ADMP

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549   

FORM 10-K

(Mark one) 

for the fiscal year ended December 31, 2022 

OR 

Commission File Number 000-26372  

ADAMIS PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter) 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes  ☐  No  ☒   

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  

Yes  ☐  No  ☒  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 and posted 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 definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):  

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐  

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐   

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2022, was $ 74,359,656.  

At March 13, 2023, the Company had 149,983,265 shares outstanding.  

Documents Incorporated by Reference: Portions of the registrant’s proxy statement for its 2023 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s definitive proxy statement shall not be deemed to be part of this report.

ADAMIS PHARMACEUTICALS CORPORATION   

TABLE OF CONTENTS 

Information Relating to Forward-Looking Statements  

This Annual Report on Form 10-K (this “Report”) includes forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, strategy and plans, are forward-looking statements within the meaning of the federal securities laws and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Such statements are not historical facts, but are based on our current expectations, estimates and beliefs about our business and industry. Such forward-looking statements may include, without limitation, statements about the following matters: our strategies, objectives and our future achievements; our expectations for growth; estimates of future revenue; our sources and uses of cash; our liquidity needs; any future planned clinical trials or research and development activities; product development timelines; anticipated dates for commercial introduction of products; our future products; our expectations concerning regulatory matters and the timing of regulatory approvals; expense, profit, cash flow, or balance sheet items or any other guidance regarding future periods; and other statements concerning our future operations and activities. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Report.

The following factors, among others, could cause our future results and financial performance to differ materially from that expressed in forward-looking statements in this Report:

In addition, many forward-looking statements concerning our anticipated future business activities assume that we have sufficient funding to support such activities and continue our operations and planned activities. As discussed elsewhere in this Report, we will require additional funding in the near future to continue operations, and there are no assurances that such funding will be available if needed. Failure to timely obtain required funding would adversely affect and could delay or prevent our ability to realize the results contemplated by such forward looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors that could cause actual results to differ materially from those in these forward-looking statements are disclosed in this Annual Report on Form 10-K, including, without limitation, under the headings “Item 1A. Risk Factors,” “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our subsequent filings with the Securities and Exchange Commission, press releases and other communications. 

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at which or by which the actions, events or results anticipated by such statements will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed in or suggested by the forward-looking statements.  

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

The Adamis Pharmaceuticals logo and other trademarks or service marks of Adamis Pharmaceuticals Corporation appearing in this Annual Report on Form 10-K are the property of Adamis Pharmaceuticals Corporation.  All other brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective owners.  Unless the context otherwise requires, the terms “we,” “our,” and “the company” refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its subsidiaries.

Investors and others should note that we may announce material information to our investors using our website ( www.adamispharmaceuticals.com), SEC filings, press releases, public conference calls and webcasts, as well as social media and blogs.  We use these channels as a means of disclosing material non-public information and making disclosures pursuant to Regulation FD, and to communicate with our members and the public about our company. It is possible that the information we post on our website or social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on our website, social media channels and blogs listed on our investor relations website.  

Summary of Material Risks Associated With Our Business

 Our business 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:

PART I 

Company Overview  

Adamis Pharmaceuticals Corporation (“we,” “us,” “our,” “Adamis” or the “company”) is a specialty biopharmaceutical company focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory and inflammatory disease.  Our products in the allergy, respiratory, and opioid overdose markets include: SYMJEPI (epinephrine) Injection 0.3mg, which was approved by the U.S. Food and Drug Administration, or FDA, in 2017 for use in the emergency treatment of acute allergic reactions, including anaphylaxis, for patients weighing 66 pounds or more; SYMJEPI (epinephrine) Injection 0.15mg, which was approved by the FDA in September 2018, for use in the treatment of anaphylaxis for patients weighing 33-65 pounds; and ZIMHI (naloxone HCL Injection, USP) 5 mg/0.5 mL, which was approved by the FDA in October 2021 for the treatment of opioid overdose.  In June 2020, we entered into a license agreement with a third party entity to license rights under patents, patent applications and related know-how of licensor relating to Tempol, an investigational drug. As previously disclosed in our filings with the SEC, in September 2021 we commenced patient dosing in a Phase 2/3 clinical trial to examine the safety and efficacy of Tempol in COVID-19 patients. The Data Safety Monitoring Board, or DSMB, overseeing the Phase 2/3 clinical trial met in March and June 2022 to evaluate interim clinical and safety data and, following its evaluation, recommended that the study continue as planned. On September 21, 2022, we announced that the DSMB’s third interim analysis of the Phase 2/3 clinical trial, which was the first interim review where the DSMB evaluated the primary efficacy endpoint, determined that the trial did not achieve its primary endpoint and recommended that the study be halted early due to lack of efficacy. Based on the recommendation from the DSMB, we halted the trial and have stopped further development of Tempol.

