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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36242

ADAMIS PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   82-0429727

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

11682 El Camino Real, Suite 300, San Diego, CA 92130

(Address of principal executive offices, including zip code)

 

(858) 997-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

ADMP

NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes   ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer   Accelerated filer
         
Non-accelerated filer   Smaller reporting company
         
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒

 
The number of shares outstanding of the issuer’s common stock, par value $0.0001 per share, as of November 22, 2021, was 148,886,141.

 

 

 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

 

      Page
PART I FINANCIAL INFORMATION    
       
Item 1. Financial Statements:    
       
  Condensed Consolidated Balance Sheets at June 30, 2021 (Unaudited) and December 31, 2020    4
       
  Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Six Months Ended June 30, 2021 and 2020   5
       
  Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months and Six Months Ended June 30, 2021 and 2020   6
       
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and 2020   7–8
       
  Notes to Condensed Consolidated Financial Statements (Unaudited)   9
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   31
       
Item 3. Quantitative and Qualitative Disclosure of Market Risk   43
       
Item 4. Controls and Procedures   43
       
PART II OTHER INFORMATION    
       
Item 1. Legal Proceedings   44
       
Item 1A. Risk Factors   46
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   69
       
Item 3. Defaults Upon Senior Securities   69
       
Item 4. Mine Safety Disclosures   69
       
Item 5. Other Information   69
       
Item 6. Exhibits   69
       
Signatures   70

   

  1  

 

Summary of Material Risks Associated With Our Business

 

The business of Adamis Pharmaceuticals Corporation ("we," "us," "our," "Adamis," or the "company") is subject to numerous risks and uncertainties that you should be aware of before making an investment decision, including those highlighted in the section entitled "Risk Factors." These risks include, but are not limited to, the following:

  There is substantial doubt about our ability to continue as a going concern. We have incurred significant losses since our inception, anticipate that we will continue to incur losses in 2021, and may continue to incur losses in the future. We may never achieve or sustain profitability.

 

  Statements in this Report concerning our future plans and operations are dependent on our having adequate funding and the absence of unexpected delays or adverse developments. We may require additional financing in the future and may not be able to secure required funding, which could force us to delay, reduce or eliminate our commercialization efforts or product development programs and could cause us to cease operations.

 

  We may never commercialize additional product candidates that are subject to regulatory approval or earn a profit. 

 

  Several of our potential products and technologies are in early stages of development, or have been discontinued or are suspended.

 

  Our development plans concerning our products and product candidates are affected by many factors, the outcome of which are difficult to predict.

 

  We could experience delays in the commencement or completion of clinical testing of our product candidates, which could result in increased costs and delays and adversely affect our business and financial condition. We may be required to suspend, repeat or terminate our clinical trials if trials are not well designed, do not meet regulatory requirements or the results are negative or inconclusive.

 

  We are subject to the risk of lawsuits or other legal proceedings.

 

  We are subject to substantial government regulation, which could materially adversely affect our business. We may encounter difficulties or delays in applying for or obtaining regulatory approval for our products. If we do not receive required regulatory approvals for our products, we may not be able to develop and commercialize our products or technologies.

 

  Even if they are approved and commercialized, our potential products may not be able to compete effectively with other products targeting similar markets.  

 

  Our failure to adequately protect or to enforce our intellectual property rights or secure rights to third party patents or other intellectual property rights could materially harm our proprietary position in the marketplace or prevent the commercialization of our products. We may become involved in patent litigation or other intellectual property proceedings, which could result in liability for damages and have a material adverse effect on our business and financial position. 

 

  If we determine that our intangible assets or other assets have become impaired, our total assets and financial results could be adversely affected.

 

  We borrowed funds pursuant to the Paycheck Protection Program. Even though our loans have been forgiven pursuant to the program, we remain subject to possible review and audit in connection with such loans.
     
  Our business is impacted by state and federal statutes and regulations.
     
