ROCKWELL MEDICAL, INC. 10-Q

Item 1. Financial Statements ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars In Thousands, Except Par Value Amounts) September 30, 2023 December 31, 2022 ASSETS Cash and Cash Equivalents $ 7,759 $ 10,102 Investments Available-for-Sale 3,971 11,390 Accounts Receivable, net 9,361 6,259 Inventory, net 5,486 5,814 Prepaid and Other Current Assets 1,596 1,745 Total Current Assets 28,173 35,310 Property and Equipment, net 6,771 2,194 Inventory, Non-Current 178 1,276 Right of Use Assets-Operating, net 3,095 3,943 Right of Use Assets-Financing, net 2,044 2,468 Intangible Asset, net 10,897 — Goodwill 921 921 Other Non-Current Assets 527 523 Total Assets $ 52,606 $ 46,635 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts Payable $ 3,929 $ 4,053 Accrued Liabilities 6,708 7,702 Deferred Consideration - Current 2,500 — Lease Liabilities-Operating - Current 1,529 1,483 Lease Liabilities-Financing - Current 550 522 Deferred License Revenue - Current 46 1,731 Term Loan - Current - Net of Issuance Costs 5,631 1,631 Insurance Financing Note Payable 488 503 Customer Deposits 27 66 Total Current Liabilities 21,408 17,691 Lease Liabilities-Operating - Long-Term 1,676 2,581 Lease Liabilities-Financing - Long-Term 1,672 2,088 Term Loan - Long-Term, net of issuance costs 3,331 7,555 Deferred License Revenue - Long-Term 487 2,600 Deferred Consideration - Long-Term 2,500 — Long Term Liability - Other 14 14 Total Liabilities 31,088 32,529 3 September 30, 2023 December 31, 2022 Stockholders’ Equity: Preferred Stock, $ 0.0001 par value, 2,000,000 shares authorized; 15,000 shares issued and outstanding at September 30, 2023 and December 31, 2022 — — Common Stock, $ 0.0001 par value; 170,000,000 shares authorized; 28,489,663 and 12,163,673 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 3 1 Additional Paid-in Capital 417,133 402,701 Accumulated Deficit ( 395,686 ) ( 388,759 ) Accumulated Other Comprehensive Income 68 163 Total Stockholders’ Equity 21,518 14,106 Total Liabilities and Stockholders’ Equity $ 52,606 $ 46,635 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Net Sales $ 23,771 $ 18,691 $ 61,519 $ 53,497 Cost of Sales 21,569 17,914 55,685 51,760 Gross Profit 2,202 777 5,834 1,737 Research and Product Development 494 469 939 2,963 Selling and Marketing 556 762 1,584 1,743 General and Administrative 2,889 3,254 9,434 11,845 Operating Loss ( 1,737 ) ( 3,708 ) ( 6,123 ) ( 14,814 ) Other (Expense) Income Realized Gain on Settlement of Investments 220 — 220 4 Interest Expense ( 411 ) ( 476 ) ( 1,193 ) ( 1,497 ) Interest and Other Income (Expense) - net 56 ( 6 ) 169 ( 10 ) Total Other Expense, net ( 135 ) ( 482 ) ( 804 ) ( 1,503 ) Net Loss $ ( 1,872 ) $ ( 4,190 ) $ ( 6,927 ) $ ( 16,317 ) Basic and Diluted Net Loss per Share $ ( 0.07 ) $ ( 0.23 ) $ ( 0.32 ) $ ( 1.26 ) Basic and Diluted Weighted Average Shares Outstanding * 27,521,088 18,463,673 21,526,978 12,902,890 * See Note 3 for more detail related to Basic and Diluted Weighted Average Shares Outstanding The accompanying notes are an integral part of the condensed consolidated financial statements. 5 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Net Loss $ ( 1,872 ) $ ( 4,190 ) $ ( 6,927 ) $ ( 16,317 ) Unrealized (Loss) Gain on Available-for-Sale Investments ( 69 ) 5 ( 90 ) 5 Foreign Currency Translation Adjustments — — ( 4 ) ( 3 ) Comprehensive Loss $ ( 1,941 ) $ ( 4,185 ) $ ( 7,021 ) $ ( 16,315 ) The accompanying notes are an integral part of the condensed consolidated financial statements. 6 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in Thousands) PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE INCOME TOTAL STOCKHOLDERS' EQUITY SHARES AMOUNT SHARES AMOUNT Balance as of January 1, 2023 15,000 $ — 12,163,673 $ 1 $ 402,701 $ ( 388,759 ) $ 163 $ 14,106 Net Loss — — — — — ( 1,750 ) — ( 1,750 ) Unrealized Loss on Available-for-Sale Investments — — — — — — ( 3 ) ( 3 ) Foreign Currency Translation Adjustments — — — — — — ( 4 ) ( 4 ) Issuance of Common Stock upon exercise of Pre-Funded Warrants — — 389,000 — — — — — Stock-based Compensation — — — — 193 — — 193 Balance as of March 31, 2023 15,000 — 12,552,673 1 402,894 ( 390,509 ) 156 12,542 Net Loss — — — — — ( 3,305 ) — ( 3,305 ) Unrealized Loss on Available-for-Sale Investments — — — — — — ( 18 ) ( 18 ) Foreign Currency Translation Adjustments — — — — — — ( 1 ) ( 1 ) Issuance of Common Stock upon exercise of Pre-Funded Warrants — — 4,118,000 1 — — — 1 Vesting of Restricted Stock Units Issued, net of taxes withheld — — 125,000 — — — — — Stock-based Compensation — — — — 309 — — 309 Balance as of June 30, 2023 15,000 — 16,795,673 2 403,203 ( 393,814 ) 137 9,528 Net Loss — — — — — ( 1,872 ) — ( 1,872 ) Unrealized Loss on Available-for-Sale Investments — — — — — — ( 69 ) ( 69 ) Issuance of Common Stock in connection with exercise of Prior Warrant and Pre-Funded Warrants, net of offering costs — — 11,693,990 1 13,718 — — 13,719 Stock-based Compensation — — — — 212 — — 212 Balance as of September 30, 2023 15,000 $ — 28,489,663 $ 3 $ 417,133 $ ( 395,686 ) $ 68 $ 21,518 The accompanying notes are an integral part of the condensed consolidated financial statements. ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in Thousands) PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE INCOME TOTAL STOCKHOLDERS' EQUITY (DEFICIT) SHARES AMOUNT SHARES AMOUNT Balance as of January 1, 2022 — $ — 8,544,225 $ 1 $ 372,562 $ ( 370,080 ) $ 52 $ 2,535 Net Loss — — — — — ( 7,162 ) — ( 7,162 ) Foreign Currency Translation Adjustments — — — — — — ( 1 ) ( 1 ) Stock-based Compensation — — — — ( 179 ) — — ( 179 ) Balance as of March 31, 2022 — — 8,544,225 1 372,383 ( 377,242 ) 51 ( 4,807 ) Net Loss — — — — — ( 4,967 ) — ( 4,967 ) Foreign Currency Translation Adjustments — — — — — — ( 2 ) ( 2 ) Issuance of Common Stock, net of offering costs/Public Offering — — 844,613 — 14,893 — — 14,893 Issuance of Common Stock, net of offering costs/At-the-Market Offering — — 7,500 — 15 — — 15 Issuance of Preferred Stock, net of offering costs 15,000 — — — 14,916 — — 14,916 Vesting of Restricted Stock Units Issued, net of taxes withheld — — 10,958 — — — — — Stock-based Compensation — — — — 97 — — 97 Balance as of June 30, 2022 15,000 — 9,407,296 1 402,304 ( 382,209 ) 49 20,145 Net Loss — — — — — ( 4,190 ) — ( 4,190 ) Unrealized Gain on Available-for-Sale Investments — — — — — — 5 5 Issuance of Common Stock, net of offering costs/Public Offering — — 1,745,377 — — — — — Stock-based Compensation — — — — 176 — — 176 Balance as of September 30, 2022 15,000 $ — 11,152,673 $ 1 $ 402,480 $ ( 386,399 ) $ 54 $ 16,136 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Cash Flows From Operating Activities: Net Loss $ ( 6,927 ) $ ( 16,317 ) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 894 422 Stock-based Compensation 714 95 Increase in Inventory Reserves 1,098 307 Non-cash Lease Expense from Right of Use Assets 1,529 1,518 Amortization of Debt Financing Costs and Accretion of Debt Discount 276 276 Loss (Gain) on Disposal of Assets 1 ( 3 ) Realized Gain on Sale of Investments ( 220 ) ( 4 ) Changes in Operating Assets and Liabilities: Accounts Receivable, net ( 3,102 ) ( 1,454 ) Inventory 1,561 ( 921 ) Prepaid and Other Assets 875 2,058 Accounts Payable ( 124 ) ( 688 ) Lease Liabilities ( 1,113 ) ( 1,435 ) Other Liabilities ( 1,033 ) 756 Deferred License Revenue ( 3,798 ) ( 1,427 ) Cash Used In Operating Activities ( 9,369 ) ( 16,817 ) Cash Flows From Investing Activities: Purchase of Investments Available-for-Sale ( 3,752 ) ( 17,389 ) Sale of Investments Available-for-Sale 11,301 11,972 Purchase of Equipment ( 241 ) ( 197 ) Cash Paid in Connection with Evoqua Asset Acquisition ( 12,361 ) — Cash Used In Investing Activities ( 5,053 ) ( 5,614 ) Cash Flows From Financing Activities: Payments on Debt ( 500 ) ( 6,750 ) Payments on Insurance Financing Note Payable ( 748 ) ( 941 ) Payments on Financing Lease Liabilities ( 388 ) — Proceeds from Issuance of Common Stock 13,763 15,016 Offering Costs from Issuance of Common Stock ( 43 ) ( 106 ) Proceeds from Issuance of Preferred Stock — 15,000 Offering Costs from Issuance of Preferred Stock — ( 85 ) Cash Provided by Financing Activities 12,084 22,134 Effect of Exchange Rate Changes on Cash and Cash Equivalents ( 5 ) ( 3 ) Net Decrease in Cash and Cash Equivalents ( 2,343 ) ( 300 ) Cash and Cash Equivalents at Beginning of Period 10,102 13,280 Cash and Cash Equivalents at End of Period $ 7,759 $ 12,980 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 929 $ 1,261 Supplemental Disclosure of Non-cash Operating, Investing and Financing Activities: Change in Unrealized (Loss) Gain on Investments Available-for-Sale $ ( 90 ) $ 5 Increase in Prepaid Assets from Insurance Financing Note Payable $ 733 $ — Deferred Consideration from Evoqua Asset Acquisition $ 5,000 $ — The accompanying notes are an integral part of the condensed consolidated financial statements. 8 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business Rockwell Medical, Inc. (the "Company", "Rockwell", "we", or "us") is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide. Rockwell is a revenue-generating business and the second largest supplier of liquid and powder acid and bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is typically performed at freestanding outpatient dialysis centers, hospital-based outpatient centers, skilled nursing facilities, or in a patient’s home. Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S. Food and Drug Administration ("FDA"). Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. 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. On July 10, 2023, the Company executed and consummated the transactions contemplated by an Asset Purchase Agreement (the “Purchase Agreement”) with Evoqua Water Technologies LLC ("Evoqua") (the "Evoqua Acquisition"). Subject to the terms and conditions of the Purchase Agreement, at the closing of the transaction (the “Closing”), the Company purchased customer relationships, equipment and inventory from Evoqua, which were related to its manufacturing and selling of hemodialysis concentrates products, all of which are manufactured under a contract manufacturing agreement with a third-party organization. See Note 4 for further detail. In addition to its primary focus on hemodialysis concentrates, Rockwell also has a proprietary parenteral iron product, Triferic ® (ferric pyrophosphate citrate ("FPC")), which is indicated to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease. While Rockwell has discontinued commercialization of Triferic in the United States, the Company has established international partnerships with companies seeking to develop and commercialize Triferic outside the United States and is working closely with these international partners to develop and commercialize Triferic in their respective regions. During the third quarter of 2023, the ongoing Triferic development effort was terminated resulting in an acceleration of the corresponding deferred license revenue (see Note 10) and a reserve on the non-current inventory (see Note 7). 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. 2. Liquidity and Capital Resources As of September 30, 2023, Rockwell had approximately $ 11.7 million of cash, cash equivalents and investments available-for-sale, and working capital of $ 6.8 million. Net cash used in operating activities for the nine months ended September 30, 2023 was approximately $ 9.4 million. Based on the currently available working capital, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report. The Company continues to review its operational plans and execute on the acquisition of new customers, and has implemented cost containment activities. The Company may require additional capital to sustain its operations and make the investments it needs to execute its strategic plan. Additionally, the Company's operational plans include raising capital, if needed, by using its at-the-market ("ATM") facility or other methods or forms of financings, subject to existing limitations. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all. In 2023, the Company is no longer subject to the "baby shelf" limitations under Form S-3, which limit the amount the Company may offer pursuant to its registration statement on Form S-3. The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus. As of the date of this report, the Company is in compliance with all covenants (See Note 15 for further detail). 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, recent bank failures in the United States, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, Israel-Hamas conflict and other political tensions, and lingering effects of the COVID-19 pandemic. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on our future operations. Rockwell has utilized a range of financing methods to fund its operations in the past; however, current conditions in the financial and credit markets may limit the availability of funding, refinancing or increase the cost of funding. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future. 3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U. S. Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet at September 30, 2023, and the condensed consolidated statements of operations, comprehensive loss, and changes in stockholders' equity for the three and nine months ended September 30, 2023 and cash flows for the nine months ended September 30, 2023 are unaudited, but include all adjustments, consisting of normal recurring adjustments the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023 or for any future interim period. The condensed consolidated balance sheet at December 31, 2022 has been derived from audited financial statements, however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2022 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on March 30, 2023. The Company’s consolidated subsidiaries consist of its wholly-owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited. The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Restatement of Loss Per Share Loss per share for the three and nine months ended September 30, 2022 have been recalculated and restated and is presented on a comparable basis with the three and nine months ended September 30, 2023. In the first quarter of 2023, the Company determined it should have included pre-funded warrants issued in the second quarter of 2022 in the earnings per share calculation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC") 260-10-45-13, which treats shares of common stock exercisable for little to no consideration as included in the denominator of both the basic and diluted earnings per share calculations. While the Company has determined the impact of including the pre-funded warrants in the earnings per share calculations does not have a material impact on previously issued financial statements, the Company has recalculated and restated amounts presented on a comparative and consistent basis with current period results. The table below summarizes previously reported and restated amounts on a comparative basis. See the table presentation of loss per share calculations as of September 30, 2023 and 2022 in the "Loss Per Share" section below. Three Months Ended September 30, Nine Months Ended September 30, 2022 2022 As Previously Reported: Net loss per share attributable to common stockholders - basic and diluted $ ( 0.40 ) $ ( 1.75 ) Weighted average number of shares of common stock outstanding - basic and diluted 10,528,148 9,299,788 As Restated: Net loss per share attributable to common stockholders - basic and diluted $ ( 0.23 ) $ ( 1.26 ) Weighted average number of shares of common stock outstanding - basic and diluted 18,463,673 12,902,890 Loss Per Share Basic and diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, after giving effect to the restatement discussed above, was calculated as follows: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands, Except Share and Per Share Amounts) 2023 2022 2023 2022 Numerator: Net loss $ ( 1,872 ) $ ( 4,190 ) $ ( 6,927 ) $ ( 16,317 ) Net loss attributable to common stockholders for basic and diluted loss per share $ ( 1,872 ) $ ( 4,190 ) $ ( 6,927 ) $ ( 16,317 ) Denominator: Weighted average number of shares of common stock outstanding - basic and diluted 27,521,088 18,463,673 21,526,978 12,902,890 Net loss per share attributable to common stockholders - basic and diluted $ ( 0.07 ) $ ( 0.23 ) $ ( 0.32 ) $ ( 1.26 ) Included within the weighted average shares of common stock outstanding for the three and nine months ended September 30, 2022 are 7,311,000 shares of common stock issuable upon the exercise of pre-funded warrants (See Note 11), as the warrants are exercisable at any time for nominal consideration and, as such, the shares are considered outstanding for the purpose of calculating basic and diluted net loss per share attributable to common stockholders. The Company’s potentially dilutive securities include stock options, restricted stock awards and units, convertible preferred stock and warrants. These securities were excluded from the computations of diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, as the effect would be to reduce the net loss per share. The following table includes the potential shares of common stock, presented based on amounts outstanding at each period end, that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: As of September 30, 2023 2022 Options to Purchase Common Stock 1,367,493 1,311,691 Unvested Restricted Stock Awards 891 891 Unvested Restricted Stock Units 287,400 125,000 Convertible Preferred Stock 1,363,636 1,363,636 Warrants to Purchase Common Stock 4,045,278 17,507,268 Total 7,064,698 20,308,486 Adoption of Recent Accounting Pronouncements The Company continually assesses new accounting pronouncements to determine their applicability. When it is determined a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a review to determine the consequences of the change to its consolidated financial statements and assures there are sufficient controls in place to ascertain the Company’s consolidated financial statements properly reflect the change. In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) , which introduced an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. In addition, ASC 326 requires expected credit related losses for trade accounts receivable, as well as available-for-sale debt securities, which are to be recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through other comprehensive income. The Company adopted the new guidance, as of January 1, 2023, and it did not have a material impact on the condensed consolidated financial statements. 