On October 3, 2022, we announced that we initiated a process to explore a range of strategic and financing alternatives focused on maximizing stockholder value, and that we intended to pursue expense reduction measures. Such measures included, without limitation, employee headcount reductions and reduction or discontinuation of certain product development programs. We engaged the investment bank Raymond James & Associates, Inc. to act as strategic advisor to assist us in evaluating certain alternatives.

Recent Developments

On February 27, 2023, we announced we had entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) dated as of February 24, 2023, with DMK Pharmaceuticals Corporation (“DMK”), a New Jersey corporation, and Aardvark Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Adamis (“Merger Sub”). Under the terms of and subject to the satisfaction of the conditions described in the Merger Agreement, including approval of certain matters relating to the transaction by the company’s stockholders and DMK’s stockholders, DMK will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving as a wholly-owned subsidiary of Adamis. DMK Pharmaceuticals is a clinical stage neuro-biotechnology company focused on the development and commercialization of products for the treatment of a variety of neuro-based disorders with significant unmet medical needs. The current DMK product candidates have been selected and developed from a proprietary portfolio of small molecule neuropeptide analogues and include product candidates for the treatment of opioid use disorder, chronic pain, Parkinson’s disease, and bladder problems.

At the effective time of the Merger (the “Effective Time”), each share of common stock of DMK (other than dissenting shares, if any) will generally be converted into the right to receive a number of shares of Adamis common stock (“Common Stock”) equal to the exchange ratio as defined in the Merger Agreement and described below; however, if a DMK shareholder’s receipt of such shares would result in the shareholder’s beneficial ownership of Common Stock exceeding a certain percentage limit specified in the Merger Agreement, then the shareholder will, in lieu of receiving shares of Common Stock in excess of such beneficial ownership limit, receive shares of a new series of Adamis convertible preferred stock (the “Series Preferred”) that is generally convertible into the number of shares of Common Stock that the stockholder would have been entitled to receive in excess of such beneficial ownership limit, but that is subject to certain beneficial ownership limitations on conversion and voting rights (the shares of Common Stock and Series Preferred that are issuable pursuant to the Merger Agreement, sometimes referred to as the “Merger Consideration Shares”). The number of shares of Common Stock that will be issuable (including upon conversion of shares of Series Preferred issuable in the transaction without regard to beneficial ownership conversion limitations) to holders of outstanding shares of DMK common stock (other than holders, if any, of dissenting shares) will be determined by dividing $27,000,000 by the average closing prices of the Common Stock for the five trading days ending one trading day before the Effective Time (adjusted to give effect to the reverse stock split of the Common Stock); and the exchange ratio will be determined by dividing such number of shares by the number of outstanding DMK shares of common stock immediately before the Effective Time. Notwithstanding the foregoing, the Merger Agreement also provides that if the foregoing calculation of the total number of shares of Common Stock issuable to DMK stockholders (including shares issuable upon conversion of the Series Preferred without regarding to beneficial ownership conversion limitations) would result in the holders of Common Stock immediately before the Effective Time owning less than a majority of the total number of post-merger outstanding shares of Common Stock (including shares issuable upon exercise of assumed DMK stock options) after the Effective Time (the “Adamis Percentage Threshold”), then the number of Adamis shares issuable to the DMK stockholder pursuant to the Merger (and with respect to the Series Preferred determined on an as-converted basis) will be a number such that the holders of Common Stock immediately before the Effective Time hold a number of shares of Common Stock immediately after the Effective Time equal to the Adamis Percentage Threshold.