  Our US Compounding Inc. subsidiary, or USC, which is registered as a human drug compounding outsourcing facility under Section 503B of the U.S. Food, Drug & Cosmetic Act, as amended, or FDCA, is subject to many federal, state and local laws, regulations, and administrative practices, including, among others: federal registration as an outsourcing facility, state and local licensure, and registration requirements concerning the operation of outsourcing facilities and the compounding, labeling, marketing, sale and distribution of products from our registered outsourcing facility. . Effective as of July 30, 2021, we entered into an asset purchase agreement pursuant to which we sold and transferred certain assets of USC related to its human compounding pharmaceutical business, and we have approved a restructuring pursuant to which the remaining operations and business of USC will be wound down and wound up and assets relating to USC's business will be sold or otherwise disposed of. Nevertheless, USC and we could become involved in proceedings with the U.S. Food & Drug Administration, or FDA , or other federal or state regulatory authorities alleging non-compliance with applicable federal or state regulatory legal requirements, which could adversely affect our business, financial condition and results of operations.

 

  2  

 

 

 

  We have received a grand jury subpoena issued in connection with a criminal investigation.  As we have previously disclosed, on May 11, 2021, each of the company and our USC subsidiary received a grand jury subpoena from the U.S. Attorney’s Office (“USAO”) for the Southern District of New York 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 of directors (the “Board”) has engaged outside counsel to conduct an independent internal investigation to review these and other matters. The company has also received a request from the Securities and Exchange Commission (“SEC”) that the company voluntarily provide documents and information relating to certain matters including the subject matter of the subpoena from the USAO.  The Company has produced and will continue to produce and provide documents in response to the subpoena and requests. The company intends to cooperate with the USAO and SEC. At this time, the company is unable to determine what, if any, additional actions the USAO, SEC or other federal or state authorities may take, what, if any, remedies or remedial measures the USAO, SEC or other federal or state authorities may seek, or what, if any, impact the foregoing matters may have on the Company’s business, previously reported financial results, financial results included in this Report, or future financial results. We could receive additional requests from the USAO, SEC or other authorities, which may require further investigation. The foregoing matters may divert management’s attention, cause the company to suffer reputational harm, require the company to devote significant financial resources, subject the company and its officers and directors to civil or criminal proceedings, and depending on the resolution of the matters or any proceedings, result in fines, penalties, equitable remedies, and affect the company’s business, previously reported financial results, financial results included in this Report, 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.

 

  Changes in healthcare laws could adversely affect the ability or willingness of customers to purchase our products and, as a result, adversely impact our business and financial results.
     
  We identified a material weakness in our internal control over financial reporting, concluded that our internal control over financial reporting was not effective and that our disclosure controls and procedures were not effective at the reasonable assurance level, and restated our unaudited condensed consolidated financial statements for the periods ended March 31, 2020, June 30, 2020, and September 30, 2020, which may lead to additional risks and uncertainties, including loss of investor confidence, legal investigations or proceedings, and negative impacts on our business, financial condition and stock price. In addition, we identified a material weakness in our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of March 31, 2021, June 30, 2021 and September 30, 2021. If we fail to effectively remediate material weaknesses in our internal control over financial reporting, it could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
     
  Our business depends on complex information systems, and any failure to successfully maintain these systems or implement new systems to handle our changing needs could materially harm our operations.  Cybersecurity or other system failures could disrupt our business, result in liabilities, and adversely affect our business, financial condition and results of operations.
     
  Provisions of our charter documents could discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and making it difficult to remove, management.
     
  Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock, which could negatively impact the market price and liquidity of our common shares and our ability to access the capital markets.

 

  3  

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

    June 30, 2021     December 31,   
    (Unaudited)     2020  
ASSETS                
CURRENT ASSETS                
Cash and Cash Equivalents   $ 40,618,554     $ 6,855,355  
Restricted Cash      30,000        
Accounts Receivable, net     1,309,949       1,092,857  
Inventories     2,170,888       3,115,926  
Prepaid Expenses and Other Current Assets     1,999,130       1,459,983  
Total Current Assets     46,128,521       12,524,121  
LONG TERM ASSETS                
Intangible Assets, net     5,812,934       6,289,684  
Goodwill     868,412       868,412  
Fixed Assets, net     9,541,221       9,586,593  
Right -of-Use Assets      1,301,741        1,543,997  
Other Non-Current Assets     54,655       54,655  
Total Assets   $ 63,707,484     $ 30,867,462  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts Payable   $ 3,010,514     $ 3,491,717  
Deferred Revenue, current portion     104,100       100,070  
Accrued Other Expenses     3,551,863       2,524,412  
Accrued Bonuses     874,595       1,047,719  
Contingent Loss Liability           7,900,000  
Lease Liabilities, current portion     509,537        494,342  
Bank Loan - Building     2,018,101       2,067,213  
Paycheck Protection Plan (PPP) Loans, current portion     3,383,586       2,300,253  
Total Current Liabilities     13,452,296       19,925,726  
LONG TERM LIABILITIES                
Deferred Revenue     800,000       850,000  
Deferred Tax Liability, net     112,530       112,530  
Lease Liabilities, net of current portion       845,012        1,105,219  
PPP Loan, net of current portion      1,573,609       891,447  
Warrant Liabilities, at fair value      244,824       4,485,000  