4. Asset Acquisition On July 10, 2023, the Company completed the Evoqua Acquisition. At the Closing, the Company purchased customer relationships, equipment and inventory from Evoqua, which were related to manufacturing and selling of hemodialysis concentrates products, all of which are manufactured under a contract manufacturing agreement with a third-party organization. Pursuant to the Purchase Agreement, total consideration was $ 17.4 million, comprising a cash payment at Closing of $ 12.2 million (inclusive of transaction costs) and two $ 2.5 million deferred payments, the first to be paid on the one-year anniversary of the Closing, which is included as a current liability on the Company's condensed consolidated balance sheet, and the second to be paid on the second anniversary of the Closing (collectively, the “deferred consideration”). The transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by ASC 805, Business Combinations . The purchase price was allocated, on a relative fair value basis, to the assets acquired at the July 10, 2023 acquisition date as follows (table in thousands): Consideration Cash Payment $ 12,233 Deferred Consideration 5,000 Transaction Costs 128 Total Consideration $ 17,361 Assets Acquired Customer Relationships Intangible Asset $ 11,035 Equipment 5,093 Inventory 1,233 Total Assets Acquired $ 17,361 The fair value of the customer relationships intangible asset was determined using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from the customer base. Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates. Customer relationships are being amortized over a period of 20 years. Given the recency of the purchase of the equipment in which the assets were recorded at fair value, the Company determined the fair value of the equipment using a cost approach, which considered 9 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) assumptions over the equipment's current replacement cost and useful life. Inventory was purchased directly from the contract manufacturer holding the inventory, which approximated fair value. During the three and nine months ended September 30, 2023, the Company recorded amortization of its customer relationship intangible asset of $ 0.1 million, resulting in a net intangible asset of $ 10.9 million as of September 30, 2023. Estimated future amortization expense on the Company's customer relationships intangible asset as of September 30, 2023 is as follows (table in thousands): Year ended December 31: 2023 (remainder of year) $ 138 2024 552 2025 552 2026 552 2027 552 Thereafter 8,551 Total $ 10,897 5. Revenue Recognition The Company recognizes revenue under 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. The Company currently 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. Rockwell's customer mix is diverse, with most customer sales concentrations under 10% and one customer, DaVita, Inc. ("DaVita"), at approximately 50 % of total net product sales for each of the three and nine months ended September 30, 2023. Rockwell's accounts receivable from this customer were approximately 31 % and 30 % of the total net consolidated accounts receivable balance at September 30, 2023 and December 31, 2022, respectively. Product sales – The Company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost plus margin approach. Drug and dialysis concentrates 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 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 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 regulatory approval was probable as of the execution of the agreement. The amounts received from Baxter Healthcare Corporation (“Baxter”) were deferred and recognized as revenue at the point in time the estimated product sales under the agreement occurred. During the three months ended September 30, 2023, the amounts received from Wanbang were accelerated out of deferred license revenue and into revenue upon notice that the development effort was terminated (see Note 10). In November 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and terminated the exclusive distribution agreement. Under the exclusive distribution agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all U.S. customers. Following the reacquisition of these rights, Rockwell is now unrestricted in its ability to sell its hemodialysis concentrates products to dialysis clinics throughout the U.S. and around the world. For additional information, see Note 10. Rockwell agreed to pay Baxter a fee for the reacquisition of its distribution rights which was reflected as an expense at that time. This fee was payable in two equal installments on January 1, 2023 and April 1, 2023. As of September 30, 2023, all payments were completed. On September 18, 2023, the Company and its long-time partner, DaVita, a leading provider of kidney care, entered into an Amended and Restated Products Purchase Agreement (the "Amended Agreement"), which amends and restates the Product Purchase Agreement, dated July 1, 2019, as amended, under which the Company supplies DaVita with certain dialysis concentrates. Under the Amended Agreement, the Company and DaVita agreed to an increase in product pricing, effective September 1, 2023 and a one-time payment to Rockwell on or after December 1, 2023. The term of the Amended Agreement will expire on December 31, 2024. DaVita will have the right, in its sole discretion upon written notice to the Company given no later than September 30, 2024, to further extend the term through December 31, 2025. In the event of such an extension, product pricing will be increased for the extended term. In addition, DaVita is required to provide the Company with nine-month purchasing forecasts and a commitment to purchase at least the forecasted amounts. In the event that DaVita does not meet its forecasts, it is required to pay the Company for the amount forecasted, purchase additional product, or the Company may terminate the Amended Agreement. Upon expiration or termination of the Amended Agreement, and upon request by DaVita, the Company has agreed to provide transition services to DaVita during a transition period. Additionally during the third quarter of 2023, the Company entered into several long-term product purchase agreements, which include supply and purchasing commitments from certain parties. For the majority of the Company’s U.S. and 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 estimated at the time of sale. 