As contemplated by the Merger Agreement, Adamis intends to hold a special meeting of its stockholders and seek the approval of its stockholders to, among other things, vote on certain proposals the approval of which is necessary in order to effect the transaction, including a proposal to (a) issue the Merger Consideration Shares issuable in connection with the Merger, pursuant to the rules of The Nasdaq Stock Market LLC (“Nasdaq”) and (b) amend the company’s restated certificate of incorporation to effect a reverse stock split of the Common Stock, in a ratio to be set by the Adamis board of directors and, assuming the issuance of Merger Consideration Shares is approved and other closing conditions described in the Merger Agreement are satisfied, determined prior to the closing of the Merger. The reverse stock split is intended to provide sufficient shares in order to complete the transactions contemplated by the Merger Agreement as well as to increase the trading prices of the company’s common stock in order to satisfy the minimum bid price requirements for continued listing of the Common Stock on the Nasdaq Capital Market.

The Merger Agreement contains a number of customary representations, warranties, and covenants of both parties, including, among others, covenants relating to (1) taking all action necessary to allow the respective companies’ stockholders to vote on proposals relating to the Merger, (2) non-solicitation of alternative acquisition proposals, (3) the conduct of their respective businesses during the period between the date of signing the Merger Agreement and the closing of the Merger, and (4) Adamis filing with the SEC after the closing of the Merger a registration statement or prospectus supplement covering the resale of shares of Adamis Common Stock that will be issued or issuable in connection with the Merger (the “Registration Statement”). The Merger Agreement provides that Adamis will pay certain actual, out-of-pocket transaction expenses incurred by DMK in connection with the transaction.

The Merger Agreement may be terminated by either party under certain circumstances, including, among others: (i) if the Merger has not been completed by June 30, 2023; (ii) if a court or other governmental entity has issued a final and non-appealable order prohibiting the closing; (iii) if the company’s or DMK’s stockholders fail to approve the proposals required to complete the transaction; (iv) upon a material uncured breach by the other party that would result in a failure of the conditions to the closing; or (v) upon the occurrence of certain other triggering events as defined in the Merger Agreement.

Following the closing of the Merger, the company’s executive officers are expected to include officers from the company and DMK. Ebrahim (Eboo) Versi, M.D., Ph.D., the co-founder and chief executive officer of DMK, is expected to become chief executive officer of the company; David J. Marguglio, the current chief executive officer and President of Adamis, is expected to continue as President of the company; and David C. Benedicto is expected to continue as the chief financial officer of the company.

The Merger Agreement provides that the board of directors of the company after completion of the Merger will consist of two directors designated by DMK, and three directors designated by the company which are expected to be three of the current Adamis independent directors. Immediately after the closing of the Merger, it is expected that the Board will be comprised of Howard C. Birndorf, Meera J. Desai, Ph.D. and Vickie Reed, who are currently serving as independent directors of the company, as well as Dr. Versi and Jannine Versi, as the designees of DMK, with Dr. Versi serving as Chair of the Board.

The transaction was approved by the boards of directors of both companies. Subject to a number of potential uncertainties, including without limitation the preparation and filing of a preliminary and definitive proxy statement with the SEC, the approval of DMK’s and Adamis’ respective stockholders of proposals relating to the Merger transaction, and the satisfaction of other closing conditions, Adamis anticipates that the transaction will close during the second quarter of 2023. However there can be no assurances that the Merger transaction will be completed or concerning the timing of any such closing.

Support Agreement

Concurrently with the execution of the Merger Agreement, the principal stockholder of DMK (solely in its capacity as a DMK stockholder), holding in excess of approximately 95% of the currently outstanding shares of DMK capital stock, has entered into a support agreement with Adamis, DMK, and Merger Sub to vote all of the shares of DMK capital stock held by the stockholder in favor of adoption of the Merger Agreement and against any alternative acquisition proposals (the “Support Agreement”).