Total Liabilities

     17,028,271       27,369,922  
COMMITMENTS AND CONTINGENCIES (see Note 9)                
STOCKHOLDERS’ EQUITY                
Preferred Stock – Par Value $0.0001; 10,000,000 Shares Authorized; Series A-2 Convertible, no shares Issued and Outstanding at June 30, 2021 (Unaudited) and December 31, 2020, respectively.            
Common Stock - Par Value $0.0001; 200,000,000 Shares Authorized; 149,409,098 and 94,365,015 Issued, 148,886,141 and 93,842,058 Outstanding at June 30, 2021 and December 31, 2020, respectively     14,941       9,437  
Additional Paid-in Capital     303,620,101       233,404,968  
Accumulated Deficit     (256,950,579 )     (229,911,615 )
Treasury Stock, at cost - 522,957 Shares     (5,250 )     (5,250 )
Total Stockholders’ Equity     46,679,213     3,497,540
Total Liabilities and Stockholders’ Equity   $ 63,707,484   $ 30,867,462  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements 

  4  

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                               
    Three Months Ended June 30,     Six Months Ended June 30,   
     2021     2020     2021     2020  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
REVENUE, net   $ 4,011,304     $ 3,926,342     $ 8,119,836     $ 8,589,552  
COST OF GOODS SOLD     3,870,632       4,683,835       7,512,580       8,370,879  
                  Gross Profit (Loss)      140,672       (757,493     607,256       218,673  
                                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES     7,131,644       5,653,092       13,051,118       11,707,463  
RESEARCH AND DEVELOPMENT     2,232,776       3,085,824       4,494,098       5,122,556  
IMPAIRMENT EXPENSE - Goodwill                       3,143,200  
IMPAIRMENT EXPENSE - Long Lived Assets     9,347             9,347        
IMPAIRMENT EXPENSE - Write-off of Contract Asset           1,750,000              1,750,000  
Loss from Operations     (9,233,095 )     (11,246,409 )     (16,947,307 )     (21,504,546 )
                                 
OTHER INCOME (EXPENSE)                                
Interest Expense     (44,947     (32,925    

(84,272

    (71,212
Other Income     7,886       16,621       24,089       39,676  
Change in Fair Value of Warrants     (43,574     (1,662,000     (7,685,474 )     1,365,000  
Total Other Income (Expense), net     (80,635     (1,678,304 )     (7,745,657     1,333,464  
Net Loss   $ (9,313,730 )   $ (12,924,713 )   $ (24,692,964 )   $ (20,171,082 )
                                 
Basic and Diluted Loss Per Share   $ (0.06 )   $ (0.18 )   $ (0.18 )   $ (0.29 )
                                 
Basic and Diluted Weighted Average Shares Outstanding     148,886,141       73,825,491       139,228,657       70,162,628  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

  5  

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

                                                       
    Convertible Preferred Stock     Common Stock     Additional 
Paid-In
    Treasury Stock     Accumulated        
For the Three Months Ended June 30, 2021   Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Total  
Balance March 31, 2021               149,409,098     $ 14,941     $ 302,822,034       522,957     $ (5,250 )   $ (247,636,849 )   $ 55,194,876  
Share Based Compensation                             798,067                         798,067  
Net Loss                                             (9,313,730 )     (9,313,730 )
Balance June 30, 2021         $       149,409,098     $ 14,941     $ 303,620,101       522,957     $ (5,250 )   $ (256,950,579 )   $ 46,679,213  
                                                                         
For the Three Months Ended June 30, 2020                                                                        

Balance March 31, 2020

        $       74,255,245     $ 7,426     $ 219,057,654       522,957     $ (5,250 )   $ (187,766,895 )   $ 31,292,935  