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 a small subset of customers have payment terms averaging 60 days. Disaggregation of revenue Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition. In thousands Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023 Products By Geographic Area Total U.S. Rest of World Total U.S. Rest of World Drug Revenues Product Sales – Point-in-time $ — $ — $ — $ — $ — $ — License Fee – Over time 2,197 — 2,197 2,327 — 2,327 Total Drug Products 2,197 — 2,197 2,327 — 2,327 Concentrates Products Product Sales – Point-in-time 21,574 19,741 1,833 57,720 52,326 5,394 License Fee – Over time — — — 1,472 1,472 — Total Concentrate Products 21,574 19,741 1,833 59,192 53,798 5,394 Net Revenue $ 23,771 $ 19,741 $ 4,030 $ 61,519 $ 53,798 $ 7,721 In thousands Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Products By Geographic Area Total U.S. Rest of World Total U.S. Rest of World Drug Revenues Product Sales – Point-in-time $ 193 $ 193 $ — $ 834 $ 561 $ 273 License Fee – Over time 65 — 65 192 — 192 Total Drug Products 258 193 65 1,026 561 465 Concentrates Products Product Sales – Point-in-time 17,953 16,619 1,334 51,035 46,334 4,701 License Fee – Over time 480 480 — 1,436 1,436 — Total Concentrate Products 18,433 17,099 1,334 52,471 47,770 4,701 Net Revenue $ 18,691 $ 17,292 $ 1,399 $ 53,497 $ 48,331 $ 5,166 Contract balances The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers. In thousands September 30, 2023 December 31, 2022 Accounts Receivable, net $ 9,361 $ 6,259 Contract Liabilities, which are included in deferred license revenue $ 533 $ 4,331 There were no other material contract assets recorded on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. The Company does not generally accept returns of its concentrates products and no material reserve for returns of concentrates products was established as of September 30, 2023 or December 31, 2022. The contract liabilities primarily relate to upfront payments and consideration received from customers in advance of the customer assuming control of the related products. 10 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 6. Investments - Available-for-Sale Investments available-for-sale consisted of the following as of September 30, 2023 and December 31, 2022 (table in thousands): September 30, 2023 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Fair Value Available-for-Sale Securities Debt securities $ 3,898 $ 73 $ — $ — $ 3,971 December 31, 2022 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Fair Value Available-for-Sale Securities Debt securities $ 11,315 $ 75 $ — $ — $ 11,390 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 a Level 1 measurement under ASC 820 Fair Value Measurements. As of September 30, 2023 and December 31, 2022, all of our available-for-sale securities were all due within one year. 7. Inventory Components of inventory, net of reserves, as of September 30, 2023 and December 31, 2022 are as follows (table in thousands): September 30, 2023 December 31, 2022 Inventory - Current Portion Raw Materials $ 2,335 $ 3,351 Work in Process 337 351 Finished Goods 2,814 2,112 Total Current Inventory 5,486 5,814 Inventory - Long Term (1) 178 1,276 Total Inventory $ 5,664 $ 7,090 __________ 1. Represents inventory related to Triferic raw materials. This Triferic inventory will be utilized for the Company's international partnerships. In September 2022, the Company discontinued its New Drug Applications ("NDAs") for Triferic (dialysate) and Triferic AVNU in the United States. During the three months ended September 30, 2023, the Company reserved $ 1.1 million of long-term inventory as a result of the termination of the Wanbang development effort. As of September 30, 2023 and December 31, 2022, Rockwell had total current concentrate inventory aggregating $ 5.5 million and $ 5.8 million, respectively, against which Rockwell had reserved $ 25,000 at both September 30, 2023 and December 31, 2022. 11 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 8. Property and Equipment, net As of September 30, 2023 and December 31, 2022, the Company’s property and equipment consisted of the following (table in thousands): September 30, 2023 December 31, 2022 Leasehold Improvements $ 1,423 $ 1,256 Machinery and Equipment 11,085 5,922 Information Technology & Office Equipment 1,845 1,845 Laboratory Equipment 807 807 Total Property and Equipment 15,160 9,830 Accumulated Depreciation and Amortization ( 8,389 ) ( 7,636 ) Property and Equipment, net $ 6,771 $ 2,194 Depreciation and amortization expense for the three months ended September 30, 2023 and 2022 was $ 0.4 million and $ 0.1 million, respectively. Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 was $ 0.8 million and $ 0.4 million, respectively. 9. Accrued Liabilities Accrued liabilities as of September 30, 2023 and December 31, 2022 consisted of the following (table in thousands): September 30, 2023 December 31, 2022 Accrued Compensation and Benefits $ 2,240 $ 2,568 Accrued Unvouchered Receipts 1,947 585 Accrued Manufacturing Expense 732 — Accrued Workers Compensation 202 306 Accrued Research & Development Expense — 43 Other Accrued Liabilities 1,587 4,200 Total Accrued Liabilities $ 6,708 $ 7,702 10. Deferred License Revenue In October 2014, the Company entered into an exclusive 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 license revenue and was 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. 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's 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 now unrestricted in its ability to sell its hemodialysis concentrates products to dialysis clinics throughout the United States and around the world. The Company recognized the remaining revenue of $ 1.5 million during the three months ended March 31, 2023. In 2016, the Company entered into a distribution agreement with Wanbang (the "Wanbang Agreement") and received an upfront fee of $ 4.0 million. The upfront fee was recorded as deferred license revenue and is being recognized as revenue based on the agreement term. On August 7, 2023, Rockwell was informed by Wanbang that the main efficacy results of Wanbang’s clinical trial for Triferic (dialysate) compared with placebo were not obtained and Wanbang will not bring the product forward to registration. As a result, the Company recognized all remaining revenue under the Wangbang Agreement of approximately $ 2.2 million during the third quarter of 2023. Additionally, in connection with these events, the Company 12 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) established a reserve for related Triferic long-term inventory of $ 1.1 million, resulting in a net increase in gross profit of $ 1.1 million. In January 2020, the Company entered into license and supply agreements with Sun Pharma (the "Sun Pharma Agreements"), for the rights to commercialize Triferic (dialysate) in India. In consideration for the license, the Company received an upfront fee of $ 0.1 million. The upfront fee was recorded as deferred license revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $ 2,500 and $ 7,500 for the three and nine months ended September 30, 2023 and 2022, respectively. Deferred license revenue related to the Sun Pharma Agreement totaled $ 62,500 and $ 70,000 as of September 30, 2023 and December 31, 2022, 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. In consideration for the license, the Company received an upfront fee of $ 0.2 million. In May 2022, Jeil Pharmaceutical obtained regulatory approval in South Korea and paid the Company $ 0.2 million in consideration of reaching the milestone. The upfront fee and milestone payments were recorded as deferred license revenue and are being recognized as revenue based on the agreement term. The Company recognized revenue of $ 5,200 and $ 15,600 for the three and nine months ended September 30, 2023 and 2022, respectively. Deferred license revenue related to the Jeil Agreement totaled approximately $ 0.4 million as of both September 30, 2023 and December 31, 2022. 