Other

The Merger Agreement and form of Support Agreement are attached as exhibits to the company’s Current Report on Form 8-K filed with the SEC on February 27, 2023. The foregoing descriptions of these documents do not purport to be complete and are qualified in their entirety by reference to the full text of the Merger Agreement and the Support Agreement, which are incorporated herein by reference. The Merger Agreement was attached as an exhibit to such Form 8-K to provide investors and securityholders with information regarding its terms. It is not intended to provide any other factual information about Adamis or DMK or to modify or supplement any factual disclosures about the company in its public reports filed with the SEC. The assertions embodied in the representations and warranties contained in the Merger Agreement were made solely for the purpose of the Merger Agreement and solely for the benefit of the parties thereto in connection with the negotiated terms of the Merger Agreement.  Moreover, certain representations and warranties contained in the Merger Agreement were made as of a specified date, may have been made for the purposes of allocating contractual risk between the parties to the Merger Agreement, and may be subject to contractual standards of materiality different from what might be viewed as material to the company’s stockholders. Accordingly, the representations and warranties in the Merger Agreement should not be relied on by any persons as characterizations of the actual state of facts and circumstances of the company or DMK at the time they were made and should be considered in conjunction with the entirety of the factual disclosure about the company in the company’s public reports filed with the SEC. Information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the company’s public disclosures. The Merger Agreement should not be read alone, but should instead be read in conjunction with other information regarding the company. 

Anaphylaxis; SYMJEPI; Epinephrine Injection Pre-Filled Single Dose Syringe 

The American Academy of Allergy Asthma and Immunology, or AAAAI, defines anaphylaxis as a serious life-threatening allergic reaction. The most common anaphylactic reactions are to foods, insect stings, medications and latex. According to information published by AAAAI reporting on findings from a 2009-2010 study, up to 8% of U.S. children under the age of 18 had a food allergy, and approximately 38% of those with a food allergy had a history of severe reactions. Anaphylaxis requires immediate medical treatment, with epinephrine as the first course of treatment to open airways and maintain blood pressure.

We estimate that sales of prescription epinephrine products in 2022 were more than approximately $1.75 billion in 2022, based on assumptions and estimates using industry data. While we cannot provide any assurances concerning any possible future rates of annual growth or whether annual prescription sales will decline or grow, we believe that the epinephrine market has the potential to grow in the future, based in part on the prevalence of medical conditions, such as anaphylaxis, cardiovascular diseases, respiratory diseases (asthma), and the increased awareness about the treatment options for the management of these diseases. The market for prescription epinephrine products is competitive, and a number of factors have resulted in, and could continue to result in, downward pressure on the pricing of, and revenues from sales of, our SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg prescription epinephrine products. Our SYMJEPI (epinephrine) Injection 0.15mg and 0.3mg products allow users to administer a pre-measured epinephrine dose quickly with a device that we believe, based on human factors studies, to be intuitive to use. 

On June 15, 2017, the FDA approved our SYMJEPI (epinephrine) Injection 0.3mg product for the emergency treatment of allergic reactions (Type I) including anaphylaxis. SYMJEPI (epinephrine) Injection 0.3mg is intended to deliver a dose of epinephrine, which is used for emergency, immediate administration in acute anaphylactic reactions to insect stings or bites, allergic reaction to certain foods, drugs and other allergens, as well as idiopathic or exercise-induced anaphylaxis for patients weighing 66 pounds or more. On September 27, 2018, the FDA approved our lower dose SYMJEPI (epinephrine) Injection 0.15mg product, for the emergency treatment of allergic reactions (Type I) including anaphylaxis in patients weighing 33 to 66 pounds. Our SYMJEPI injection products were fully launched in July 2019 by our then-commercialization partner Sandoz Inc. Our SYMJEPI products are currently marketed and sold by USWM, LLC, or USWM or US WorldMeds, with which we entered into an exclusive distribution and commercialization agreement, or the USWM Agreement, in May 2020 for the United States commercial rights for the SYMJEPI products, as well as for our ZIMHI product.

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. The four lots were recalled due to the potential clogging of the needle preventing the dispensing of epinephrine. The recall was conducted with the knowledge of the FDA and USWM handled the entire recall process for the company, with company oversight. As of the date of this Report, neither USWM nor we have received, or are aware of, any adverse events related to this recall.