Series B Convertible Preferred Stock Issued

    1,000,000       100                   589,900        —                     590,000  
Issuance of Restricted Stock Units (RSUs)                 188,477       18       (18 )                        
Share Based Compensation                             1,114,758                         1,114,758  
Net Loss                                               (12,924,713 )     (12,924,713 )
Balance June 30, 2020     1,000,000     $ 100       74,443,722     $ 7,444     $ 220,762,294       522,957     $ (5,250 )   $ (200,691,608 )   $ 20,072,980  
                                                                         
For the Six Months Ended June 30, 2021                                                                        
Balance December 31, 2020, as reported         $       94,365,015     $ 9,437     $ 233,404,968       522,957     $ (5,250 )   $ (229,911,615 )   $ 3,497,540  
Adjustment, Conversion of 2019 Warrant Liability upon Adoption of ASU 2020-06      —                —               4,830,000         —               (2,346,000  )     2,484,000  
Balance, December 31, 2020, as adjusted        —                 94,365,015        9,437       238,234,968        522,957        (5,250     (232,257,615     5,981,540  
Common Stock Issued, Net of Issuance Costs of $3,330,752                 46,621,621       4,661       48,414,585                         48,419,246  
Exercise of Warrants                 8,356,000       836       15,292,714                         15,293,550  
Issuance of Restricted Stock Units (RSUs)                 66,462       7       (7 )                        
Share Based Compensation                             1,677,841                         1,677,841  
Net Loss                                               (24,692,964 )     (24,692,964 )
Balance June 30, 2021         $       149,409,098     $ 14,941     $ 303,620,101       522,957     $ (5,250 )   $ (256,950,579 )   $ 46,679,213  
                                                                         
For the Six months Ended June 30, 2020                                                                        
Balance December 31, 2019         $       62,352,465     $ 6,235     $ 213,520,785       522,957     $ (5,250 )   $ (180,520,526 )   $ 33,001,244  
Common Stock Issued, Net of Issuance Cost of $494,902                 11,600,000       1,161       6,231,938                         6,233,099  
Series B convertible Preferred Stock Issued     1,000,000       100                   589,900                       590,000
Issuance of February 2020 Warrants      —                —               (1,914,000 )      —                       (1,914,000 )
Issuance of Restricted Stock Units (RSUs)                 491,257       48       (48 )                        
Share Based Compensation                             2,333,719                         2,333,719  
Net Loss                                               (20,171,082 )     (20,171,082 )
Balance June 30, 2020     1,000,000     $ 100       74,443,722     $ 7,444     $ 220,762,294       522,957     $ (5,250 )   $ (200,691,608 )   $ 20,072,980  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

  6  

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                 
    Six Months Ended June 30,  
    2021     2020  
    (Unaudited)     (Unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net Loss   $ (24,692,964 )   $ (20,171,082 )
Adjustments to Reconcile Net Loss to Net                
Cash Used in Operating Activities:                
Stock Based Compensation     1,677,841       2,333,719  
Acquired IPR&D            840,000  
Provision for Bad Debts     2,904        62,457  
Provision for Excess and Obsolete Inventory      867,317       1,503,399  
Change in Fair Value of Warrant Liabilities     7,685,474       (1,365,000 )
(Cash Payments in Excess of Lease Expense) Lease Expense in Excess of Cash Payments     (3,084     3,374  
Depreciation and Amortization      1,325,764       1,795,305  
Impairment of Goodwill           3,143,200  
Impairment of Contract Assets           1,750,000  
Impairment of Long-Lived Assets     9,347      
Change in Operating Assets and Liabilities                
      Accounts Receivable     (219,996 )     461,369  
      Inventories     77,721     (1,585,909
Prepaid Expenses and Other Current Assets     (539,147     319,867  
Accounts Payable     (445,771     204,943
Contingent Loss Liability     (7,900,000 )      
Deferred Revenue     (45,970     527,254
Accrued Other Expenses and Bonuses     855,602     796,939  
Net Cash Used in Operating Activities     (21,344,962 )     (9,380,165 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
        Purchase of Equipment     (847,830 )     (660,787
        Purchase of IPR&D          (250,000
Net Cash Used in Investing Activities     (847,830     (910,787
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from Issuance of Common Stock, net of issuance costs     51,749,998       6,726,001  
Costs of Issuance of Common Stock      (3,330,752     (492,902 )
Proceeds from Exercise of Warrants     5,851,900        
Principal Payments of Finance Leases     (1,538     (2,224
Proceeds of PPP Loan     1,765,495       3,191,700  
Payment of Bank Loans     (49,112     (51,056
Net Cash Provided by Financing Activities     55,985,991       9,371,519
Increase (Decrease) in Cash & Cash Equivalents and Restricted Cash      33,793,199       (919,433 )
Cash & Cash Equivalents and Restricted Cash:                
Beginning Cash & Cash Equivalents and Restricted Cash      6,855,355       8,810,636  
Ending Cash & Cash Equivalents and Restricted Cash    $ 40,648,554     $ 7,891,203  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

