged for finance lease liabilities $ — $ 2,431 Weighted-average remaining lease term - operating leases 3.0 3.5 Weighted-average remaining lease term – finance leases 4.4 5.4 Weighted-average discount rate - operating leases 6.4 % 6.3 % Weighted-average discount rate – finance leases 6.4 % 6.4 % Future minimum rental payments under operating lease agreements are as follows (table in thousands): Operating Finance Year ending December 31, 2023 $ 1,672 $ 668 Year ending December 31, 2024 1,405 672 Year ending December 31, 2025 937 676 Year Ended December 31, 2026 310 666 Year Ended December 31, 2027 121 311 Remaining future payments — — Total 4,445 2,993 Less present value discount $ ( 380 ) $ ( 384 ) Operating and Finance lease liabilities. $ 4,065 $ 2,609 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 $ 621,000 in aggregate coverage for the policy year ending July 1, 2023. The total amount at December 31, 2022 by which retention limits exceed the claims paid and accrued is approximately $ 534,000 for the policy year ending July 1, 2023. Estimated loss and additional future claims of approximately $ 306,000 have been reserved and accrued for the year ended December 31, 2022. F-28 Table of Contents As of December 31, 2022, approximately $ 0.4 million was held in cash collateral and escrow by the insurance carrier for workers’ compensation insurance. At December 31, 2022, 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 $ 31.0 million, which include $ 29.4 million for concentrate manufacturing and $ 1.6 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, 2022, interest expense amounted to $ 1.5 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, 2022. 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, 2022 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-29 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 $ 7.5 million 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 $ 5.0 million if the aggregate principal amount of term loans is greater than $ 15.0 million pursuant to the liquidity covenant in the Loan Agreement. On November 10, 2022, the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) dated as of November 14, 2022 with Innovatus. Pursuant to the Second Amendment, the Company (i) prepaid an aggregate principal amount of $ 5.0 million in Term Loans in one installment on November 14, 2022; and (ii) shall pay interest only payments until September 2023 at which time will resume scheduled debt payments. As of December 31, 2022, the Company was in compliance with its financial and reporting covenants. As of December 31, 2022, the outstanding balance of the Term Loan was $ 9.2 million, net of unamortized issuance costs and discount of $ 0.8 million. The following table reflects the schedule of principal payments on the Term Loan as of December 31, 2022 (in thousands): Year Principal Payments 2023 2,000 2024 6,000 2025 2,000 $ 10,000 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): 2022 2021 Tax Expense (Benefit) Computed at 22.68 % and 22.62 % of Pretax Income (Loss) $ ( 4,361 ) $ ( 6,744 ) Changes in Tax Laws — — Foreign Income Tax Expense — — Effect of Change in Valuation Allowance 4,361 6,744 Total Income Tax Expense $ — $ — The details of the net deferred tax asset are as follows (dollars in thousands): F-30 Table of Contents December 31, 2022 2021 Deferred tax assets: Net Operating Loss Carryforward $ 70,686 $ 66,895 Stock Based Compensation 7,792 7,726 Deferred Revenue 983 1,846 General Business Credit 6,872 6,872 Accrued Expenses 605 174 Inventories 234 88 Book over Tax Depreciation — 6 Research & Experimental Expenses 371 — Other Deferred Tax Assets 1,274 865 Total Deferred Tax Assets 88,817 84,472 Deferred Tax Liabilities: Book over Tax Depreciation 8 — Goodwill & Intangible Assets 224 183 Prepaid Expenses 316 381 Total Deferred Tax Liabilities 548 564 Subtotal 88,269 83,908 Valuation Allowance ( 88,269 ) ( 83,908 ) 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 $ 311.6 million of which approximately $ 165.3 million expire between 2023 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, 2022, and 2021. Considered together with the Company's limited history of operating income and its net losses in 2022 and 2021, management has placed a full valuation allowance against the net deferred tax assets as of December 31, 2022 and 2021. 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 $ 3.9 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, 2022 and 2021. The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2022 and 2021. Tax examination years of 2018 to 2021 remain open. Note 18. Subsequent Events On January 25, 2023, 389,000 of Pre-Funded Warrants were exercised. The exercise price of each Pre-Funded Warrant is $ 0.0001 per share. (See Note 12 for more detail on the Pre-Funded Warrants). F-31