The accompanying notes are an integral part
of these Consolidated Financial Statements
Notes to the Consolidated Financial Statements
NOTE 1: |
NATURE OF BUSINESS |
Adamis Pharmaceuticals Corporation (the
“Company,” “Adamis Pharmaceuticals” or “Adamis”) has three wholly-owned subsidiaries: Adamis
Corporation; U.S. Compounding, Inc. (“USC”); and Biosyn, Inc.
Adamis is a specialty biopharmaceutical
company primarily focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose,
respiratory and inflammatory disease.
The Company’s SYMJEPI® (epinephrine) Injection is
approved by the FDA for use in the emergency treatment of acute allergic reactions, including anaphylaxis. The Company’s
ZIMHI® (naloxone) Injection is approved for the treatment of opioid overdose. Adamis operates under one operating segment.
USC, which was registered as a drug
compounding outsourcing facility under Section 503B of the U.S. Food, Drug & Cosmetic Act and the U.S. Drug Quality and Security
Act, provided prescription compounded medications, including compounded sterile preparations and non-sterile compounds, to patients,
physician clinics, hospitals, surgery centers and other clients in many states throughout the United States. USC also provided
certain veterinary pharmaceutical products for animals. In July 2021, we sold certain assets relating to USC’s human
compounding pharmaceutical business and approved a restructuring process to wind down the remaining USC business and sell, liquidate
or otherwise dispose of the remaining USC assets. Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy
permit and wholesaler/outsourcer permit and is no longer selling compounded pharmaceutical or veterinary products.
The Company’s consolidated financial
statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred substantial
recurring losses from continuing operations, negative cash flows from operations,
and is dependent on additional financing to fund operations. We incurred a net loss of approximately $26.5 million and $45.8 million
for the years ended December 31, 2022 and 2021. As of December 31, 2022, the Company had cash and cash equivalents of approximately
$1.1 million and an accumulated deficit of approximately $304.6 million. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
The Company will need additional funding to sustain operations, satisfy existing and future obligations and liabilities, and otherwise
support the Company’s operations and business activities and working capital needs. Management’s
plans include attempting to secure additional required funding through equity or debt financings if available, seeking to enter
into one or more strategic agreements regarding, or sales or out-licensing of, intellectual property or other assets, products,
product candidates or technologies, seeking to enter into agreements with third parties to co-develop and fund research and development
efforts, revenues from existing agreements, a merger, sale or reverse merger of the Company, or other strategic transaction. There
is no assurance that the Company will be successful in obtaining the necessary funding to sustain its operations or meet its business
objectives. The process of obtaining funding, or the terms of a strategic transaction, could result in significant dilution to
our existing stockholders. In addition, a severe or prolonged economic downturn, political disruption or pandemic, such as the
COVID-19 pandemic, could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable
terms, if at all.
NOTE 3: |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation
The accompanying consolidated financial
statements include Adamis Pharmaceuticals and its wholly-owned operating subsidiaries. All significant intra-entity balances and
transactions have been eliminated in consolidation.
Accounting Estimates
In preparing financial statements in conformity
with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of
expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future
periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.
These estimates and assumptions include warrant liabilities, valuing equity securities in share-based payments, estimating the
useful lives of depreciable and amortizable assets, estimates related to the calculation of the variable consideration from the
Company’s transaction with Fagron in the connection with the sale of certain assets of US Compounding and estimates associated
with the assessment of impairment for long-lived assets.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
at the date of purchase of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2022. At December
31, 2021, cash equivalents were comprised of money market funds .
Restricted cash are certificates of deposit
that are the underlying for the Company’s credit card.
Accounts Receivable
Accounts receivable are reported at the
amount management expects to collect on outstanding balances. Management provides for probable uncollectible amounts through a
charge to earnings and credit to allowance for doubtful accounts. Uncollectible amounts are based on the Company’s history
of past write-offs and collections and current credit conditions. Allowance for doubtful accounts as of December 31, 2022 and 2021
was $0.
Inventories
Inventories are stated at the lower of standard
cost, which approximates actual cost determined on the weighted average basis, or net realizable value. Inventories are recorded
using the first-in, first-out method. The Company routinely evaluates quantities and values of inventories in light of current
market conditions and market trends, and records a write-down for quantities in excess of demand and product obsolescence. The
evaluation may take into consideration historic usage, expected demand, anticipated sales price, new product development schedules,
the effect new products might have on the sale of existing products, product obsolescence, customer concentrations, product merchantability
and other factors. Market conditions are subject to change and actual consumption of inventory could differ from forecasted demand.
The Company also regularly reviews the cost of inventories against their estimated market value and records a lower of cost or
market write-down for inventories that have a cost in excess of estimated market value, resulting in a new cost basis for the related
inventories which is not reversed.
Fixed Assets
Property, plant and equipment are stated
at cost, net of accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. Depreciation
and amortization are computed using the straight-line method over the following estimated useful lives ranging from 3 - 5 years.
Leases
The
Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent our right to use an underlying
asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. For operating
leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease
liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use
assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options
to renew or terminate the lease when we are reasonably certain that the renewal option will be exercised or when it is reasonably
certain that the termination option will not be exercised. For our operating leases, if the interest rate used to determine the
present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the
discount rate for the lease. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis
with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line
basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components.
Other Long-Lived Assets
The Company evaluates its long-lived assets with definite lives, such as fixed assets and right-of-use assets for impairment. The carrying value of fixed assets and right-of use assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors which the Company considers to be triggering events for impairment review include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating loss or cash flow decline combined with a history of operating loss or cash flow uses or a projection that demonstrates continuing losses and a current expectation that, it is more likely than not, a long-lived asset will be disposed of at a loss before the end of its estimated useful life. The factors that drive the estimate of the life are often uncertain and are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparison of the assets’ book value to future net undiscounted cash flows that the assets are expected to generate. If the assets are not recoverable, the impairment charge is measured as the amount by which the carrying value of the asset group exceeds the fair value.
Warrant Liabilities
Warrants are accounted for in accordance
with the applicable authoritative accounting guidance as either liabilities or as equity instruments depending on the specific
terms of the agreements. Liability-classified instruments are recorded at fair value at each reporting period with any change in
fair value recognized as a component of change in fair value of warrant liabilities in the consolidated statements of operations
and comprehensive loss.
Revenue Recognition
The Company recognizes revenues pursuant
to ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). See Note 5.
Revenue is recognized at an amount that reflects the
consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. This principle
is applied using the following 5-step process:
|
1. |
Identify the contract with the customer. |
|
2. |
Identify the performance obligations in the contract. |
|
3. |
Determine the transaction price. |
|
4. |
Allocate the transaction price to the performance obligations in the contract. |
|
5. |
Recognize revenue when (or as) each performance obligation is satisfied. |
Practical Expedients
As part of the adoption of the ASC Topic 606,
the Company elected to use the following practical expedients: (i) incremental costs of obtaining a contract in the form of sales commissions
are expensed when incurred because the amortization period would have been one year or less. These costs are recorded within Selling,
General and Administrative expenses; (ii) taxes collected from customers and remitted to government authorities and that are related to
the sales of the Company’s products, are excluded from revenues; and (iii) shipping and handling activities are accounted for as
fulfillment costs and recorded in cost of sales.
Product Recall
The Company establishes reserves for product
recalls on a product-specific basis when circumstances giving rise to the recall become known. The Company, when establishing
reserves for a product recall, considers cost estimates for any fees and incentives to customers for their effort to return the
product, freight and destruction charges for returned products, warehouse and inspection fees, repackaging materials, point-of-sale
materials and other costs including costs incurred by contract manufacturers. Additionally, the Company estimates product returns
from consumers and customers across distribution channels, utilizing third- party data and other assumptions. These factors are
updated and reevaluated each period and the related reserves are adjusted when these factors indicate that the recall reserves are
either insufficient to cover or exceed the estimated product recall expenses. Significant changes in the assumptions used to develop
estimates for product recall reserves could affect key financial information, including accounts receivable, inventory, accrued
liabilities, net sales, gross profit, operating expenses and net income. In addition, estimating product recall reserves requires a
high degree of judgment in areas such as estimating consumer returns, shelf and in-stock inventory at retailers across distribution
channels, fees and incentives to be earned by customers for their effort to return the products, future freight rates and
consumers’ claims. During the year ended December 31, 2021, the company recorded products recall reserves, specifically for
the recall of certain lots of SYMJEPI from the marketplace that was initiated in March 2022. Aside from the approximately $0.3 million
product recall reserve related to SYMJEPI remaining at December 31, 2022, there were no new product-specific recall reserves recorded
during the year ended December 31, 2022. The Company reviews the product recall reserve for adequacy and adjusts the product recall accrual,
if necessary, based on actual experience and estimated costs to be incurred. Product recall costs are recorded as contra-revenue to the
extent of sales recorded related to the recalled product. Product recall costs in excess of the revenue amount originally recorded on
the recalled product are recorded as additional selling expense.
Cost of Goods Sold
The Company’s cost of goods sold includes
direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel
costs, packaging, storage, shipping and handling costs, the write-off of obsolete inventory and other related expenses.
Stock-Based Compensation
The Company accounts for transactions in
which the Company receives employee services in exchange for restricted stock units (“RSUs”) or options to purchase
common stock as stock-based compensation cost based on estimated fair value. The Company recognizes stock-based compensation cost
as expense ratably on a straight-line basis over the requisite service period. Stock-based compensation cost for RSUs is measured
based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost
for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing
model. The Black-Scholes option-pricing model, however, relies on unobservable inputs, in which any significant change in
the unobservable inputs reasonably could result in a significantly higher or lower fair value measurement at the reporting date,
resulting in higher or lower stock-based compensation that could be material to the Company’s financial statements.
Research and Development
Research and development costs are expensed as
incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded
as an asset and are expensed when the research and development activities are performed.
Legal Expense
Legal fees are expensed as incurred and
are included in selling, general and administrative expenses on the consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under
the deferred income tax method. Under this method, deferred income taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions and benefits
are based on changes to the assets and liabilities from year to year. In providing for deferred taxes, the Company considers tax
regulations of the jurisdictions in which they operate, estimates of future taxable income, and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value
of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based
on the “more-likely-than-not” criteria.
The Company accounts for uncertain
tax positions in accordance with accounting guidance which requires the Company to recognize the financial statement benefit of
a tax position only after determining that the relevant tax authority would, more likely than not, sustain the position following
an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements
is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.
The Company is subject to income taxes
in the United States and various states. Tax years since the Company’s inception remain open to examination by the major
taxing jurisdictions to which the Company is subject. The Company recognizes interest and penalties accrued related to unrecognized
tax benefits in its income tax expense, if any. No interest or penalties have been accrued for any presented periods.
The Company sold USC related customer relationship intangibles in the calendar
year 2021 and the remaining USC assets and liabilities are classified as held for sale in discontinued operations, and the related tax
benefit of approximately $67,000 was
allocated to discontinued operations.
Basic and Diluted Net Loss Per Share
Under ASC 260, the Company
is required to apply the two-class method to compute earnings per share (or, EPS). Under the two-class method both basic and
diluted EPS are calculated for each class of common stock and participating security considering both dividends declared (or accumulated)
and participation rights in undistributed earnings. The two-class method results in an allocation of all undistributed earnings
as if all those earnings were distributed. Considering the Company has generated losses in each reporting period since its inception
through December 31, 2022, the Company also considered the guidance related to the allocation of the undistributed losses
under the two-class method. The contractual rights and obligations of the preferred stock shares were evaluated to determine if
they have an obligation to share in the losses of the Company. As there is no obligation for the preferred stock shareholders
to fund the losses of the Company nor is the contractual principal or redemption amount of the preferred stock shares reduced
as a result of losses incurred by the Company, under the two-class method, the undistributed losses will be allocated entirely
to the common stock securities.