  7  

 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

               
    Six Months Ended June 30,  
    2021     2020  
    (Unaudited)     (Unaudited)  
RECONCILIATION OF CASH & CASH EQUIVALENTS AND RESTRICTED CASH                
Cash & Cash Equivalents   $ 40,618,554     $ 7,891,203  
Restricted Cash      30,000        
Total Cash & Cash Equivalents and Restricted Cash     $  40,648,554     $  7,891,203  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash Paid for Income Taxes    4,100      11,300  
Cash Paid for Interest   $ 62,088     $ 72,097  
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES              
Series B Preferred Stock Issuance for License Agreement   $     $ 590,000  
Decrease in Accrued Capital Expenditures    $ (36,707   (207,688

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements 

  8  

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments and the elimination of intercompany accounts) considered necessary for a fair statement of all periods presented. The results of operations of Adamis Pharmaceuticals Corporation ("the Company") for any interim periods are not necessarily indicative of the results of operations for any other interim periods or for a full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). 

 

On January 30, 2020, the World Health Organization (“WHO”) declared that the novel coronavirus (COVID-19) outbreak was a global health emergency, which prompted national governments to begin putting actions in place to slow the spread of COVID-19. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. The outbreak of COVID-19 has resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. The governmental actions and the widespread disruptions arising from the pandemic have adversely affected certain aspects of our business. The extent and duration of the pandemic is unknown, and the future effects on our business are uncertain and difficult to predict, including in light of recent new variants of the virus. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future.  

Segment Reporting

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. Commencing April 1, 2020, our management, including the chief executive officer, who is our chief operating decision maker (“CODM”), began managing 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. These consolidated financial statements and related footnotes, including prior year financial information, are presented as if there were two reporting segments for all periods presented, to the extent described in Note 12. We are a specialty biopharmaceutical company focused on developing products in various therapeutic areas, including allergy, opioid overdose, respiratory and inflammatory disease; and a registered drug compounding outsourcing facility, which compounds 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. See note 13 for a discussion of subsequent events affecting USC and our Compounded Pharmaceuticals business. 

 

Liquidity and Capital Resources

The Company's cash and cash equivalents and restricted cash were $40,618,554 and $6,855,355 at June 30, 2021 and December 31, 2020, respectively.   

 

The Company prepared the condensed consolidated financial statements assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. In preparing these condensed consolidated financial statements, consideration was given to the Company’s future business as described below, which may preclude the Company from realizing the value of certain assets.    

The Company has significant operating cash flow deficiencies. Additionally, the Company may need additional funding in the future to help support commercialization of its products and conduct the clinical and regulatory activities relating to the Company’s product candidates, satisfy existing obligations and liabilities, and otherwise support the Company’s intended business activities and working capital needs. The preceding conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements for the six months ended June 30, 2021, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. Our unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Management’s plans include attempting to secure additional required funding through equity or debt financings, sales or out-licensing of intellectual property or other assets, products, product candidates or technologies, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions, and through revenues from existing agreements. There is no assurance that the Company will be successful in obtaining the necessary funding to meet its business objectives. In addition, the COVID-19 pandemic has had an adverse impact on the Company.   A severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all.

 

  9  

 

  

Basic and Diluted Loss per Share

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 treasury stock method and gives effect to dilutive options, warrants and other potential dilutive common stock. The effect of common stock equivalents was anti-dilutive and was excluded from the calculation of weighted average shares outstanding. Potential dilutive securities, which are not included in diluted weighted average shares outstanding for the six months ended June 30, 2021 and June 30, 2020, consist of 15,095,238 shares and 24,634,670 shares, respectively, issuable upon exercise of outstanding equity classified warrants;  6,113,866 shares and 7,238,761 shares, respectively, issuable upon exercise of outstanding options; 2,034,260 shares and 2,534,107 shares, respectively, issuable following vesting of outstanding restricted stock units; and 0 and 1,000,000, respectively, issuable upon conversion of convertible preferred stock.  