SYMJEPI is manufactured and tested for us by Catalent Belgium S.A. For the manufacture of SYMJEPI, the company utilizes “Ready-to-Fill,” or RTF, syringes that consist of a pre-assembled glass syringe barrel with a staked-in stainless steel needle. 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. The four lots were recalled due to the potential clogging of the needle preventing the dispensing of epinephrine. The recall was conducted with the knowledge of the FDA and USWM handled the entire recall process for the company, with company oversight. As of the date of this Report, neither USWM nor we have received, or are aware of, any adverse events related to this recall. SYMJEPI is manufactured and tested for us by Catalent Belgium S.A. For the manufacture of SYMJEPI, the company utilizes “Ready-to-Fill,” or RTF, syringes that consist of a pre-assembled glass syringe barrel with a staked-in stainless steel needle. During routine inspection of epinephrine pre-filled syringe batches, a small number of syringes with clogged needles were identified. An initial investigation suggested a syringe component issue as the likely cause of the observed needle clogging. Catalent’s investigation determined the steel used in a stainless steel needle batch as the root cause for the clogged syringes observed. The company and the manufacturer have developed corrective and preventive actions. New RTF syringes, which used a different batch of steel for their needles, were sourced and Catalent has resumed manufacturing of SYMJEPI at its Belgium facility. However, we have not reviewed data that would permit us to release this latest batch. While we are committed to returning SYMJEPI to the market, as of the date of this Report we believe it is unlikely that SYMJEPI will be relaunched and commercially available during the first half of 2023. 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, but there are no assurances regarding the amount or the timing of any such recovery. On February 8, 2023, we received notice from the FDA that the FDA considers the voluntary recall of our SYMJEPI products to be terminated.

Opioid Overdose 

ZIMHI (naloxone Injection)

Naloxone is an opioid antagonist used to treat narcotic overdoses. Naloxone, which is generally considered the drug of choice for immediate administration for opioid overdose, blocks or reverses the effects of the opioid, including extreme drowsiness, slowed breathing, or loss of consciousness. Common opioids include morphine, heroin, tramadol, oxycodone, hydrocodone and fentanyl. 

The Centers for Disease Control and Prevention (CDC) stated in that in 2020 more than 932,000 people have died since 1999. Additional statistics published by the CDC, report that drug overdoses resulted in approximately 107,764 deaths in the United States during the 12-month period ending March 2022, which was an 11% increase over the prior 12-month period.  Overdose deaths involving opioids (including both prescription and synthetic) are now the leading cause of death for Americans under age 50, with more powerful synthetic opioids, like fentanyl and its analogues, responsible for the largest number of those deaths. In June 2021, the National Institute on Drug Abuse; National Institutes of Health; U.S. Department of Health and Human Services, published the policy brief, “Naloxone for Opioid Overdose: Life-Saving Science”, which reported that statistical modeling suggests that high rates of naloxone distribution among laypersons and emergency personnel could avert 21 percent of opioid deaths. The brief also stated that overdoses involving highly potent synthetic opioids such as fentanyl or large quantities of opioids may require multiple doses of naloxone. And, if respiratory function does not improve, naloxone doses may be repeated every two to three hours. 

On December 31, 2018, we filed an NDA with the FDA relating to our higher dose naloxone injection product, ZIMHI, for the treatment of opioid overdose.  Following the receipt of two Complete Response Letters, or CRLs, from the FDA regarding our NDA for ZIMHI and our resubmissions of the NDA, on October 18, 2021, we announced that the FDA had approved ZIMHI for the treatment of opioid overdose. On March 31, 2022, our commercial partner USWM and the company issued a press release announcing the commercial launch of ZIMHI. 

Tempol

On June 12, 2020, we entered into a license agreement with a third party, or the Licensor, to license rights under certain 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 for the fields of COVID-19 infection, as well as certain other indications. Tempol is a redox cycling nitroxide that promotes the metabolism of many reactive oxygen species and improves nitric oxide bioavailability.  It has been studied extensively in animal models of oxidative stress and inflammation.  Overall, Tempol acts as both a super-oxide dismutase mimetic and also has demonstrated anti-inflammatory, anticoagulant activity and antiviral activity.  Inflammation and oxidative stress occur in various disease states including COVID-19.  Tempol has been shown to have antiviral activity against the virus that causes COVID-19 in-vitro.  