The Company computes basic loss per share by dividing the loss attributable to holders of common stock for the period
by the weighted average number of shares of common stock outstanding during the period. The diluted loss per share calculation
is based on the if-converted method for convertible preferred shares and gives effect to dilutive if-converted shares and
the treasury stock method and gives effect to dilutive options, warrants and other potentially dilutive common stock. The preferred
stock, however, is not considered potentially dilutive due to the contingency on the conversion feature not being tied to stock
price or price of the convertible instrument. The common stock equivalents were anti-dilutive and were excluded from the calculation
of weighted average shares outstanding. Potentially dilutive securities, which are not included in diluted weighted average shares
outstanding for the years ended December 31, 2022 and December 31, 2021, consist of outstanding warrants covering 14,952,824 shares
and 14,202,824 shares, respectively, outstanding options covering 4,436,362 shares and 4,985,415 shares,
respectively and outstanding restricted stock units covering 650,000 shares and 1,039,003 shares, respectively.
Segment Information
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic No. 280, Segment Reporting (“ASC 280”), establishes standards
for the way that public business enterprises report information about operating segments in their annual consolidated financial statements
and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes
standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segments
are based on the organization structure used by the chief operating decision maker for making operating and investment decisions and
for assessing performance. Our chief executive officer, who is our chief operating decision maker (“CODM”), manages our operations
as operating in two business segments: Drug Development and Commercialization which includes without limitation out-licensing the Company’s
FDA approved products; and Compounded Pharmaceuticals which includes the Company’s registered outsourcing facility, based on changes
to the way that management monitors performance, aligns strategies, and allocates resources results. We determined that each of these
operating segments represented a reportable segment.
Discontinued Operations
In accordance with ASC 205-20 Presentation
of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity
is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major
effect on an entity’s operations and financial results when the component/s of an entity meets the criteria in paragraph
205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets,
noncurrent assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities
separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable
income taxes, shall be reported as components of net loss separate from the net loss of continuing operations.
Assets classified as held for sale that are not sold after the initial
one-year period are assessed to determine if they meet the exception to the one-year requirement to continue being classified as held
for sale. The primary asset that is held for sale is the USC property with a carrying value of $2.9 million. At December 31, 2022, the
Company determined that the exception criteria to continue held for sale classification were met as the Company initiated actions to respond
to changes in circumstances and the USC property is being actively marketed at a reasonable price based on its recent
market valuation.
The Company disposed of a component of its business
in August 2021 and met the definition of a discontinued operation as of December 31, 2021. Accordingly, the major current assets, noncurrent
assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from
those balances of the continuing operations as of December 31, 2022 and 2021, and the operating results of the business disposed are
reported as loss from discontinued operations in the accompanying consolidated statement of operations for the years ended December 31,
2022 and 2021. For additional information, see Note 4 - Discontinued Operations.
NOTE 4: |
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE |
In August 2021, we announced our agreement
with Fagron Compounding Services, LLC (“Fagron”) to sell to Fagron certain assets of our subsidiary, US Compounding,
Inc., related to its human compounding pharmaceutical business including certain customer information and information
on products sold to such customers by USC, including related formulations, know-how, and expertise regarding the compounding of
pharmaceutical preparations, clinical support knowledge and other data and certain other information relating to the customers
and products. The agreement included fixed consideration of approximately $107,000 and variable consideration estimated at approximately
$6,385,000. As of December 31, 2021 the Company recorded a gain of approximately $4,637,000 within discontinued operations related
to this asset sale to Fagron, which was the total estimated consideration net of approximately $1,856,000 of allocated costs related
to USC’s customer relationships intangible that was sold to Fagron. The variable consideration is tied to Fagron’s
sales to former USC customers over the twelve-month-period commencing on the agreement date. The Company used the expected value
method to estimate Fagron’s sales over the twelve-month period following the agreement date. In connection with the transaction, the Company accrued a $700,000 liability for a transaction fee payable to a financial advisor
as of December 31, 2021 which was recorded in selling, general and administrative expenses of continuing operations and paid in
2022. As of December 31, 2022, the total amount received in connection with this purchase
agreement was approximately $5,500,000, resulting in an earnout true-up of approximately $962,000 in loss recorded as other expense in the Company’s consolidated statement of operations.
In July 2021, the
Company approved a restructuring process to wind down and cease the remaining operations at USC, with the remaining USC assets
to be sold, liquidated or otherwise disposed of. As of December 31, 2021, the Company had shut down the operations of USC, terminated
all of USC’s employees and is engaged in the process of selling or attempting to sell or otherwise dispose of USC’s
remaining assets.
Fixed assets held for sale at December 31, 2022 and December 31, 2021 were approximately $6,700,000 and $6,800,000, respectively, with approximately $2,800,000 and $2,600,000 valuation allowance, respectively, for a total net fixed assets held for sale of approximately $3,900,000 and $4,200,000, respectively.
On a quarterly basis, management reassesses the fair value less costs to
sell of the land and buildings held for sale and recognizes a loss when the carrying value exceeds the fair value less cost to sell, or
a gain when the fair value less costs to sell increases, limited to the cumulative loss previously recognized. In the absence of an executed
sales agreement with a defined sales price, management’s estimate of the fair value is based on assumptions, including but not limited
to management’s estimates of comparable properties’ price per square foot, market rents, and market capitalization rates.
The primary fixed
asset held for sale is USC’s land and building which, although there has not been a definitive offer on it, the land and
building continues to be actively marketed. Absent a definitive offer, in the Company’s estimation, marketing the land and building
at its recent appraised value of $3,200,000,
which is supported by a third-party valuation that took into consideration comparable property’s price per square foot,
market rents and market capitalization rates, was a reasonable price. Given that the carrying value of USC’s land and building at
approximately $2,900,000
is less approximately $3,008,000 (its appraised fair value of approximately $3,200,000 less its anticipated cost to sell of approximately 6%),
the Company determined at December 31, 2022, that USC’s land and building were not impaired.
The remaining fixed assets held for sale are primarily comprised of Construction
In Progress - Equipment (“CIP”) assets that were primarily for the expansion of USC’s operations and were to be placed
into service contingent upon the completion of equipment validation and when the economy had recovered from the COVID-19 pandemic. During
the year ended December 31, 2021, with the decision to wind down and cease USC’s operations, we recorded approximately $2,200,000
in losses relating to the fair value of CIP included in the net loss from discontinued operations. Prefabricated cleanroom pods (“pods”)
were the main components of CIP and had a carrying value of approximately $972,000 at December 31, 2022. The Company received approximately
$208,000 in 2022 and approximately $832,000 in 2023 for the purchase of the pods from a third-party. At December 31, 2022, the remaining
assets were impaired and an impairment charge of approximately $200,000 was recorded in the net loss from discontinued operations.
In August 2021, the Company
and its wholly-owned USC subsidiary entered into an Asset Purchase Agreement effective as of August 31, 2021 with a third party buyer,
providing for the sale and transfer by USC of certain assets related to USC’s veterinary compounded pharmaceuticals business. The
sale covers the transfer of all the veterinary business customers’ information belonging to USC or in USC’s control and possession
and USC’s know how, information and expertise regarding the veterinary business. Pursuant to the agreement, the buyer agreed to
pay the Company, for any sales of products in USC’s veterinary products list or equivalent products made to the customers included
in the agreement during the five-year period after the date of the agreement, an amount equal to twenty percent (20%)
of the amount actually collected by the buyer on such sales during the period ending three months after the end of such five year period. As of December 31, 2022, the Company has not recognized an amount under this agreement.
Discontinued operations
comprise those activities that were disposed of during the period, abandoned or which were classified as held for sale at the end
of the period and represent a separate major line of business or geographical area that was previously distinguished as Compounded
Pharmaceuticals segment.
Assets Held for Sale
The Company considers assets to be held
for sale when management approves and commits to a plan to actively market the assets for sale at a reasonable price in relation
to its fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer
and other actions required to complete the sale have been initiated, the sale of the assets is expected to be completed within
one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company ceases
to record depreciation and amortization expenses and measures the assets at the lower of their carrying value or estimated fair
value less costs to sell. Assets held for sale are included as other current assets in the Company’s consolidated balance
sheets and the gain or loss from sale of assets held for sale is included in the Company’s general and administrative expenses.
The major assets and liabilities associated
with discontinued operations included in our consolidated balance sheets are as follows:
| |
December 31, 2022 | | |
December 31 2021 | |
Carrying amounts of major classes of assets included as part of discontinued operations | |
| | | |
| | |
| |
| | | |
| | |
Cash and Cash Equivalents | |
$ | 30,085 | | |
$ | 37,849 | |
Accounts Receivable, net | |
| — | | |
| 693 | |
Inventories | |
| — | | |
| 12,000 | |
Fixed Assets, Held for Sale (i) | |
| 6,719,252 | | |
| 6,799,090 | |
Other Assets | |
| 5,407 | | |
| 72,469 | |
Less: Loss recognized on
classification as held for sale (i) | |
| (2,801,828 | ) | |
| (2,601,442 | ) |
Total assets of the disposal group classified as discontinued operations in the statement of financial position | |
$ | 3,952,916 | | |
$ | 4,320,659 | |
| |
| | | |
| | |
Carrying amounts of major classes of liabilities included as part of discontinued operations | |
| | | |
| | |
Accounts Payable | |
$ | 649,633 | | |
$ | 681,646 | |
Accrued Other Expenses | |
| 75,602 | | |
| 133,313 | |
Lease Liabilities | |
| 243,008 | | |
| 412,357 | |
Contingent Loss Liability | |
| 50,000 | | |
| 410,000 | |
Other Current Liabilities | |
| 208,000 | | |
| — | |
Deferred Tax Liability, net | |
| 45,930 | | |
| 45,930 | |
Total liabilities of the disposal group classified as discontinued operations in the statement of financial position | |
$ | 1,272,173 | | |
$ | 1,683,246 | |
| (i) | In January 2023, the Company sold the pods with a carrying value of approximately $1.0 million for approximately $1.0 million. |
The revenues and expenses associated with
discontinued operations included in our consolidated statements of operations were as follows:
| |
| | |
| |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
Major line items constituting pretax loss of discontinued operations | |
| | |
| |
REVENUE, net | |
$ | — | | |
$ | 6,216,545 | |
COST OF GOODS SOLD | |
| — | | |
| (5,620,313 | ) |
| |
| — | | |
| 596,232 | |
| |
| | | |
| | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | |
| (462,274 | ) | |
| (7,802,066 | ) |
RESEARCH AND DEVELOPMENT | |
| — | | |
| (89,710 | ) |
Impairment Expense – Intangible | |
| — | | |
| (3,835,158 | ) |
Impairment Expense – Goodwill | |
| — | | |
| (868,412 | ) |
Impairment Expense – Inventory | |
| — | | |
| (871,180 | ) |
Impairment Expense – Right of Use Asset | |
| — | | |
| (448,141 | ) |
Impairment Expense – Fixed Assets | |
| (200,386 | ) | |
| (9,346 | ) |
Loss from Held for Sale Classification | |
| — | | |
| (2,601,442 | ) |
Total | |
| (662,660 | ) | |
| (15,929,223 | ) |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest Expense | |
| — | | |
| (70,903 | ) |
Interest Income | |
| 45 | | |
| 45 | |
Change in Estimate of Contingent Liability | |
| 360,000 | | |
| — | |
Gain on Sale of Assets to Fagron | |
| — | | |
| 4,636,702 | |
Gain on Sale of Fixed Assets | |
| 15,138 | | |
| — | |
Other Income | |
| 8,610 | | |
| 68,946 | |
Net Loss from discontinued operations before income taxes | |
| (278,867 | ) | |
| (11,294,433 | ) |
Income Tax Benefit | |
| — | | |
| 66,588 | |
Net Loss from discontinued operations | |
$ | (278,867 | ) | |
$ | (11,227,845 | ) |
Discontinued Operations - Revenue
Compounded Pharmaceuticals Facility Revenue
Recognition. With respect to sales of prescription compounded medications by the Company’s USC subsidiary,
revenue arrangements consisted of a single performance obligation which is satisfied at the point in time when goods are delivered
to the customer. The transaction price is determined based on the consideration to which the Company will be entitled in exchange
for transferring goods and services to the customer which is the price reflected in the individual customer’s order. Additionally,
the transaction price for medication sales is adjusted for estimated product returns that the Company expects to occur under its
return policy. The estimate is based upon historical return rates, which has been immaterial. The standard payment terms
are 2%/10 and Net 30. The Company does not have a history of offering a broad range of price concessions or payment term changes,
however, when the transaction price includes variable consideration, the Company estimates the amount of variable consideration
that should be included in the transaction price utilizing the expected value method. Any estimates, including the effect of the
constraint on variable consideration, are evaluated at each reporting period for any changes. Variable consideration is not
a significant component of the transaction price for sales of medications by USC.