 

Recent Accounting Pronouncement 

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options which provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. The amendment currently has no impact to the Company as the effect will largely depend on the terms of written call options or financings issued or modified in the future.

 

 

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Note 2: Revenues 

Revenue from Contracts with Customers 

Revenue is recognized pursuant to ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, 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

   

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, provides 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.

 

Adamis and USC 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.  

Compounded Pharmaceuticals Facility Revenue Recognition

 

With respect to sales of prescription compounded medications by the Company’s USC subsidiary, revenue arrangements consist 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. 

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Drug Development and Commercialization Revenue Recognition

 

Sandoz 

 

See Note 5 to our consolidated financial statements in the 2020 Form 10-K for information relating to our exclusive distribution and commercialization agreement dated as of July 1, 2018 with Sandoz Inc. (the “Sandoz Agreement”), which was terminated pursuant to a termination agreement entered into on May 11, 2020.  

USWM 

The Company has determined that there are two performance obligations in its exclusive distribution and commercialization agreement (the "USWM Agreement") with USWM, LLC ("USWM" or "US WorldMeds"): (i) the manufacture and supply of SYMJEPI™ and ZIMHI™ products to USWM; and (ii) the exclusive distribution and commercialization in the United States. 

Revenues from the manufacture and supply of SYMJEPI™ and ZIMHI™ are recognized at a point in time upon delivery to USWM. The right of exclusive distribution and commercialization is considered a symbolic license and will be recognized over time over the life of the contract. The Company believes that due to ongoing efforts to comply with regulations that a performance obligation continues to exist over the life of the contract. Under the terms of the USWM Agreement, the Company is entitled to receive various amounts and milestone payments, including: (1) certain non-refundable up-front fees for executing the agreement and regulatory milestone payments, both of which will be recognized over the expected customer life, estimated to be equal to the initial 10-year term of the agreement; (2) net-profit sharing payments based on certain percentages of net profit generated from the sale of products over a given quarter; and (3) commercial milestone payments. Items (2) and (3) are royalties generated from the exclusive right to distribute and commercialize SYMJEPI and ZIMHI in the United States; these are considered sales-based royalties of intellectual property and recognized as they occur.

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. 

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Disaggregation of Revenue 

Our sterile environment operations are governed by specific regulatory and quality requirements. Any deviation from these standards could result in a stoppage of operations, recall of products, and a significant reduction in revenues. The Company outsources the manufacturing of the SYMJEPI product to third party manufacturers who bear the responsibility of maintaining a suitable environment as governed by specific regulatory and quality requirements. 

The following table presents the Company's revenues disaggregated by outsourced manufacturing, sterile and non-sterile regulatory environments for the three months and six months ended June 30, 2021 and 2020. 

                             
    Three Months Ended
June 30
  Six Months Ended
June 30
    2021   2020   2021   2020

Drug Development & Commercialization:

                               
Outsourced Manufacturing   $ 1,275,474     $ 721,435     $ 2,608,153     $ 1,228,719  

Compounded Pharmaceuticals:

                               
Sterile   $ 1,654,686     $ 1,982,506     $ 3,279,697     $ 5,033,621  
Non-Sterile   1,081,144     1,222,401     2,231,986     2,327,212  

Total Compounded Pharmaceuticals Revenues

$ 2,735,830     $ 3,204,907     $ 5,511,683     $ 7,360,833  
Total   $ 4,011,304     $ 3,926,342     $ 8,119,836     $ 8,589,552  

 

The Company's revenues relating to its FDA approved product SYMJEPI are dependent on the USWM Agreement with USWM, which replaced Sandoz in May 2020 in connection with the above-mentioned termination of the Sandoz Agreement, and the Company’s revenues relating to pharmacy formulations rely, in large part, on sales generated from clinics and hospital customers. Adverse economic conditions pose a risk that the Company’s customers may reduce or cancel spending, which would impact the Company’s revenues. The COVID-19 outbreak has adversely affected revenues from sales of USC products, in part due to reductions or cancellations of elective surgeries and reduction in office visits to physicians' offices, healthcare facilities or clinics by patients, and the resulting decreased demand by USC’s customers for certain of USC’s products, and will likely continue to adversely affect revenues from sales of products to such customers for a period of time which cannot be predicted.