 In January 2021, we submitted an IND to the FDA for the investigational use and proposed Phase 2/3 clinical trial of Tempol for the treatment of COVID-19, with the goal of the study to examine the safety and activity of Tempol in COVID-19 patients early in the infection.  In addition to safety, the study examined markers of inflammation and the rate of hospitalization for patients taking Tempol versus placebo early in COVID-19 infection.  We commenced Phase 2/3 clinical trial start-up activities to examine the safety and efficacy of Tempol in COVID-19 patients early in the infection and on September 2, 2021, we announced the initiation of patient dosing in the trial. The Data Safety Monitoring Board, or DSMB, overseeing the Phase 2/3 clinical trial, which is composed of infectious disease experts that oversee and review the safety and efficacy of the trial, met in March and June 2022 to evaluate interim clinical and safety data and, following its evaluation, recommended that the study continue as planned. During the trial and interim review process, the company did not have access to unblinded trial data and did not have access to unblinded data until the final study data was compiled and reviewed. On September 21, 2022, we announced that the DSMB’s third interim analysis of the Phase 2/3 clinical trial, which was the first interim review where the DSMB evaluated the primary efficacy endpoint, determined that the trial did not achieve its primary endpoint, as measured by comparing the rate of sustained clinical resolution of symptoms of COVID-19 at day 14 of Tempol versus placebo, and recommended that the study be halted early due to lack of efficacy. Based on the recommendation from the DSMB, we have halted the trial and have stopped further development of Tempol.

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.  In any event, 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. 

US Compounding, Inc.

Our US Compounding Inc. subsidiary, or USC, which we acquired in April 2016 and which was registered as a human drug compounding outsourcing facility under Section 503B of the FDCA and the U.S. Drug Quality and Security Act, or DQSA, provided prescription compounded medications, including compounded sterile preparations and nonsterile compounds, to patients, physician clinics, hospitals, surgery centers and other clients throughout most of the United States. 

On July 30, 2021, the company and our USC subsidiary entered into an Asset Purchase Agreement, or the USC Agreement, effective as of July 30, 2021, or the Effective Date, with Fagron Compounding Services, LLC d/b/a Fagron Sterile Services (the “Purchaser”), providing for the sale and transfer by USC and the purchase by the Purchaser, effective as of the Effective Date, of certain assets of USC related to its human compounding pharmaceutical business, or the Business, including certain customer information and information on products sold to such customers by USC, together, the “Book of Business,” 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, collectively referred to as the “Assets.”  Purchaser could use the Book of Business, including to secure customers for its products and services.  The Purchaser did not assume any liabilities of USC, and the transaction did not include the sale or transfer of any USC equipment, buildings or real property, or other USC assets. The Purchaser made monthly payments to us based on formulas related to the amounts actually collected by the Purchaser or its affiliates for sales of products or services made to certain customers included in the Book of Business during the 12-month period following the Effective Date, or the “Payment Term.” As of December 31, 2022, the total amount received in connection with this purchase agreement was approximately $5.5 million. At December 31, 2022, the remaining receivable from Fagron was approximately $31,000. 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 paid in 2022.

In light of a number of factors including the sale of assets to the Purchaser pursuant to the USC Agreement, in August 2021 the Board approved a restructuring process of winding down the remaining operations and business of USC and selling, transferring or disposing of the remaining assets of USC.  Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit and is no longer selling products or engaged in active business activities.  As of December 31, 2022, the remaining USC assets to be sold include additional equipment, real property, and a building. The winding down included, without limitation, the termination of USC’s veterinary business and USC sales to veterinary customers; the termination of employment of all employees engaged in the USC business (except as determined to be necessary or appropriate in connection with resolving matters relating to the winding down of USC’s business), and providing such notices and making such payments as the officers of the company determine are necessary or appropriate; the sale or other disposition from time to time of the remaining equipment, real property, buildings and tangible and intangible assets relating to USC’s business that are unrelated to the USC Agreement; the termination, assignment or other resolution of agreements with third parties relating to the USC business; making regulatory filings and taking appropriate actions with federal and state regulatory authorities in connection with the winding down and winding up of USC’s business; and taking such other actions as the officers of the company or USC (as appropriate) determine are necessary or appropriate in connection with the winding down and winding up of the remaining business, operations and assets of USC. 