Discontinued Operations - Lease
USC has two operating
leases, one for an office space and one for office equipment. As of December 31, 2022, the leases have remaining terms between
one year and less than four years. The operating leases do not include an option to extend beyond the life of the current term.
There are no short-term leases, and the lease agreements do not require material variable lease payments, residual value guarantees
or restrictive covenants. The company leases a building which requires monthly base rent of $10,824 through December 31, 2023.
As part of the restructuring process to
wind down and cease the operations at USC, the Company is working to cancel or transfer the leases of the discontinued operations.
During the year ended December 31, 2021, the Right-of-Use assets related to the leases of approximately $448,000 were fully impaired
because there is no benefit expected from the subject leases. As of December 31, 2022 and 2021, the liabilities of the discontinued
operations include approximately $243,000 and $412,000 in lease liabilities, respectively.
Discontinued Operations - Impairments
Impairment of Intangibles—For the year ending December 31, 2021, USC’s intangible assets were fully impaired as a result of the decision
to wind down and cease USC’s operations. Prior to that impairment, approximately $1,856,000 of USC’s customer relationships
intangible asset was allocated to the asset sale to Fagron. That amount is recorded within the gain from sale of assets of discontinued
operations. The remaining intangibles had a carrying balance of approximately $3,835,000, which were fully impaired during the
year ended December 31, 2021. USC’s intangible assets had a carrying value of $0 at December 31, 2022 and December
31, 2021.
Impairment of Goodwill—In the
third quarter of 2021, USC’s Goodwill was completely impaired, since there are no more expected future cash flows relating
to USC’s Goodwill as a result of the decision to wind down and cease operations. USC recognized an impairment expense of
approximately $868,000 related to USC’s Goodwill for the year ended December 31, 2021. The carrying value of Goodwill at
December 31, 2022 and December 31, 2021 was $0.
Loss from Held for Sale
Classification—For the year ended December 31, 2021, USC’s fixed assets were impaired as a result of meeting the
criteria to be classified as held for sale. USC determined that the fair value, less costs to sell, of the disposal group was lower
than the book values of certain assets, thus USC recorded fixed asset impairments related to the held for sale classification of
$2,601,442
for the year ended December 31, 2021. The Company made certain estimates and relied on its appraisals, vendor quotes, and its
judgement in order to estimate the fair value of USC’s fixed assets and believes USC’s fixed assets are fairly valued as
of December 31, 2021. For the year ended December 31, 2022, the Company continued to rely on appraisals, vendor quotes and its
judgement in its impairment analysis, which resulted in the further impairment of fixed assets (other than the USC property) by
approximately $200,000
to net the remaining, unsold CIP and equipment to $0
book value, due to uncertainty of the ability to sell these remaining assets. The USC property with a carrying value of
approximately $2,946,000 remains actively and reasonably marketed at its fair value of approximately $3,200,000 which is based on its most recent valuation. Due to the nature of estimates, the actual amounts realized upon sale may be more than or less than estimated fair value of the fixed assets. Any difference will be recognized as a gain or loss in discontinued operations of future financial statements.
Impairment of Right of Use (ROU) Assets—For
the year ended December 31, 2021, USC’s ROU assets related to leases were impaired as a result of the decision to wind down
and cease operations. USC determined that the future expected cash flows to be generated by those ROU assets were $0, thus USC
recorded a full impairment totaling approximately $448,000 during the year ended December 31, 2021. The balance of USC’s
ROU assets at December 31, 2022 and December 31, 2021 was $0.
Impairment of Inventory—For
the year ended December 31, 2021, USC’s Inventory was impaired as a result of the decision to wind down and cease operations.
USC determined that certain inventories needed to be destroyed or that the net realizable value (NRV) for certain inventories was
lower than cost, resulting in an impairment expense recognition of approximately $871,000 related to its inventory for the year
ended December 31, 2021. Approximately $598,000 of the impairment was related to chemicals and non-sellable finished goods that
were destroyed, and approximately $273,000 of the impairment was related to devices which were impaired based on a NRV analysis
that showed the device costs exceeded recent sales prices. In June 2022, the devices were sold. The balance of USC’s inventory
at December 31, 2022 and 2021 was $0 and $12,000.
USC
inventories at December 31, 2022 and 2021 consisted of the following:
| |
December 31,
2022 | | |
December 31,
2021 | |
Finished Goods | |
$ | — | | |
$ | — | |
Devices | |
| — | | |
| 12,000 | |
Inventories | |
$ | — | | |
$ | 12,000 | |
Reserve for obsolescence as of December
31, 2022 and 2021 was $0.
Restructuring Costs
Due to the facts and circumstances detailed
above, the Company has identified three major types of restructuring activities related to the disposal of USC in addition to the
approximately $8.6 million of asset impairments detailed above. These three types of activities are employee terminations, contract
termination costs, and chemical destruction costs. For those restructuring activities, the Company recorded approximately $920,000
for employee termination costs, approximately $410,000 for contract termination costs, and approximately $422,000 for chemical
destruction costs for the year ended December 31, 2021 within selling, general and administrative expenses of discontinued operations.
The estimated amount of approximately $410,000 of contract termination cost was related to the termination of a contract between
USC and a vendor. The amount for contract termination cost was recorded as a loss contingency as the Company believes a loss is
probable and can be reasonably estimated. The Company records accruals for loss contingencies associated with legal matters when
the Company determines it is probable that a loss has been or will be incurred and the amount of the loss can be reasonably estimated.
Where a material loss contingency is reasonably possible and the reasonably possible loss or range of possible loss can be reasonably
estimated, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that
such an estimate cannot be made. The following summarizes the restructuring activities and their related accruals as of December
31, 2022:
Schedule of restructuring costs
| |
Contract | | |
Chemical | | |
| |
| |
Termination Cost | | |
Destruction Costs | | |
Total | |
Balance at December 31, 2021 | |
$ | 410,000 | | |
$ | 3,023 | | |
$ | 413,023 | |
Decrease from change in estimate | |
| (360,000 | ) | |
| — | | |
| (360,000 | ) |
Payments | |
| — | | |
| (3,023 | ) | |
| (3,023 | ) |
Balance at December 31, 2022 | |
$ | 50,000 | | |
$ | — | | |
$ | 50,000 | |
At December 31, 2021,
the liabilities of approximately $410,000 related to the contract termination costs was recorded in contingent loss liability of
discontinued operations. In December 2022, the Company received communication from vendor’s attorney that the contract termination
could be settled with payment. The Company offered payment of $50,000 as a settlement and the vendor agreed. As such, the Company
reversed $360,000 of the loss previously recognized as the criteria for liability derecognition was met. The Company paid the vendor
$50,000 in January 2023. The liability of approximately $3,000 related to chemical destruction costs was paid in the second quarter
of fiscal year 2022.
Discontinued Operations - Debt
Building Loan
On November 10, 2016, a Loan Amendment and
Assumption Agreement was entered with into the lender. Pursuant to the agreement, as subsequently amended, the Company agreed to
pay the lender monthly payments of principal and interest which were approximately $19,000 per month, with a final payment due
and payable in August 2021.
In July 2021, the Company, in connection
with the sale of certain USC assets to Fagron, paid to the lender the outstanding principal balance, accrued unpaid interest and
other obligations under the Company’s loan agreement, promissory note and related loan documents relating to the outstanding
building loan relating to the building and property on which USC’s offices are located. The land and building were included
in the assets of discontinued operations.
As of December 31, 2022 and December 31,
2021, there was no outstanding principal balance owed on the applicable. The loan bore an interest of 6.00% per
year and interest expense for the years ended December 31, 2022 and 2021 was approximately $0 and $49,000, respectively. The amount
of interest allocated to the discontinued operations was based on the legal obligations of USC.
Revenue from Contracts with Customers
Revenue is recognized pursuant to ASC Topic
606, “Revenue from Contracts with Customers” (ASC 606).
Adamis is a specialty biopharmaceutical
company focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory
and inflammatory disease. The Company’s subsidiary US Compounding, Inc. or USC, (a discontinued operation – see Note
4) provided compounded sterile prescription medications and certain nonsterile preparations and compounds, for human and veterinary
use by patients, physician clinics, hospitals, surgery centers, vet clinics and other clients throughout most of the United States. USC’s
product offerings broadly include, among others, corticosteroids, hormone replacement therapies, hospital outsourcing products,
and injectables. In July 2021, we sold certain assets relating to USC’s human compounding pharmaceutical business and
approved a restructuring process to wind down the remaining USC business and sell, liquidate or otherwise dispose of the remaining
USC assets. Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit
and is no longer selling compounded pharmaceutical or veterinary products.
Adamis and USC (prior to the sale of
certain of its assets) have contracts with customers when (i) the Company enters into an enforceable contract with a customer that
defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii)
the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for
goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Exclusive Distribution and Commercialization Agreement for
SYMJEPI and ZIMHI with US WorldMeds
On May 11, 2020 (the “Effective
Date”) the Company entered into an exclusive distribution and commercialization agreement (the “USWM Agreement”)
with USWM for the United States commercial rights for the SYMJEPI products, as well as for the Company’s ZIMHI (naloxone
HCI Injection, USP) 5mg/0.5mL product intended for the emergency treatment of opioid overdose. The Company’s
revenues relating to its FDA approved products SYMJEPI and ZIMHI are dependent on the USWM Agreement.
Under
the terms of the USWM Agreement, the Company appointed USWM as the exclusive (including as to the Company) distributor of SYMJEPI
in the United States and related territories (“Territory”) effective upon the termination of a Distribution and Commercialization
Agreement previously entered into with Sandoz Inc., and of the ZIMHI product approved by the U.S. Food and Drug Administration
(“FDA”) for marketing, and granted USWM an exclusive license under the Company’s patent and other intellectual
property rights and know-how to market, sell, and otherwise commercialize and distribute the products in the Territory, subject
to the provisions of the USWM Agreement, in partial consideration of an initial payment by USWM and potential regulatory and commercial
based milestone payments totaling up to $26 million, if the milestones are achieved. There can be no assurances that
any of these milestones will be met or that any milestone payments will be paid to the Company. The Company retains rights
to the intellectual property subject to the USWM Agreement and to commercialize both products outside of the Territory. In
addition, the Company may continue to use the licensed intellectual property (excluding certain of the licensed trademarks) to
develop and commercialize other products (with certain exceptions), including products that utilize the Company’s Symject™
syringe product platform.