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. In consideration for the license, the Company received an upfront fee of $ 0.15 million. The upfront fee was recorded as deferred license revenue and will be recognized as revenue based on the agreement term. The Company recognized revenue of $ 3,750 and $ 11,250 for the three and nine months ended September 30, 2023 and 2022, respectively. Deferred license revenue related to the Drogsan Agreements totaled approximately $ 0.1 million as of each of September 30, 2023 and December 31, 2022. In April 2023, Drogsan submitted a Marketing Authorization application and GMP application for Triferic AVNU to the Turkish Medicines and Medical Devices Agency, for which Drogsan received priority status and high priority status, respectively. Drogsan is responsible for all regulatory approval and commercialization activities. 11. Stockholders’ Equity The Company held its annual meeting of stockholders on May 23, 2023 (the “Annual Meeting”). At the 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 1,600,000 shares (the “Amended 2018 Plan”). Preferred Stock On April 6, 2022, the Company and DaVita entered into the Securities Purchase Agreement (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 16, 2022 the Company issued an additional 7,500 shares of the Series X Preferred Stock to DaVita for gross proceeds of $ 7.5 million. 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. As of September 30, 2023, the Series X Preferred Stock accreted a total $ 150,000 . The Series X Convertible Preferred Stock is convertible to common stock at a 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 and the sale of the assets that would allow for redemption is within the control of the Company, 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 mandatory redemption definition which could trigger liability classification. As of both September 30, 2023 and December 31, 2022, there were 2,000,000 shares of preferred stock, $ 0.0001 par value per share, authorized and 15,000 shares of preferred stock issued and outstanding. Common Stock As of September 30, 2023 and December 31, 2022, there were 170,000,000 shares of common stock, $ 0.0001 par value per share, authorized and 28,489,663 and 12,163,673 shares issued and outstanding, respectively. As of September 30, 2023 and 2022, the Company 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 (collectively, "common stock equivalents"): As of September 30, Common stock and common stock equivalents: 2023 2022 Common stock 28,489,663 11,152,673 Common stock issuable upon exercise of pre-funded warrants — 7,311,000 Common stock and pre-funded stock warrants 28,489,663 18,463,673 Options to Purchase Common Stock 1,367,493 1,311,691 Unvested Restricted Stock Awards 891 891 Unvested Restricted Stock Units 287,400 125,000 Convertible Preferred Stock 1,363,636 1,363,636 Warrants to Purchase Common Stock 4,045,278 17,507,268 Total 35,554,361 38,772,159 During the three months ended September 30, 2023 and 2022, 1,793,000 and 477,480 pre-funded warrants were exercised, respectively. During the nine months ended September 30, 2023 and 2022, 6,300,000 and 477,480 pre-funded warrants were exercised, respectively. During the three and nine months ended September 30, 2023 and 2022, no vested employee stock options were exercised. Controlled Equity Offering On April 8, 2022, the Company entered into the Sales Agreement (the "ATM facility") with Cantor Fitzgerald & Co. as Agent, pursuant to which the Company may offer and sell from time to time up to $ 12.2 million of shares of Company’s common stock through the Agent. The offering and sale of such shares has been registered under the Securities Act of 1933, as amended. During the quarter ended September 30, 2023, no sales were made pursuant to the Sales Agreement. Approximately $ 12.2 million remains available for sale under the ATM facility. Registered Direct Offering On May 30, 2022, the Company entered into the Registered Direct Purchase Agreement (the "Agreement") with the Purchaser, pursuant to which the Company issued and sold, 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 Agreement contains customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties. On July 5, 2023, all of the remaining Pre-Funded Warrants to purchase 1,793,000 shares of common stock were exercised. The exercise price of each Pre-Funded Warrant was $ 0.0001 per share and resulted in gross proceeds to the Company of $ 179 . Private Placement Also on May 30, 2022, concurrent with the Offering, the Company entered into the private investment in public equity "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 (the "PIPE Warrants") and pre-funded warrants to purchase up to a total of 1,267,897 shares of common stock (the “Pre-Funded 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 Pre-Funded Warrant is $ 0.0001 per share. As of December 2022, all Pre-Funded PIPE Warrants have been exercised. On July 10, 2023, the Company entered into a letter agreement (the “Letter Agreement”) with Armistice Capital Master Fund Ltd. (“Armistice”), which held a warrant (the “Prior Warrant”) to purchase 9,900,990 shares of common stock of the Company (the “Common Stock”) with an exercise price of $ 1.39 per share, offering Armistice the opportunity to exercise the Prior Warrant for cash, provided the Prior Warrant was exercised for cash on or prior to 5:00 P.M. Eastern Time on July 10, 2028 (the “End Date”). In addition, Armistice would receive a “reload” warrant (the “Reload Warrant”) to purchase 3,750,000 shares of Common Stock with an exercise price of $ 5.13 per share, the closing price as reported by the Nasdaq Capital