In connection with the winding down of the USC business, we incurred significant expenses and made a number of payments.  The substantial majority of cash payments related to personnel-related restructuring charges, including without limitation costs associated with providing termination payments to USC employees, employee salaries and incentive payments during a transition period after the effective date of the sale of the Assets pursuant to the USC Agreement, severance or other termination benefits or payments in connection with workforce reduction and termination of employment, and payments pursuant to retention agreements or incentive agreements with certain employees, were made during the third and fourth quarters of 2021 and were approximately $1.6 million.  In addition, as part of the winding down of USC’s business, we have incurred other costs.  We also expect to incur commissions and other costs associated with the sale or other disposition of certain USC tangible assets such as building, property and certain equipment. As of December 31, 2022, the company has received approximately $318,000 in cash related to the disposition of USC assets held for sale.

As a result of the transactions contemplated by the USC Agreement and the restructuring activities described above, the company’s financial results for the third and fourth quarters of 2021 include approximately $8.6 million for the impairment charges of inventory, fixed assets, intangibles, goodwill and right of use assets. In the fourth quarter of 2022, the Company further impaired USC assets for sale by approximately $0.2 million to reduce the net book value of remaining unsold equipment to $0 as the sale of the remaining equipment is not certain. No further impairment has been taken on the USC building as its recent appraisal supports its recorded net book value and the property is actively being marketed at the appraised value. While interest has been expressed for the property, as of the date of this Report, the company has not received a definitive offer to purchase the property. The impairment charges that the company incurred and expects to incur in connection with the matters described above are subject to a number of assumptions, and the actual amount of impairment charges may differ materially from those estimated by the company.  In addition, the company may determine in the future that additional impairments of assets are appropriate in connection with the matters described above.

Clinical Supplies and Manufacturing

We have no in-house manufacturing or distribution capabilities and have no current plans to establish manufacturing facilities for significant clinical or commercial production.  We rely on third-party contract manufacturers to manufacture our products and make the material used to support the development of product candidates that we may determine to develop.  Our third-party manufacturers are subject to extensive governmental regulations.  The FDA mandates that drugs be manufactured, packaged and labeled in conformity with current good manufacturing practices, or cGMP, regulations.  In complying with cGMP regulations, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to ensure that their services and products meet applicable specifications and other requirements.  We intend to continue to outsource the manufacture and distribution of our products for the foreseeable future, and we believe this manufacturing strategy will enable us to direct our financial resources to development of products without devoting the resources and capital required to build cGMP compliant manufacturing facilities.  Our SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg products are manufactured by a third-party manufacturer, Catalent Belgium SA/NV, utilizing materials to complete the manufacturing process obtained from various companies and suppliers.  Our ZIMHI (naloxone) Injection 5 mg product is also manufactured by a third-party manufacturer, Siegfried, Irvine, USA, utilizing materials to complete the manufacturing process obtained from various companies and suppliers. The assembly and final packaging of all our products are implemented by a third-party entity, Phillips-Medisize, LLC. There are potential sources of supply other than our existing suppliers, although new suppliers would be required to qualify under applicable regulatory requirements.     

Sales and Marketing  

Our SYMJEPI (epinephrine) products were initially marketed and sold in the U.S. markets by Sandoz pursuant to our commercialization agreement with Sandoz.  Following termination of the Sandoz Agreement in 2020, our SYMJEPI products and our ZIMHI product are marketed and sold in the U.S. markets by USWM pursuant to our USWM Agreement.  

Customers and Distribution   

  Our SYMJEPI (epinephrine) 0.15 mg and 0.3 mg Injection products and our ZIMHI product are distributed in the U.S. markets by our commercialization partner USWM pursuant to the USWM Agreement.  The FDA approved ZIMHI for marketing in October 2021, and on March 31, 2022, our commercialization partner USWM and we issued a press release announcing the commercial launch of ZIMHI. Under the terms of the USWM Agreement, USWM is the exclusive distributor of SYMJEPI in the United States and related territories, or Territory, and USWM has an exclusive license under our patent and other intellectual property rights and know-how to market, sell, and otherwise commercialize and distribute the products in the Territory, in partial consideration of an initial payment of $1,000,000 by USWM and potential additional regulatory and commercial based milestone payments. There can be no assurances that any of these milestones will be met or that any milestone payments will be paid to us. We retain rights to the intellectual property subject to the USWM Agreement and to commercialize both products outside of the Territory. In addition, we 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 our Symject™ syringe product platform.