The initial term for the USWM Agreement
began on the Effective Date and continues for a period of 10 years from the launch by USWM of the first product in the
United States pursuant to the agreement, unless terminated earlier in accordance with its terms.
The Company has determined that the
individual purchase orders, whose terms and conditions taken with the distribution and commercialization agreement, creates a contract
according to ASC 606. The term will automatically renew for five-year terms after the initial 10-year term, unless
terminated by either party.
The Company has determined that there are multiple performance obligations in the contract which are the following: the manufacture
and supply of SYMJEPI™ and ZIMHI™ products to USWM, the license to distribute and commercialize SYMJEPI™ and
ZIMHI™ products in the United States and the clinical development of ZIMHI™.
The Company utilized significant judgement to develop estimates of the stand-alone selling price for each distinct performance
obligation based upon the relative stand-alone selling price. The transaction price allocated to the clinical development of ZIMHI
was immaterial.
Revenues from the manufacture and supply
of SYMJEPI™ and ZIMHI™ are recognized at a point in time upon delivery to the carrier. The licenses to distribute and
commercialize SYMJEPI™ and ZIMHI™ products in the United States is distinct from the other performance obligations
identified in the arrangement and has stand-alone functionality; the Company recognizes revenues from non-refundable, upfront fees
allocated to the license when the license is transferred to the licensee and the licensee is able to benefit from the license.
Payments received under USWM Agreement may include non-refundable fees at the inception of the arrangements, milestone payments
for specific achievements and net-profit sharing payments based on certain percentages of net profit generated from the sales of
products over a given quarter. At the inception of arrangements that include milestone payments, the Company uses judgement to
evaluate whether the milestones are probable of being achieved and estimates the amount to include in the transaction price utilizing
the most likely amount method. If it is probable that a significant revenue reversal will not occur, the estimated amount is included
in the transaction price. Milestone payments that are not within the Company or the licensee’s control, such as regulatory
approvals are not included in the transaction price until those approvals are received. At the end of each reporting period, the
Company re-evaluates the probability of achievement of development milestones and any related constraint and adjusts the estimate
of the overall transaction price, if necessary. The Company recognizes aggregate sales-based milestones, and net-profit sharing
as royalties from product sales at the later of when the related sales occur or when the performance obligation to which the sales-based
milestone or royalty has been allocated has been satisfied. The amounts receivable from USWM have a payment term of Net 30.
Revenues
do not include any state or local taxes collected from customers on behalf of governmental authorities. The Company made the accounting
policy election to continue to exclude these amounts from revenues.
Product Recall
On March 21, 2022, we announced a voluntary recall of four lots of SYMJEPI (epinephrine) Injection 0.15 mg (0.15 mg/0.3
mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled Single-Dose Syringes to the consumer level, due to the potential clogging of the needle
preventing the dispensing of epinephrine. USWM will handle the recall process for the Company, with Company oversight. SYMJEPI
is manufactured and tested for us by Catalent Belgium S.A. The costs of the recall and the allocation of costs of the recall,
including the costs to us resulting from the recall, were estimated at approximately $2.0 million; moreover, the recall could cause
the Company to suffer reputational harm, depending on the resolution of matters relating to the recall could result in the Company
incurring financial costs and expenses which could be material, could adversely affect the supply of SYMJEPI products until manufacturing
is resumed, and depending on the resolution of matters relating to the recall could have a material adverse effect on our business,
financial condition, and results of operations.
For
the period ended December 31, 2022 and December 31, 2021, a liability of approximately $0.3 million and $2.0 million, respectively,
associated with the recall is reflected in the balance sheet. The estimated costs of the recall were reflected in the consolidated
statement of operations for the year ended December 31, 2021 as a reduction of net sales because we expect to offer the customers
a cash refund or credit. Approximately, $0.3 million and $0.2 million in product recall costs were recorded in net revenue and selling, general and administrative expense, respectively during the year ended December 31, 2022. Total product recall costs from inception of the recall through December
31, 2022, were approximately $2.5 million. The Company may be able to be reimbursed by certain third parties for some of the costs
of the recall under the terms of its manufacturing agreements or insurance policies, but there are no assurances regarding the
amount or timing of any such recovery.
Deferred Revenue
Deferred revenue are contract liabilities
that the Company records when cash payments are received or due in advance of the Company’s satisfaction of performance obligations.
The Company’s performance obligation is met when control of the promised goods is transferred to the Company’s customers. The following is a rollforward of deferred revenue at December 31, 2022 and 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Opening Balance |
|
$ |
850,000 |
|
|
$ |
950,000 |
|
Revenue Recognized |
|
|
(644,000 |
) |
|
|
(100,000 |
) |
Ending Balance |
|
$ |
206,000 |
|
|
$ |
850,000 |
|
The increase of approximately $544,000
in recognition of deferred revenue for the year ended December 31,2022, was due to the Company’s reassessment of performance
obligations met under the USWM agreement and $100,000 of amortization.
The Company capitalizes incremental
costs of obtaining a contract with a customer if the Company expects to recover those costs and that it would not have been incurred
if the contract had not been obtained. The deferred costs, reported in the prepaid expenses and other current assets and other
non-current assets on the Company’s Consolidated Balance Sheets, will be amortized over the economic benefit period of the
contract.
Financial instruments that potentially subject
the Company to credit risk consist principally of cash, trade receivables, and accounts payable.
Cash and Cash Equivalents
The Company at times may have cash in excess
of the Federal Deposit Insurance Corporation (“FDIC”) limit. The Company maintains its cash with larger financial institutions.
The Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant
risks on such accounts.
Sales and Trade Receivables
Trade receivables are short-term receivables from sales of the Company’s FDA-approved SYMJEPI and ZIMHI products to its exclusive distributor, USWM. All revenues are US-based.
Inventories at December 31, 2022 and December
31, 2021 consisted of the following:
| |
December 31, 2022 | | |
December 31, 2021 | |
Finished Goods | |
$ | 267,554 | | |
$ | — | |
Work-in-Process | |
| 261,720 | | |
| 386,610 | |
Raw Materials | |
| 709,504 | | |
| 31,997 | |
Total Inventories | |
$ | 1,238,778 | | |
$ | 418,607 | |
Reserve for obsolescence as of December
31, 2022 and December 31, 2021 was $0.
NOTE 8: |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets
at December 31, 2022 and December 31, 2021:
| |
December 31, 2022 | | |
December 31, 2021 | |
Employee Retention Credit | |
$ | 875,307 | | |
$ | — | |
Prepaid Insurance | |
| 323,143 | | |
| 347,511 | |
Prepaid - Research and Development | |
| 588,354 | | |
| 115,119 | |
Other Prepaid | |
| 78,590 | | |
| 635,620 | |
Other Current Assets | |
| 18,621 | | |
| 215,296 | |
| |
$ | 1,884,015 | | |
$ | 1,313,546 | |
Employee Retention Credit:
The Company applied for the Employee Retention
Credit (ERC) which was available under the CARES Act. The ERC is a fully refundable tax credit for employers equal to 50 percent of qualified
wages (including allocable qualified health plan expenses) that eligible employers paid their employees. The ERC applied to wages paid
after March 12, 2020 and before January 1, 2021. The Company hired a third-party to assess if the Company qualified as an eligible employer
and to prepare the application for the ERC credit if the Company was determined to be an eligible employer. Prior to December 31, 2022,
the Company was informed by the Internal Revenue Service that it would receive approximately $875,000
from its ERC application. As the likelihood of realization of the gain was probable at December 31, 2022, the Company recorded
a gain for the full amount of the ERC to be received. The Company received the full amount from the Department of Treasury in January
2023.
Fixed assets at December 31, 2022 and December
31, 2021 are summarized in the table below:
Description | |
Useful Life (Years) | |
December 31, 2022 | | |
December 31, 2021 | |
Machinery and Equipment | |
3 - 7 | |
$ | 5,209,575 | | |
$ | 4,522,583 | |
Less: Accumulated Depreciation | |
| |
| (4,665,067 | ) | |
| (3,181,567 | ) |
Construction In Progress – Equipment (CIP) | |
| |
| 744,386 | | |
| 993,752 | |
Fixed Assets, net | |
| |
$ | 1,288,894 | | |
$ | 2,334,768 | |
For the years ended December 31, 2022 and
2021, depreciation expense was approximately $1,484,000 and $1,436,000, respectively.
The Company has one
operating lease for an office space. As of December 31, 2022, the lease has a remaining term of approximately 11 months. The operating
lease does not include an option to extend beyond the life of the current term. There are no short-term leases, and the lease agreements
do not require material variable lease payments, residual value guarantees or restrictive covenants.
The Company previously entered into a lease
agreement to occupy leased premises with a term commencing December 1, 2014 (as amended, the “Lease”) and expiring on November
30, 2018. On December 29, 2017, the Company entered into a First Amendment to Lease (the “Amendment”) with
the Lessor of the space, amending the Lease. Pursuant to the Amendment, the Company and Lessor agreed to extend the term of the
Lease through November
30, 2023. The Amendment provides that the Company will pay its current base rent through November 30, 2018. Commencing on
December 1, 2018 base rent was initially approximately $28,000
per month for the first 12 months and will increase annually to approximately $32,000
per month for the 12 months ending November 30, 2023. The Amendment also provides for one option to expand pursuant to which the
Company has a right of first refusal for additional office space within the property. Total annual rent expense for the years
ended December 31, 2022 and 2021 was approximately $354,000.
The amortizable lives
of operating leased asset is limited by the expected lease term.
The Company’s
lease generally does not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount
rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the
Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term
of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for leases
that commenced prior to that date and the prevailing incremental borrowing rate thereafter.
The Company’s weighted average remaining
lease term and weighted average discount rate for operating and financing leases as of December 31, 2022 and 2021 are:
December 31, 2022 |
|
|
Operating |
|
Weighted Average Remaining Lease Term |
|
|
|
0.92 Years |
|
Weighted Average Discount Rate |
|
|
|
3.95 |
% |
December 31, 2021 |
|
|
Operating |
|
Weighted Average Remaining Lease Term |
|
|
|
1.92 Years |
|
Weighted Average Discount Rate |
|
|
|
3.95 |
% |
The table below reconciles
the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms
of more than one year to the total lease liabilities recognized on the audited consolidated balance sheets as of December 31, 2022:
| |
Operating | |
2023 | |
$ | 349,365 | |
Undiscounted Future Minimum Lease Payments | |
| 349,365 | |
Less: Difference between undiscounted lease payments and discounted lease liabilities | |
| 6,803 | |
Total Lease Liabilities | |
$ | 342,562 | |
Short-Term Lease Liabilities | |
$ | 342,562 | |
Long-Term Lease Liabilities | |
$ | — | |
Operating lease expense
was approximately $354,000 for the years ended December 31, 2022 and 2021. Operating lease costs are included within selling, general
and administrative expenses on the consolidated statements of operations.
Cash paid for amounts included in the measurement
of operating lease liabilities were approximately $371,000 and $360,000 for the years ended December 31, 2022 and 2021, respectively.
NOTE 11: |
ACCRUED OTHER EXPENSES |
Accrued other expenses at December 31, 2022
and December 31, 2021:
| |
December 31, 2022 | | |
December 31, 2021 | |
Accrued Expenses - R&D | |
$ | 42,400 | | |
$ | 741,521 | |
Accrued Expenses - COGS | |
| 1,099,571 | | |
| 658,282 | |
Accrued Expenses - Inventory | |
| — | | |
| 584,731 | |
Accrued Expenses - Other | |
| 200,363 | | |
| 500,309 | |
Accrued PTO | |
| 167,719 | | |
| 315,398 | |
| |
$ | 1,510,053 | | |
$ | 2,800,241 | |
Accrued other expenses includes firm purchase
commitment losses related to batches produced that were determined to be commercially unviable and, therefore, not inventoriable. Accrued
Expenses- COGS of approximately $348,000 represent the amount of loss on firm purchase commitments recognized in the Company’s
consolidated statement of operations at December 31, 2022.