Market on July 7, 2023. The terms of the Reload Warrant and Letter Agreement provide for customary resale registration rights. The Letter Agreement also provides that for a period of 45 days after the issuance of the Reload Warrant, the Company’s may not sell shares of Common Stock pursuant to its sales agreement with Cantor Fitzgerald & Co., dated as of April 8, 2022, at price per share less than $ 6.25 . The Reload Warrant may be exercised at all times prior to the 54 months month anniversary of its issuance date. The Prior Warrant and the Reload Warrant both provide that a holder (together with its affiliates) may not exercise any portion of the Prior Warrant or the Reload Warrant to the extent that 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 such warrant. To the extent the exercise of the Prior Warrant would result in Armistice holding more than 9.99 % of the Company’s outstanding Common Stock, such shares of Common Stock in excess of 9.99 % will be held in abeyance. The Letter Agreement amended the Prior Warrant to extend the expiration date thereof to one year following the original expiration date set forth therein. Armistice exercised the Prior Warrant on July 10, 2023, and the Company received gross proceeds of approximately $ 13.8 million from the exercise of the Prior Warrant as a result of such exercise pursuant to the terms of the Letter Agreement. 13 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 12. Stock-Based Compensation The Company recognized total stock-based compensation expense during the three and nine months ended September 30, 2023 and 2022 as follows (table in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Service-based awards: Restricted Stock Units $ 112 $ 46 $ 276 $ 84 Stock Option Awards 100 130 438 401 Total Service Based Awards 212 176 714 485 Performance-based awards: Restricted Stock Awards — — — ( 391 ) Total $ 212 $ 176 $ 714 $ 94 Performance Based Restricted Stock A summary of the Company’s restricted stock awards during the nine months ended September 30, 2023 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2023 891 $ 62.70 Unvested at September 30, 2023 891 $ 62.70 A summary of the Company’s restricted stock awards during the nine months ended September 30, 2022 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2022 7,118 $ 62.70 Forfeited (1) ( 6,227 ) $ 62.70 Unvested at September 30, 2022 891 $ 62.70 __________ 1. These forfeited awards were due to the resignation of the Company's Chief Development Officer on March 25, 2022 and reduced stock-based compensation expense by $ 0.4 million in 2022. Restricted stock awards are measured based on their fair value on the date of grant and amortized over the vesting period of 20 months. 14 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Service-Based Restricted Stock Units A summary of the Company’s service-based restricted stock units during the nine months ended September 30, 2023 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2023 125,000 $ 1.47 Granted 313,065 1.87 Vested ( 125,000 ) 1.47 Forfeited ( 25,665 ) 1.37 Unvested at September 30, 2023 287,400 $ 1.85 A summary of the Company’s service-based restricted stock units during the nine months ended September 30, 2022 is as follows: Number of Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2022 29,289 $ 12.87 Granted 125,000 1.47 Vested ( 23,515 ) 11.33 Forfeited ( 5,774 ) 19.00 Unvested at September 30, 2022 125,000 $ 1.47 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 to 3 years. Stock-based compensation expense of $ 0.1 million and $ 46,000 was recognized for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense of $ 0.3 million and $ 0.1 million was recognized for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the unrecognized stock-based compensation expense was $ 0.4 million, which is expected to be recognized over an estimated weighted average remaining term of less than 1.4 years. Service-Based Stock Options The fair value of the service-based stock options granted for the nine months ended September 30, 2023 were based on the following assumptions: Nine Months Ended September 30, 2023 Exercise price $ 1.37 - $ 2.83 Expected stock price volatility 81.6 % - 81.8 % Risk-free interest rate 3.41 % - 3.46 % Term (years) 5.6 - 6 15 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) A summary of the Company’s service-based stock option activity for the nine months ended September 30, 2023 is as follows: Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value in years in thousands Outstanding at January 1, 2023 1,206,905 $ 8.32 Granted 382,745 1.48 Forfeited ( 143,430 ) 2.82 Expired ( 78,727 ) 26.74 Outstanding at September 30, 2023 1,367,493 $ 5.93 8.4 $ 680 Exercisable at September 30, 2023 444,836 $ 14.64 7 $ 114 A summary of the Company’s service-based stock option activity for the nine months ended September 30, 2022 is as follows: Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in years Outstanding at January 1, 2022 528,591 $ 32.01 7.5 Granted 898,659 1.49 5.5 Forfeited ( 30,093 ) 15.11 — Expired ( 85,466 ) 82.09 — Outstanding at September 30, 2022 1,311,691 $ 8.23 9.1 Exercisable at September 30, 2022 243,973 $ 29.31 6.9 The aggregate intrinsic value is calculated as the difference between the closing price of the Company's common stock and the exercise price of the stock options that had strike prices below the closing price. The intrinsic value of the outstanding options as of September 30, 2022 was not significant. Stock-based compensation expense recognized for service-based stock options was $ 0.1 million and $ 0.1 million for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense recognized for service-based stock options was $ 0.4 million and $ 0.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, total stock-based compensation expense related to unvested options not yet recognized totaled approximately $ 0.7 million, which is expected to be recognized over an estimated weighted average remaining term of 3.2 years. Forfeitures are recorded in the period of occurrence and compensation expense is adjusted accordingly. 