The following table presents the Company's revenue disaggregated by end market for the three months and six months ended June 30, 2021 and 2020.

 

    Three Months Ended
June 30
  Six Months Ended
June 30
    2021   2020   2021   2020

Drug Development and Commercialization:

                               
Distribution Channel    $ 1,275,474     $ 721,435     $ 2,608,153     $ 1,228,719  

Compounded Pharmaceuticals:

                               
Clinics/Hospitals   $ 2,682,100     $ 3,013,030     $ 5,408,837     $  6,940,458  
Direct to Patients   53,730     191,877     102,846     420,375  

Total Compounded Pharmaceuticals Revenues

  $ 2,735,830     $ 3,204,907     $ 5,511,683     $ 7,360,833  
Total   $ 4,011,304     $ 3,926,342     $ 8,119,836     $ 8,589,552  

 

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. For the three months ended June 30, 2021 and 2020, $ 45,692 and $ 476,343 of the revenues recognized were reported as deferred revenue as of March 31, 2021 and 2020, respectively, and for the six months ended June 30, 2021 and 2020, $50,070 and $478,171 of the revenues recognized were reported as deferred revenue as of December 31, 2020 and 2019, respectively. Included in the deferred revenue balance at June 30, 2021 and December 31, 2020 was $900,000 and $ 950,000, respectively, relating to the non-refundable upfront payment received from USWM pursuant to the USWM Agreement.  On May 11, 2020, the Company entered into a termination agreement with Sandoz which resulted in the acceleration of recognition of the upfront payment from Sandoz to revenue over the transition service agreement period. 

 Cost to Obtain a Contract

The Company capitalizes costs related to contracts that would have not been incurred if the contract was not obtained and the Company expects to recover such costs. The deferred costs, reported in the prepaid expenses and other current assets and other non-current assets on the Company’s Condensed Consolidated Balance Sheets, will be amortized over the economic benefit period of the contract. 

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In 2018, the Company capitalized the $2.0 million fee paid to a financial advisor as an incremental cost of obtaining a contract to commercialize and distribute the Company’s first FDA approved product SYMJEPI with Sandoz.   On May 11, 2020, the Company entered into a termination agreement with Sandoz. As a result of entering into the termination agreement, the Company determined that its financial results for the quarter ending June 30, 2020 included the recognition of a full $1,750,000 impairment of the capitalized cost to obtain a contract that was reflected on its condensed consolidated balance sheet as of March 31, 2020.

 

Note 3: Inventories 

Inventories at June 30, 2021 and December 31, 2020 consisted of the following

 

    June 30, 2021     December 31, 2020  
Finished Goods   $ 1,192,893     $ 2,059,095  
Work-in-Process           334,164  
Devices & Raw Materials     977,995       722,667  
Inventories   $ 2,170,888       3,115,926  

    

Reserve for obsolescence as of June 30, 2021 and December 31, 2020 was approximately $577,000 and $446,000, respectively.

 

Note 4: Fixed Assets, net 

 

Fixed assets at June 30, 2021 and December 31, 2020 are summarized in the table below:

 

Description   Useful Life
(Years)
    June 30,  2021   December 31, 2020
Building     30      $ 3,040,000     $ 3,040,000  
Machinery and Equipment     3 - 7        6,109,153       5,633,265  
Furniture and Fixtures     7        160,012       160,012  
Automobile     5        9,500       9,500  
Leasehold Improvements     7 - 15        342,330       342,330  
Total Fixed Assets             9,660,995       9,185,107  
Less: Accumulated Depreciation             (4,419,013 )     (3,571,870 )
Land             460,000       460,000  
Construction In Progress - Equipment, net of impairment of $1,115,560             3,839,239       3,513,356  
Fixed Assets, net           $ 9,541,221     $ 9,586,593  

  

Depreciation expense for the three months ended June 30, 2021 and 2020 was approximately $439,000 and $396,000, respectively; and for the six months ended June 30, 2021 and 2020, depreciation expense was approximately $847,000 and $780,000, respectively.  

 

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Note 5: Intangible Assets and Goodwill