Additionally, firm purchase commitment losses of approximately $250,000 are
included in Accounts Payable.
First Draw Paycheck Protection Program Loan
On April 13, 2020, the Company received
$3,191,700 in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration
(“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company (the “Note”),
in the principal amount of $3,191,700, to Arvest Bank (the “Bank”), the lender. The application for these funds
required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support
the ongoing operations of the Company. Subsequent guidance from the SBA and the Department of the Treasury indicated that in assessing
the economic need for the loan, a borrower must take into account its current activity and ability to access other sources of liquidity
sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these
funds pursuant to the PPP Loan, and the forgiveness of the PPP Loan attendant to these funds, is dependent on the Company having
initially qualified for the loan and, in the case of forgiveness, qualifying for the forgiveness of such loan based on our future
adherence to the forgiveness criteria.
Under the terms of the Note and the PPP
Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, unless sooner
provided in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the
Company is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note
(or later if a timely loan forgiveness application has been submitted), until the maturity date.
The CARES Act and the PPP provide a mechanism
for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for and be granted forgiveness for all
or part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number
of factors, including the amount of loan proceeds used by the Company during a specified period after the loan origination for
certain purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain
qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining
or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations
on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week or 24-week period
will qualify for forgiveness.
In December 2020, the Company submitted
an application for the forgiveness of our PPP Loan. In August 2021, the Company received notification through the Bank that
as of August 5, 2021, the PPP Loan, including principal and interest thereon, has been fully forgiven by the SBA and that the remaining
PPP Loan balance is zero. The Company recognized, $3,244,095, the amount forgiven as other income.
Second Draw Loan (or, “Second Draw PPP Loan”)
On March 15, 2021, the Company entered
into a Note (the “PPP2 Note”) in favor of the Bank, in the principal amount of $1,765,495 relating to funding
under a Second Draw loan (the “Second Draw Loan”) pursuant to the terms of the PPP, the CARES Act, and the Economic
Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act enacted in December 2020. Under the terms of the PPP2 Note and Second
Draw Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the PPP2 Note was
five years, unless sooner provided in connection with an event of default under the PPP2 Note. The Company may prepay the Second
Draw Loan at any time prior to maturity with no prepayment penalties. Under the PPP, the proceeds of the Second Draw Loan may be
used to pay payroll and make certain covered interest payments, lease payments and utility payments. The Company may apply for
forgiveness of some or all of the Second Draw Loan pursuant to the PPP. In order to obtain full or partial forgiveness of the Second
Draw Loan, the borrower must timely request forgiveness, must provide satisfactory documentation in accordance with applicable
SBA guidelines, and must satisfy the criteria for forgiveness under the PPP and applicable SBA requirements. The Company applied
for forgiveness of the PPP2 Loan and received notification through the Bank that as of September 28,
2021, the Second Draw PPP Loan, including principal and interest thereon, was fully forgiven by the SBA. The Company recognized, $1,765,495,
the amount forgiven as other income in the third quarter of 2021. However, as described further in Note 14 below, in
March 2022 the Company was informed that the Civil Division of the U.S. Attorney’s Office for the Southern District of New
York was investigating the Company’s Second Draw PPP Loan and eligibility for that loan, and the Company’s financial
statements for the quarter ended March 31, 2022, included a $1,850,000 contingent loss liability relating to the possible repayment
of the full amount of the Second Draw PPP Loan (or, “PPP2 Loan Contingent Loss”) as well as accrued interest and processing fees of the lending bank. In June
2022, following the inquiry, the Company paid a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and
such related interest and fees.
Even though the PPP Loan has been forgiven
and the Second Draw PPP Loan repaid, our PPP loans and applications for forgiveness of loan amounts remain subject to review and
audit by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application
Form, including without limitation the required economic necessity certification by the Company that was part of the PPP loan application
process. Accordingly, the Company is subject to audit or review by federal or state regulatory authorities as a result of applying
for and obtaining the PPP Loan and Second Draw PPP Loan or obtaining forgiveness of those loans. If the Company were to be
audited or reviewed and receive an adverse determination or finding in such audit or review, including a determination that the
Company was ineligible to receive the applicable loan, the Company could be required to return or repay the full amount of the
applicable loan and could be subject to additional fines or penalties, which could reduce the Company’s liquidity and adversely
affect our business, financial condition and results of operations.
NOTE 13: |
FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price
that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level
valuation hierarchy for disclosure of fair value measurements as follows:
|
Level 1: |
Unadjusted quoted prices in active markets for identical assets or liabilities; |
|
|
|
|
Level 2: |
Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and |
|
|
|
|
Level 3: |
Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. |
The carrying value of the Company’s cash and cash equivalents, prepaid
expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to the short-term nature of these
items based on Level 1 of the fair value hierarchy. Based on the borrowing rates currently available to the Company for debt with
similar terms and consideration of default and credit risk, the carrying value of the Ben Franklin Note discussed in Note 16 approximates
fair value based on Level 2 of the fair value hierarchy.
The categorization of a financial instrument
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table sets forth the Company’s
financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
| |
| | |
| | |
| | |
| |
| |
Fair Value Measurements at December 31, 2022 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities | |
| | |
| | |
| | |
| |
2020 Warrant liability | |
$ | 7,492 | | |
$ | — | | |
$ | — | | |
$ | 7,492 | |
Total common stock warrant liabilities | |
$ | 7,492 | | |
$ | — | | |
$ | — | | |
$ | 7,492 | |
The fair value measurement of the warrants
issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable
and thus represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using
the Black Scholes Option Pricing Model. Key assumptions at December 31, 2022 include the expected volatility of the Company’s
stock of approximately 70% (based on calculated volatility and management’s judgement), the Company’s stock price
at valuation date of $0.17, expected dividend yield of 0.0%, expected term of 2.68 years and average risk-free interest rate (based
on the published treasury par yield curves from the US Department of Treasury) of approximately 4.362%. The Level 3 estimates are
based, in part, on subjective assumptions.
| |
| | |
| | |
| | |
| |
| |
Fair Value Measurements at December 31, 2021 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities | |
| | |
| | |
| | |
| |
2020 Warrant liability | |
$ | 99,655 | | |
$ | — | | |
$ | — | | |
$ | 99,655 | |
Total common stock warrant liabilities | |
$ | 99,655 | | |
$ | — | | |
$ | — | | |
$ | 99,655 | |
The fair value measurement of the warrants
issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable
and thus represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using
the Black Scholes Option Pricing Model. Key assumptions at December 31, 2021 include the expected volatility of the Company’s
stock of approximately 70% (based on calculated volatility and management’s judgement), the Company’s stock price at
valuation date of $0.605, expected dividend yield of 0.0%, expected term of 3.68 years and average risk-free interest rate (based
on the published treasury par yield curves from the US Department of Treasury) of approximately 1.038%. The Level 3 estimates are
based, in part, on subjective assumptions.
During the periods presented, the Company
has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs.
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial instruments, which are treated as liabilities, as follows:
| |
| | |
| | |
| | |
| |
| |
2019 Warrant | | |
2020 Warrant | |
| |
Number of Warrants | | |
Liability | | |
Number of Warrants | | |
Liability | |
| |
| | |
(in thousands) | | |
| | |
(in thousands) | |
Balance at December 31, 2020 | |
| 13,800,000 | | |
$ | 2,484,000 | | |
| 8,700,000 | | |
$ | 2,001,000 | |
Adoption of ASC 2020-06 | |
| (13,800,000 | ) | |
| (2,484,000 | ) | |
| — | | |
| — | |
Change in Fair Value of Warrants at Date of Exercise | |
| — | | |
| — | | |
| — | | |
| 7,521,150 | |
Exercise of Warrants | |
| — | | |
| — | | |
| (8,350,000 | ) | |
| (9,441,650 | ) |
Change in Fair Value, Year ended December 31, 2021 | |
| — | | |
| — | | |
| — | | |
| 19,155 | |
Balance at December 31, 2021 | |
| — | | |
$ | — | | |
| 350,000 | | |
$ | 99,655 | |
Change in Fair Value, Year ended December, 31, 2022 | |
| — | | |
| — | | |
| — | | |
| (92,163 | ) |
Balance at December 31, 2022 | |
| — | | |
$ | — | | |
| 350,000 | | |
$ | 7,492 | |
The Company may from time to time become
party to actions, claims, suits, investigations or proceedings arising from the ordinary course of our business, including actions
with respect to intellectual property claims, breach of contract claims, labor and employment claims and other matters. We may
also become party to litigation in federal and state courts relating to opioid drugs. Any litigation could divert management time
and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses, or could result in an adverse
outcome having a material adverse effect on our financial condition, cash flows or results of operations. Actions, claims, suits,
investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty. Except as described
below, we are not currently involved in any legal proceedings that we believe are, individually or in the aggregate, material to
our business, results of operations or financial condition. However, regardless of the outcome, litigation can have an adverse
impact on us because of associated cost and diversion of management time.
Investigation
On
May 11, 2021, each of the company and its USC subsidiary received a grand jury subpoena from the U.S. Attorney’s Office for
the Southern District of New York (the “USAO”) issued in connection with a criminal investigation, requesting a broad
range of documents and materials relating to, among other matters, certain veterinary products sold by the company’s USC
subsidiary, certain practices, agreements and arrangements relating to products sold by USC, including veterinary products, and
certain regulatory and other matters relating to the company and USC. The Audit Committee of the Board engaged outside counsel
to conduct an independent internal investigation to review these and other matters. The company has also received requests from
the Securities and Exchange Commission (“SEC”) for the voluntary production of documents and information relating to
the subject matter of the USAO’s subpoenas and certain other matters arising therefrom in connection with the SEC’s investigation.
The company has produced documents and will continue to produce and provide documents in response to the subpoenas and requests
as needed. Additionally, on March 16, 2022, we were informed that the Civil Division of the USAO (“Civil Division”)
is investigating the company’s Second Draw PPP Loan application disclosed in previous reports. The Audit Committee of the
Board engaged outside counsel to conduct an internal inquiry into the matter. In June 2022, following the inquiry the company paid
a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and such related interest and fees. The company intends
to continue cooperating with the USAO, SEC, and Civil Division. We have received additional requests for production of documents
from the SEC and the USAO, have responded to those requests, and continue to engage in communications with the SEC and the USAO
regarding their investigations. Additional issues or facts could arise or be determined, which may expand the scope, duration,
or outcome of the investigation. As of the date of this Report, the company is unable to predict the duration, scope, or final
outcome of the investigations by the USAO, SEC, Civil Division, or other agencies; what, if any, proceedings the USAO, SEC, Civil
Division, or other federal or state authorities may initiate; what penalties, payments, by the company, remedies or remedial measures
the USAO, SEC, Civil Division or other federal or state authorities may seek; what penalties, payments by the company, remedies
or remedial measures the USAO, SEC or other federal or state authorities may require in order to resolve the investigations; or
what, if any, impact the foregoing matters may have on the company’s business, financial condition, previously reported financial
results, financial results included in this Report, or future financial results. We or our USC subsidiary may be found to have violated one or more laws arising from the subject matter of the subpoenas. We could receive additional requests from the USAO, SEC, Civil Division, or other authorities, which may require further investigation. There can be no assurance that any resolution of these matters and investigations with the USAO or SEC will not have a material and unfavorable or adverse outcome of the company. The foregoing matters have diverted and may continue to divert management’s attention, have caused the company to suffer reputational harm, have required and will continue to require the company to devote significant financial resources, could subject the company and its officers and directors to civil or criminal proceedings, and depending on the resolution of the matters or any proceedings, could result in fines, payments, or financial remedies in amounts that may be material to our financial condition, or equitable remedies, and materially and affect the company’s business, previously reported financial results, financial results included in this Report, or future financial results. The occurrence of any of these events could have a material adverse effect on the company’s business, financial condition and results of operations.