13. Licensing 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 of September 30, 2023 and December 31, 2022, the Company has accrued $ 85,400 relating to 16 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) certain IP reimbursement expenses and certain sublicense royalty fees, which is included within accrued liabilities 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 is required to pay Charak a percentage of any sublicense income during the term of the agreement, which amount cannot be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and be no less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis. Also pursuant to the Charak MSA, the Company and Charak entered into a Commercialization and Technology License Agreement I.V. Triferic dated as of October 7, 2018 (the “IV Agreement”), under which Charak granted the Company an exclusive, sub-licensable, 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 was 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, sub-licensable, 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 sub-license milestone payments are not yet considered probable, and no milestone payments have been accrued as of September 30, 2023 and December 31, 2022. 14. 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 six 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 occupied 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. At September 30, 2023, the Company had operating and finance lease liabilities of $ 5.4 million and right-of-use assets of $ 5.1 million, which are included in the condensed consolidated balance sheet. At December 31, 2022, the Company had operating and finance lease liabilities of $ 6.7 million and right-of-use assets of $ 6.4 million, which are included in the condensed consolidated balance sheet. The following summarizes quantitative information about the Company’s operating and finance leases (table in thousands): Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Operating leases Operating lease cost $ 422 $ 410 $ 1,281 $ 1,289 Variable lease cost 112 101 336 287 Operating lease expense 534 511 1,617 1,576 Finance leases Non-cash lease expense from right-of-use assets 142 141 424 424 Interest on lease obligations 36 44 113 136 Finance lease expense 178 185 537 560 Short-term lease rent expense 4 5 12 14 Total lease expense $ 716 $ 701 $ 2,166 $ 2,150 Other information Payments for principal from operating leases $ 461 $ 427 $ 1,363 $ 1,338 Payments for interest from finance leases $ 37 $ 44 $ 114 $ 136 Payments for principal from finance leases $ 130 $ 121 $ 388 $ 359 Weighted-average remaining lease term – operating leases 2.5 3.2 2.5 3.2 Weighted-average remaining lease term – finance leases 3.7 4.7 3.7 4.7 Weighted-average discount rate – operating leases 6.5 % 6.4 % 6.5 % 6.4 % Weighted-average discount rate – finance leases 6.4 % 6.4 % 6.4 % 6.4 % Future minimum rental payments under operating and finance lease agreements are as follows (in thousands): Operating Finance Year ending December 31, 2023 (remaining) $ 439 $ 168 Year ending December 31, 2024 1,511 672 Year ending December 31, 2025 1,021 676 Year ending December 31, 2026 362 666 Year ending December 31, 2027 131 311 Total 3,464 2,493 Less present value discount ( 259 ) ( 271 ) Operating and finance lease liabilities $ 3,205 $ 2,222 15. Loan and Security Agreement On March 16, 2020, the Company 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 additional tranches, which were tied to the achievement of certain milestones. Net draw down proceeds were $ 21.2 million with closing costs of $ 1.3 million. In connection with each funding of the Term Loans, the Company was 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. In connection with the first tranche of the Term Loans, the Company issued a Warrant to Innovatus, exercisable for an aggregate of 43,388 shares of the Company’s common stock at an exercise price of $ 18.15 per share. The Warrant may be exercised on a cashless basis and is immediately exercisable through the seventh anniversary of the applicable funding date. The number of shares of common stock for which the Warrant is exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in such Warrant. 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. The Term Loans mature on March 16, 2025, and 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 12.5 % as of September 30, 2023. 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 three months ended September 30, 2023 and 2022, interest expense amounted to $ 0.3 million and $ 0.4 million, respectively. For the nine months ended September 30, 2023 and 2022, interest expense amounted to $ 0.9 million and $ 1.2 million, respectively. The Loan Agreement is secured by all assets of the Company and Rockwell Transportation, Inc. and contains customary representations and warranties and covenants, subject to customary carve outs, and initially included financial covenants related to liquidity and sales of Triferic. 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 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, which amended the Loan Agreement. Pursuant to the Second Amendment, the Company (i) prepaid an additional aggregate principal amount of $ 5.0 million in Term Loans in one installment on November 14, 2022; (ii) paid interest only payments until September 2023, at which time it resumed scheduled debt payments. The financial covenant related to the sales of Triferic was replaced with the trailing 6 months revenue of our concentrates products. The Company cannot assure that it can maintain compliance with the covenants under our Loan Agreement, which may result in an event of default. The Company's ability to comply with these covenants may be adversely affected by events beyond its control. 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. 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. As of September 30, 2023, the Company was in compliance with all covenants under the Loan Agreement. As of September 30, 2023, the outstanding balance of the Term Loan was $ 9.0 million, net of unamortized issuance costs and discount of $ 0.5 million. The following table reflects the schedule of principal payments on the Term Loan as of September 30, 2023 (in thousands): Principal Payments 2023 (remaining) $ 1,500 2024 6,000 2025 2,000 $ 9,500 17 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 16. Insurance Financing Note Payable On June 3, 2023, the Company entered into a short-term note payable for $ 0.7 million, bearing interest at 9.59 % per annum to finance various insurance policies. Principal and interest payments related to this note began on July 3, 2023 and will be paid on a straight-line amortization over nine months with the final payment due on March 3, 2024. As of September 30, 2023, the outstanding balance was $ 0.5 million. 18