Regulatory
In October 2021, following the sale in July
2021 of certain assets of the Company’s USC subsidiary relating to USC’s human compounding pharmaceutical business
and the Company’s approval of a restructuring process of winding down the remaining operations and business of USC and selling
or disposing of the remaining assets of USC, the Company entered into a Consent Order with the Arkansas State Board of Pharmacy
to resolve an ongoing administrative proceeding before the pharmacy board, pursuant to which USC agreed to surrender its Arkansas
retail pharmacy permit and wholesaler/outsourcer permit effective October 31, 2021, to pay a civil penalty of $75,000 relating
to violations of various Arkansas pharmacy laws and the pharmacy board’s regulations, and to pay $75,000 in investigative
costs of the pharmacy board. The total amount of $150,000 levied by the pharmacy board was paid during the year ended December
31, 2021.
Nasdaq Compliance
December 28, 2022, the Company was notified by the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that, based upon the Company’s non-compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”) as of December 27, 2022, the Company’s common stock was subject to delisting unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing before the Panel, and a hearing was held on February 16, 2023. On February 21, 2023, the Staff notified the Company that the Panel has granted the Company’s request for continued listing of the Company’s common stock on the Nasdaq Stock Market and an extension until June 26, 2023 (the “Compliance Period”) to regain compliance with the continued listing requirements for The Nasdaq Capital Market, including the minimum $1.00 bid price requirement of Nasdaq Listing Rule 5500(a)(2) (the “Rule”). The extension granted by the Panel is subject to the Company’s timely undertaking certain corporate actions during the Compliance Period, including without limitation holding a special meeting of stockholders to obtain approval for a reverse stock split of our common stock, and effecting a reverse stock split, if required, in order to achieve a closing minimum bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions during the Compliance Period. The notice indicated that June 26, 2023, represents the full extent of the Panel’s discretion to grant continued listing while it is non-compliant, and that the Panel reserved the right to reconsider the terms of the exception. The Company intends to diligently work to take the actions required to satisfy the terms of the Panel’s extension and regain compliance with the Rule; however, there can be no assurance that the Company will be able to take the actions required to comply with the terms of the Panel’s extension and regain compliance with the Rule within the extension period granted by the Panel.
Jerald Hammann
On June 8, 2021, Jerald
Hammann filed a complaint against the Company and each of its directors in the Court of Chancery of the State of Delaware, captioned Jerald
Hammann v. Adamis Pharmaceuticals Corporation et al., C.A. No. 2021-0506-PAF (the “Complaint”), seeking injunctive
and declaratory relief. The Complaint alleges, among other things, that the defendants (i) violated Rule 14a-5(f) and 14a-9(a)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the Company’s 2021
annual meeting of stockholders—which was subsequently held on July 16, 2021 (the “2021 annual meeting”)—and
disseminated false and misleading information in the Company’s proxy materials relating to the 2021 annual meeting, (ii)
violated certain provisions of the Company’s bylaws relating to the 2021 annual meeting, (iii) violated section 220 of the
Delaware General Corporation Law (“DGCL”) in connection with a request for inspection of books and records submitted
by the plaintiff, and (iv) breached their fiduciary duties of disclosure and loyalty, including relating to establishing and disclosing
the date of the Company’s 2021 annual meeting and to the Company’s determination that a solicitation notice delivered
to the Company by plaintiff was not timely and was otherwise deficient. The plaintiff has also filed various motions with the Court,
which have been resolved. The Company has filed a motion for summary judgment with respect to one of the counts in the complaint
and a motion to dismiss certain other counts of the plaintiff’s amended complaint. Those motions are pending before the Court,
and the case continues to proceed. On October 13, 2022, the Court entered an order scheduling oral arguments on the motion
for summary judgment and motion to dismiss for December 19, 2022. On March 13, 2023, the Court denied the Company’s motion for summary
judgment. The Court also denied the Company’s motion to dismiss Count Seven, and reserved until trial a decision on the Company’s
motion to dismiss Counts Eight and Nine. Trial on the merits of the plaintiff’s claims is scheduled for March 16, 2023. The Company believes the claims in the plaintiff’s complaint
are without merit and intends to vigorously dispute them.
The Company records accruals for loss contingencies associated with legal
matters when the Company determines it is probable that a loss has been or will be incurred and the amount of the loss can be reasonably
estimated. Where a material loss contingency is reasonably possible and the reasonably possible loss or range of possible loss can be
reasonably estimated, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement
that such an estimate cannot be made. The company has not accrued any amount in respect of the matters described under the headings “Investigation”
or “Jerald Hammann,” as we cannot estimate the probable loss or the range of probable losses that we may incur. We are unable
to make such an estimate because (i) with respect to the matters described under the heading “Investigation,” we are unable
to predict whether any proceedings will be initiated by the USAO, SEC or other authorities arising from such matters, what, if any, relief,
remedies or remedial measures the USAO, SEC, or other authorities may seek if proceedings are commenced, and the duration, scope, or outcome
of any such proceedings, if they are commenced, (ii) litigation and other proceedings are inherently uncertain and unpredictable, and
(iii) with respect to the matters described under the heading “Jerald Hammann,” the complaint seeks declaratory and injunctive
relief. Because legal proceedings and investigations are uncertain and unpredictable and unfavorable results could occur, assessing contingencies
is highly subjective and requires significant judgments about future events, including determining both the probability and reasonably
estimated amount of a possible loss or range of loss. The amount of any ultimate loss may differ from any accruals or estimates that the
Company may make.
NOTE 15: |
LICENSING AGREEMENTS |
Tempol
On June 12, 2020, we entered into a license agreement with a third party, or the Licensor, to license rights under patents, patent applications and related know-how of Licensor relating to Tempol, an investigational drug. The exclusive license included the worldwide use under the licensed
patent rights and related rights of Tempol for the fields of COVID-19 infection, asthma, respiratory syncytial virus infection,
and influenza infection. In addition, the exclusive license includes the use of Tempol as a therapeutic for reducing radiation-induced
dermatitis in patients undergoing treatment for cancer. In consideration for the Licensor providing the rights under its
patent rights and related know-how relating to Tempol within the licensed fields, we paid Licensor $250,000 and also issued to
the Licensor 1,000,000 shares of our Series B Convertible Preferred Stock, which was converted into an equal number of shares of
our common stock during the year ended December 31, 2020.
On October 27, 2022, we received a communication
from the Licensor asserting that the license agreement between the Licensor and us relating to Tempol has terminated by virtue
of alleged noncompliance by us with certain financial covenants contained in the agreement. We dispute, and do not agree, that
the agreement has terminated. We are also evaluating potential claims against the Licensor including possible breach of its obligations
under the agreement, and we intend to vigorously defend our rights relating to the agreement. We do not believe that the
agreement or any termination of the agreement is material to the Company’s current or presently anticipated future business,
financial conditions or results of operations.
NOTE 16: |
COMMITMENTS AND CONTINGENCIES |
Maintenance Fees and Firm Purchase Commitments:
The Company has a production threshold commitment
to a manufacturer of our SYMJEPI products where the Company would be required to pay for maintenance fees if it does not meet certain
periodic purchase order minimums. Any such maintenance fees would be prorated as a percentage of the required minimum production
threshold. Maintenance fees for the years ended December 31, 2022 and 2021 were approximately $0 and $0, respectively.
The Company also has firm purchase commitments to
a manufacturer of our SYMJEPI products based on rolling forecasts where a portion of the forecast represents binding orders and the
remaining portion non-binding. For the years ended December 31, 2022 and 2021, purchases under firm purchase commitments were
approximately $0.6
million and $1.1
million, respectively.
Legal Matters:
For information concerning contingencies relating to legal proceedings, see Note 14 of the notes to the consolidated financial statements.
Ben Franklin Note:
Biosyn issued a note payable to Ben Franklin
Technology Center of Southeastern Pennsylvania (“Ben Franklin Note”) in October 1992, in connection with funding the development
of Savvy (C31G), a compound then under development to prevent the transmission of HIV/AIDS. The repayment terms of the non-interest
bearing obligation include the remittance of an annual fixed percentage of 3.0% of future revenues of Biosyn, if any, until the
principal balance of $777,902 (face amount) is satisfied.
Upon the Company’s acquisition of Biosyn in 2004, the value of the
Ben Franklin Note would be impacted by the ability to estimate Biosyn’s expected future revenues, which in turn hinge largely upon
future efforts to commercialize the product candidate, C31G, the realization of which was not likely given that the two Savvy clinical
trials were halted in 2005 and 2006. Additionally, final results released in 2008 noted that for statistical reasons, a continuation of
either study could not have established Savvy’s ability to prevent HIV infections. The Company determined that the Ben Franklin Note
will have no future cash flows, as the Company does not believe the product will create a revenue stream in the future due to the futility
of the two clinical trials, and as a result, had no fair value at the time of acquisition.
In January and February 2021, the Company
issued common stock upon exercise of investor warrants. The warrant holders exercised for cash at exercise prices ranging from
$0.70 to $1.15 per share. The Company received total proceeds of approximately $5,852,000 and the warrant holders received 8,356,000
shares of common stock.
On February 2, 2021, the Company completed
the closing of an underwritten public offering of 46,621,621 shares of common stock at a public offering price of $1.11 per share,
which included 6,081,081 shares pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds
were approximately $48.4 million, after deducting approximately $3.3 million in underwriting discounts and commissions and estimated
offering expenses payable by the Company.
NOTE 18: |
CONVERTIBLE PREFERRED STOCK |
July 2022 Series C Preferred Stock
On
July 5, 2022, the Company entered into a private placement transaction with Lincoln Park Capital Fund, LLC, (or, “Lincoln
Park”) pursuant to which the Company issued an aggregate of 3,000 shares of Series C Convertible Preferred Stock, par value
$0.0001 per share (the “Series C Preferred”), together with warrants (the “Warrants”) to purchase up to an
aggregate of 750,000 shares of common stock of the Company, at an exercise price of $0.47 per share (subject to adjustment as provided
in the Warrants). Gross proceeds were $300,000, excluding transaction costs, fees and expenses of $15,000. The Warrants become
exercisable commencing January 3, 2023 and have a term ending on January 5, 2028.
The
Series C Preferred is entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually
paid on shares of common stock, when, as and if actually paid on shares of common stock (subject to adjustments pursuant to the
related Certificate of Designation.) The Series C Preferred will have no voting rights (other than the right to vote as a
class on certain matters as provided in the related Certificate of Designation). However, each share of Series C Preferred entitles
the holder thereof (i) to vote exclusively on a proposal to effect a reverse stock split of the common stock (the “Proposal”) and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Proposal, and (ii) to 1,000,000 votes per each share of Series C Preferred.
The Series C Preferred shall, except as required by law, vote together with the common stock and any other issued and
outstanding shares of preferred stock of the Company entitled to vote, as a single class; provided, however, that such shares of
Series C Preferred shall, to the extent cast on the Proposal, be automatically and without further action of the holders thereof
voted in the same proportion as shares of common stock (excluding any shares of common stock that are not voted) and any other
issued and outstanding shares of preferred stock of the Company entitled to vote (other than the Series C Preferred or shares of
such preferred stock not voted) are voted on the Proposal and any proposal to adjourn any meeting of stockholders called for the
purpose of voting on the Proposal.
The Series C Preferred has a “Stated Value”
of $100 per share of Series C Preferred. (i) Upon any liquidation, dissolution or winding up of the Company (a “Liquidation”),
the holders of Series C Preferred are entitled to be paid in cash an amount per share of Series C Preferred equal to 110% of the Stated
Value (the “Liquidation Amount”), or (ii) in the event of a “Deemed Liquidation Event” as defined in the Certificate
of Designation, which generally includes certain merger transactions or a sale, lease or other disposition of all or substantially all
of the assets of the Company, the holders of Series C Preferred are entitled to paid out of the consideration payable to stockholders
in such Deemed Liquidation Event or out of the “Available Proceeds” (as defined in the Certificate of Designation), in each
case before any payment may be made to the holders of Common Stock by reason of their ownership thereof, an amount per share of Series
C Preferred equal to the Liquidation Amount. Upon certain of the Deemed Liquidation Events, if the Company does not effect a dissolution
within 90 days after such event, then the holders of Series C Preferred may require the Company to redeem the Series C Preferred for
an amount equal to the Liquidation Amount.
The Series C Preferred is convertible into shares of common stock at the option of the holder, any time after the effective
date of a reverse stock split of the outstanding shares of the Common Stock at a ratio set forth in a reverse stock split proposal
by means of an amendment to the Company’s certificate of incorporation approved by the board of directors and the stockholders
of the Company (a “Reverse Stock Split”), into that number of shares common stock (subject to certain beneficial ownership
limitations applicable to each holder, and to compliance with the rules and regulations of the Nasdaq Capital Market) determined
by dividing the Stated Value of such share of Series C Preferred by the conversion price then in effect, rounded down to the nearest
whole share (with cash paid in lieu of any fractional shares). The conversion price for the Series C Preferred equals 90% of the
lesser of (i) the closing sale price of the Common Stock on the trading day immediately prior to the Closing Date and (ii) the
average of the closing sale prices for the common stock on the five trading days immediately prior to the closing date, subject
to adjustment as provided in the certificate of designation; provided, that the conversion price may not fall below the par value
per share of the common stock and may not exceed $0.60 per share. Based on the initial conversion price of $0.43 per share, the
3,000 Shares of Series C Preferred are initially convertible into approximately 697,674 shares of common stock. The conversion
price is subject to adjustment as set forth in the certificate of designation for stock dividends, stock splits, reverse stock
splits, and similar events. The Series C Preferred also contain redemption features by the holder at 110%, at any time after the
effective date of a Reverse Stock Split and by the issuer at 105%, at any time after the effective date of a Reverse Stock Split.
Additionally, in accordance with the transaction agreement, the Company filed a registration statement with the SEC, which has
been declared effective, to register the resale from time to time of shares of common stock underlying the Series C Preferred and
the Warrants.
The Company determined that the Series C Preferred should be classified as mezzanine equity (temporary equity outside of permanent
equity), that the Series C Preferred more closely aligned with debt as the intent is for redemption by either the holder or issuer,
mostly likely the issuer (the Company) due to the more favorable redemption terms. The embedded conversion feature was determined
to meet the derivative scope exception. The Company did not separately account for the redemption features as the fair value
of such feature is not material. The Warrants are freestanding and detachable; and the Company determined that the warrants meet
the criteria for equity classification in the Company’s consolidated balance sheet. With the equity classification of both
the Series C Preferred and the warrants, the $15,000 in transaction costs were allocated between the Series C Preferred and the
Warrants, which netted the proceeds received. Net proceeds were allocated between the Series C Preferred and the Warrants
based on their relative fair values.
Fair
value for both the Series C Preferred and the related warrants were based on significant inputs that were unobservable
and thus represented Level 3 measurements. Fair value for the Series C Preferred was based on the weighted value of the Reverse
Stock Split approval and the value of the Reverse Stock Split rejection times the probability of each scenario as assessed by management
at the time of the Series C Preferred stock issuance. Fair value of the Warrants was based on the Black-Scholes pricing model,
using the following inputs: $0.53 stock price, $0.47 exercise, 5.5 years remaining expected term, 70% volatility, 0% dividend rate
and 2.82% risk free rate. The relative fair value ascribed to the Series C Preferred was approximately $157,300 and the relative
fair value ascribed to the Warrants was approximately $127,700.
Subsequent to the issuance of the Series C Preferred, in connection with the Company’s annual meeting of stockholders,
in September 2022 the Company’s stockholders voted on a reverse stock split proposal, and the proposal was not approved.
Pursuant to the Series C Preferred transaction agreements, the Company paid $15,000 to Lincoln Park resulting from the
failure of the reverse stock split proposal to be approved at the meeting. Based on the failure of the proposed stock split proposal,
redemption of the Series C Preferred is not probable at December 31, 2022, and, as such, no accretion was recorded to the redemption
value. The warrants are equity-classified, and, as such do not require revaluation and 750,000 warrants remain outstanding
as of December 31, 2022.
NOTE 19: |
STOCK-BASED COMPENSATION, WARRANTS AND SHARES RESERVED |
The Company accounts for transactions in which
the Company receives services in exchange for restricted stock units (“RSUs”) or options to purchase common stock as stock-based
compensation cost based on estimated fair value. Stock-based compensation cost for RSUs is measured based on the closing fair market
value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant
date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Company accounts for forfeitures
as they occur and will reduce compensation cost at the time of forfeiture.
At the Company’s 2020 annual meeting of
stockholders, the stockholders approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan
provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit
awards, stock appreciation rights, performance stock awards, and other forms of equity compensation (collectively “stock
awards”). In addition, the 2020 Plan provides for the grant of cash awards. The initial aggregate number of shares of common
stock that may be issued initially pursuant to stock awards under the 2020 Plan is 2,000,000
shares. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year
during the term of the 2020 Plan, commencing January 1, 2021, by 5.0%
of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of
shares of common stock determined by the Company’s board of directors before the start of a calendar year for which an
increase applies. One of the provisions of the 2020 Plan is that no award may be granted, issued or made under the 2020 Plan until
such time as the fair market value of the common stock has been equal to or greater than $3.00
per share (subject to proportionate adjustment for stock splits, reverse stock splits, and similar events) for at least ten
consecutive trading days, after which time awards may be made under the 2020 Plan. In September 2022, the Company’s Board of
Directors (or, “Board”) determined and resolved that it was in the best interests of the Company and its
stockholders that the current share reserve and shares covered by 2020 Plan not be available for awards made pursuant to the 2020
Plan but instead be available to be issued for other corporate purposes, that no awards shall be made providing for the issuance or
possible issuance of shares included in the current share reserve, that the shares covered by the current share reserve shall not be
considered as reserved for issuance pursuant to awards under the 2020 Plan, until such time in the future, if any, as the Board
adopts an express resolution providing that the shares in the current share reserve shall be available to be issued pursuant to
awards made under the 2020 Plan; and that the shares covered by and included in the current share reserve shall be considered as
authorized, unreserved and unallocated shares of common stock that are available to be issued for other corporate purposes.
Additionally, in December 2022, the Board determined and resolved, that the 2020 Plan share reserve shall not be increased effective
January 1, 2023, and that there shall not be any increase in share reserve for the 2023 year by virtue of the annual share reserve
increase. No awards had been made pursuant to the 2020 Plan as of December 31, 2022. As of December 31, 2022, the current share
reserve under the 2020 Plan was 14,171,816.
On January 1, 2022, pursuant to the
2020 Equity Incentive Plan the number of shares reserved for the issuance of stock awards increased by 7,479,713 shares.
The Company had a 2009 Equity Incentive
Plan (the “2009 Plan”). The 2009 Plan terminated effective February 2019 and no new awards may be made under the 2009
Plan.
In June 2022, the Company issued 250,000
shares of common stock to a former executive officer of the Company pursuant to a separation agreement between the Company and
the officer. The separation agreement resulted in the modification of the RSU previously issued to the officer, accelerating the
RSU vesting upon his separation. As a result of this modification, the Company determined the cumulative compensation
cost that should have been recognized at the date of the modification as if the fair value of the modified award had been recognized from the original
grant date over his requisite service period, which resulted in the reversal of approximately $540,000 in expense.
Stock Options
The following summarizes the stock option
activity for the year ended December 31, 2022 below:
2009 Equity Incentive Plan (or, 2009
Plan):
| |
2009 Equity Incentive Plan | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining
Contract Life * | |
Total Outstanding and Vested and Expected to Vest as of December 31, 2021 | |
| 4,985,415 | | |
$ | 4.21 | | |
| 4.05 years | |
Options Canceled/Expired | |
| (679,053 | ) | |
| 4.20 | | |
| — | |
Total Outstanding and Vested as of December 31, 2022 | |
| 4,306,362 | | |
$ | 4.21 | | |
| 2.09 years | |
* |
|
Maximum contractual term for options is
10 years.
|
As of December 31, 2022, the unamortized
compensation expense related to 2009 Plan awards was approximately $0.
The aggregate intrinsic value (the difference
between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number
of in-the-money options) of all options outstanding at December 31, 2022 and 2021 was $0.
Non-Plan Awards:
| |
Non-Plan Awards | | |
Weighted-Average Exercise Price | | |
Weighted-Average Remaining Contract Life | |
Total Outstanding, as of December 31, 2021 | |
| — | | |
$ | — | | |
| — | |
Granted | |
| 130,000 | | |
| 0.62 | | |
| 9.13 years | |
Total Outstanding as of December 31, 2022 | |
| 130,000 | | |
$ | 0.62 | | |
| 9.13 years | |
Vested and Expected to Vest at December 31, 2022 | |
| 57,499 | | |
$ | 0.62 | | |
| 9.13 years | |
Non-plan awards are granted pursuant to Rule
5635(c)(4) of the Nasdaq Listing Rules, as a material inducement to the willingness of such person to join the Company as a non-officer
employee, effective upon the effective date of Board of Director-approved resolutions to grant nonqualified stock options to such
person, (or, inducement grant.) Inducement grants, although granted outside of the Company’s 2020 Equity Incentive Plan,
are subject to the terms and conditions set forth in that plan. The terms of inducement grants are generally the same as terms
would be under the 2020 Equity Incentive Plan, wherein the exercise price of the options is equal to the fair value of the Company’s
common stock at date of grant, with vesting commencing on date of grant. And, vesting schedule consisting of one-sixth (1/6) of
the options becoming exercisable six (6) months after vesting commences, and one thirty-sixth (1/36) of the options on becoming
exercisable each subsequent monthly anniversary of the vesting commencement date, such that the option is exercisable in full after
three years from the vesting commencement date of the option grant, subject to the option holder providing continuous service.
As of December 31, 2022, the unamortized
compensation expense related to non-plan awards was approximately $0.
Restricted Stock Units
The following summarizes the RSU activity
for the year ended December 31, 2022 below:
| |
Number of Shares/Unit | | |
Weighted Average Grant Date Fair Value | |
Non-vested RSUs as of December 31, 2021 | |
| 1,039,003 | | |
$ | 4.16 | |
RSUs vested during the period | |
| (389,003 | ) | |
$ | 3.35 | |
Non-vested RSUs as of December 31, 2022 | |
| 650,000 | | |
$ | 4.64 | |
The following summarizes the non-vested
RSU’s as of December 31, 2022:
| |
RSUs | | |
Price Per Share at Grant Date | |
Non-Employee Board of Directors | |
| 150,000 | (1) | |
$ | 8.46 | |
Company Executive and employees | |
| 500,000 | (1) | |
$ | 3.50 | |
Total RSUs | |
| 650,000 | | |
| | |
(1) |
|
The RSUs will have cliff vesting after seven years of continuous service or upon change of control from date of grant or upon death or disability. |
As of December 31, 2022, the unamortized
compensation expense related to RSUs was approximately $189,000 and will be recognized over 0.87 years.
Total Stock-Based Compensation:
The following summaries stock-based compensation
recognized as research and development costs (or, R&D) and selling, general and administrative costs (or, SG&A) for the
year-ended December 31, 2022 and 2021:
| |
December 31, 2022 | | |
December 31, 2021 | |
R&D | |
$ | (66,222 | ) | |
$ | 688,611 | |
SG&A | |
| (274,048 | ) | |
| 1,328,029 | |
Total Stock-based Compensation | |
$ | (340,270 | ) | |
$ | 2,016,640 | |
As discussed earlier in this Report, the negative stock-based compensation
for the year-ended December 31, 2022, is primarily due to RSU award modifications resulting from accelerated vesting due to
a separation agreement and the decline in the Company’s stock price which decreased the fair value of the accelerated awards
Warrants
The following table summarizes warrants
outstanding at:
December 31, 2022 | |
Warrant Shares* | | |
Exercise Price Per Share | | |
Date Issued | |
Expiration Date |
Old Adamis Warrants | |
| 58,824 | | |
$ | 8.50 | | |
November 15, 2007 | |
November 15, 2023 |
2019 Warrants | |
| 13,794,000 | | |
$ | 1.15 | | |
August 5, 2019 | |
August 5, 2024 |
2020 Warrants | |
| 350,000 | * | |
$ | 0.70 | | |
February 25, 2020 | |
September 3, 2025 |
Series C Preferred Warrants | |
| 750,000 | | |
$ | 0.47 | | |
July 5, 2023 | |
January 5, 2028 |
Total Warrants | |
| 14,952,824 | | |
| | | |
| |
|
* |
|
|
See Note 13 for the fair value of the
warrant liability related to the 2020 Warrants which are liability classified. |
Shares Reserved
At December 31, 2022, the Company has reserved
shares of common stock for issuance upon exercise of outstanding options and warrants, and vesting of RSUs, as follows:
Warrants | |
| 14,952,824 | |
Convertible Preferred Stock | |
| 697,674 | |
RSU | |
| 650,000 | |
Non-Plan Awards | |
| 130,000 | |
2009 Equity Incentive Plan | |
| 4,306,362 | |
Total Shares Reserved | |
| 20,736,860 | |
Net operating losses and tax credit carryforwards
as of December 31, 2022 are as follows:
| |
Amount | | |
Expiration
Years |
Net operating losses, federal (Post December 31, 2017) | |
$ | 135,375,006 | | |
N/A |
Net operating losses, federal (Pre January 1, 2018) | |
| 86,660,717 | | |
2027 - 2038 |
Net operating losses, state | |
| 91,134,554 | | |
2030 - 2043 |
Tax credits, federal | |
| 3,541,039 | | |
2037 - 2043 |
Tax credits, state | |
| 2,145,442 | | |
N/A |
Under the new tax law, the federal net operating loss arising in tax years ending after December 31, 2017 will be carried forward indefinitely
with an 80% taxable income limitation.
Pursuant to Internal
Revenue Code Section 382, the annual use of the net operating loss carry forwards and research and development tax credits could
be limited by any greater than 50% ownership change during any three year testing period. As a result of any such ownership change,
portions of the Company’s net operating loss carry forwards and research and development tax credits are subject to annual
limitations. The Company completed a Section 382 analysis in 2017, and the net operating loss deferred tax assets reflect the results
of the analysis. The recoverability of these carry forwards could be subject to limitations upon future changes in ownership as
defined by Section 382 of the Internal Revenue Code. The Company has not completed an ownership change analysis pursuant to IRC
Section 382 since 2017. However, the Company has established a valuation allowance as the realization of such deferred tax assets
has not met the more likely than not threshold requirement. If ownership changes within the meaning of IRC Section 382 have occurred,
the amount of remaining tax attribute carryforwards available to offset future taxable income and income taxes in future years
may be significantly restricted or eliminated. Further, the Company’s deferred tax assets, along with the corresponding valuation
allowance, associated with such tax attributes could be significantly reduced upon an ownership change within the meaning of IRC
Section 382 and such changes could be material. Due to the existence of the valuation allowance, changes in the Company’s
deferred tax assets from any such limitation will not impact the Company’s effective tax rate.
ASC 740 requires
that the tax benefit of net operating losses, temporary differences and credit carry forwards be recorded as an asset to the extent
that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent
on the Company’s ability to generate sufficient taxable income within the carry forward period. Because of the Company’s
recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned
future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
At December 31, 2022 and 2021, the Company
reassessed its need for valuation allowance and decreased the valuation allowance because it impaired an indefinite lived trademark
during the year which previously represented a taxable temporary difference for which no deferred tax asset could be realized.
This was determined to be a future source of taxable income. This reassessment resulted in a tax benefit of $44,000 and $65,000, respectively. Of this, $46,000 and $67,000 were allocated to the discontinued operation for the years ended December 31,
2022 and December 31, 2021, respectively.
The expense for income taxes from operations
consists of the following for the years ended December 31, 2022 and 2021:
| |
December 31,
2022 | | |
December 31,
2021 | |
Current | |
$ | 2,000 | | |
$ | 2,000 | |
Deferred | |
| (46,000 | ) | |
| (67,000 | ) |
Tax Expense (Benefit) | |
| (44,000 | ) | |
| (65,000 | ) |
Tax Benefit Allocated to Discontinued Operations | |
| 46,000 | | |
| 67,000 | |
Tax Expense Allocated to Continuing Operations | |
$ | 2,000 | | |
$ | 2,000 | |
At December 31, 2022 and December 31,
2021 the significant components of the deferred tax assets from operations are summarized below (all of which are domestic):
| |
December 31, 2022 | | |
December 31, 2021 | |
Deferred Tax Assets | |
| | | |
| | |
Net Operating Losses Carryforwards | |
$ | 51,482,000 | | |
$ | 47,419,000 | |
Tax Credits | |
| 5,686,000 | | |
| 4,982,000 | |
Stock Compensation | |
| 746,000 | | |
| 1,008,000 | |
Accrued Expenses | |
| 47,000 | | |
| 189,000 | |
Warranty Expenses | |
| 75,000 | | |
| 449,000 | |
Intangibles | |
| 948,000 | | |
| 1,017,000 | |
Fixed Assets | |
| 253,000 | | |
| 127,000 | |
Lease Liabilities | |
| 143,000 | | |
| 248,000 | |
R&D Capitalization | |
| 1,963,000 | | |
| — | |
Other | |
| 833,000 | | |
| 838,000 | |
Total Deferred Tax Assets | |
| 62,176,000 | | |
| 56,277,000 | |
Valuation Allowance | |
| (60,227,000 | ) | |
| (54,261,000 | ) |
Deferred Tax Assets, Net of Valuation Allowance, Total | |
$ | 1,949,000 | | |
$ | 2,016,000 | |
Deferred Tax Liabilities | |
| | | |
| | |
Intangibles - Indefinite Lived | |
$ | — | | |
$ | (187,000 | ) |
Right-of-use Assets | |
| (78,000 | ) | |
| (146,000 | ) |
State Taxes | |
| (1,871,000 | ) | |
| (1,729,000 | ) |
Fixed Assets | |
| — | | |
| — | |
Total Deferred Tax Liabilities | |
| (1,949,000 | ) | |
| (2,062,000 | ) |
Net Deferred Tax Liability | |
$ | — | | |
$ | (46,000 | ) |
Deferred income taxes are provided
for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.
The Company has determined at December 31,
2022 and December 31, 2021 that a full valuation allowance would be required against of all the Company’s operating loss
carry forwards and deferred tax assets that the Company does not expect to be utilized from the reversal of its deferred tax liabilities.
The following table reconciles the Company’s
losses from operations before income taxes for the year ended December 31, 2022 and December 31, 2021:
|
|
December 31,
2022 |
|
|
|
|
|
December 31,
2021 |
|
|
|
|
Federal Statutory Rate |
|
$ |
(5,555,000 |
) |
|
|
21.00 |
% |
|
$ |
(9,637,000 |
) |
|
|
21.00 |
% |
State Income Tax, net of Federal Tax |
|
|
(7,000 |
) |
|
|
0.03 |
% |
|
|
(9,000 |
) |
|
|
0.02 |
% |
Indefinite Lived - DTL |
|
|
(35,000 |
) |
|
|
0.13 |
% |
|
|
(52,000 |
) |
|
|
0.11 |
% |
Other Permanent Differences |
|
|
682,000 |
|
|
|
(2.58 |
%) |
|
|
1,032,000 |
|
|
|
(2.25 |
%) |
Research and Development Credits |
|
|
(506,000 |
) |
|
|
1.91 |
% |
|
|
(377,000 |
) |
|
|
0.82 |
% |
Other |
|
|
80,000 |
|
|
|
(0.30 |
%) |
|
|
(539,000 |
) |
|
|
1 .17 |
% |
Change in Valuation Allowance |
|
|
5,297,000 |
|
|
|
(20.02 |
%) |
|
|
9,517,000 |
|
|
|
(20.74 |
%) |
Expected Tax Expense |
|
$ |
(44,000 |
) |
|
|
0.17 |
% |
|
$ |
(65,000 |
) |
|
|
0.13 |
% |
The Company files income tax returns in the United States, California and other state jurisdictions. Due to the Company’s losses incurred, the Company is essentially subject to income tax examination by tax authorities from inception to date. Interest and penalties related to uncertain
tax positions are recognized as a component of income tax expense. For the tax year ended December 31, 2022 and 2021, the Company
recognized no interest or penalties, and identified no material amount of unrecognized tax benefits.
NOTE 21: |
SUBSEQUENT EVENTS |
On February 27, 2023, the Company announced that it had entered into an
Agreement and Plan of Merger and Reorganization with DMK Pharmaceuticals Corporation. DMK Pharmaceuticals is a privately-held, clinical
stage neuro-biotechnology company focused on the development and commercialization of potential products for the treatment of a variety
of neuro-based disorders, including without limitation opioid use disorder, acute and chronic pain, bladder problems, and Parkinson’s
disease. Completion of the transaction is subject to a number of conditions, including without limitation approval by the Adamis
stockholders of certain matters relating to the transaction. There can be no assurances that the proposed merger transaction with
DMK will be completed.
On February 8, 2023, the Company received notice from the Food and Drug
Administration (“FDA”) that the FDA considers the voluntary recall of the Company’s SYMJEPI products to be terminated.
With the termination of the voluntary recall, the Company anticipates having SYMJEPI relaunched and commercially available in the first
half of 2023.
On March 14, 2023, the Company entered into a
securities purchase agreement with an investor for the purchase and sale of 16,500,000
shares of its common stock and pre-funded warrants to purchase up to 7,500,000
shares of common stock, together with warrants to purchase up to 48,000,000
shares of common stock, at a combined purchase price of $0.125
per share (and $0.1249
per pre-funded warrant) and accompanying warrants, pursuant to a registered direct offering. The warrants will have an exercise
price of $0.138
per share, will be initially exercisable beginning six
months following the date of issuance and will expire five
years and six months from the date of issuance. The closing of the offering occurred on March 16, 2023. Gross proceeds from
the offering were approximately $3.0
million, with net proceeds estimated at approximately $2.7 million. The Company intends to use the net proceeds from the offering
for general working capital purposes.