Pursuant to our agreement with USWM, we are responsible for supplying the SYMJEPI and ZIMHI products to USWM at a supply price for quantities of products ordered.  The USWM Agreement provides that, after deducting the supply price and subject to certain other deductions and adjustments, including an allocation for USWM sales and distribution expenses from net sales of the products, USWM will pay to us 50% of the net profit from net sales, as each such term is defined in the USWM Agreement, of the product in the Territory to third parties, determined on a quarterly basis.  We will be the supplier of the products to USWM, and USWM will order and pay us a supply price for quantities of products ordered.  The agreement does not include minimum payments to us by USWM, minimum requirements for sales of product by USWM or, with certain exceptions, minimum purchase commitments by USWM. 

Competition  

The biotechnology and pharmaceutical industries are extremely competitive. Our potential competitors in the field are many in number and include major pharmaceutical and specialized biotechnology companies. Many of our potential competitors have significantly more financial, technical and other resources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience in effecting strategic combinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing products. We cannot give any assurances that we can compete effectively with these other biotechnology and pharmaceutical companies. Our potential competitors in these markets may succeed in developing products that could render our products and those of our collaborators obsolete or non-competitive. In addition, many of our competitors have significantly greater experience than we do in the fields in which we compete.  

Our products and product candidates, if developed, approved and launched, will compete with numerous prescription and non-prescription over-the-counter products targeting similar conditions, as well as prescription generic products. In addition, a number of large pharmaceuticals companies produce similar pharmaceutical products for similar indications. Moreover, certain products that previously have been available by prescription only have been or could in the future be approved by the FDA for sale over-the-counter without a prescription at a lower price than competing prescription products, which could adversely affect our ability to successfully develop and market a competing prescription product.

The SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg products compete against other self-administered epinephrine products, including EpiPen, EpiPen Jr., Auvi-Q and Adrenaclick.  There has been market and regulatory focus in recent years on the prices to consumers of self-administered epinephrine products, which have exerted downward pressure on the pricing of such products.  The company that markets EpiPen, introduced an authorized generic version of the auto-injector product at a lower price than the EpiPen.  Additionally, in late 2018 a generic, or A/B rated, competitor to EpiPen was approved and launched.  Other competing products have been introduced or prices on existing competing products have been reduced, and if additional competing products are introduced in the future, including additional generic versions of one or more existing spring-loaded auto-injector devices, at lower prices than the current market leading products, the competitive success of our SYMJEPI products could be adversely affected.  The competitive success of our products could also be adversely affected by changes in the willingness of insurance companies and other third-party payors to cover or reimburse some or all of the costs to consumers of our products.  Our ZIMHI high dose naloxone injection product, for opioid overdose, competes with other products in the markets for opioid overdose. 

Intellectual Property 

Our success will depend in part on our ability to:  

We intend to continue to seek appropriate patent protection for product candidates in our research and development programs where applicable and their uses by filing patent applications in the United States and other selected countries.  We intend for these patent applications to cover, where possible, claims for composition of matter, medical uses, processes for preparation and formulations.  As of December 31, 2022, the company had: (i) 28 issued patents in the United States and 7 pending United States patent applications; (ii) 121 issued and 30 pending foreign patent applications, three of which have been allowed, relating to our Symject™ injection device, as well as certain other product candidates and technologies that we are not pursuing, among other things. The issued patents and allowed patents applications are expected to expire between 2023 and 2041, not taking into account any potential patent-term extensions that may be available in the future.

In addition, we licensed certain rights under certain patents, patent applications and related know-how of the Licensor relating to Tempol pursuant to our license agreement with the Licensor.  As disclosed elsewhere in this Report, we have halted all development work relating to Tempol. 

Although we believe that our rights under patents and patent applications provide a competitive advantage, the patent positions of pharmaceutical and biotechnology companies are highly uncertain and involve complex legal and factual questions. We may not be able to develop patentable products or processes, and may not be able to obtain patents from pending applications. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. It is possible that any patents or patent rights that we obtain or license may be circumvented, challenged or invalidated by our competitors. 

We also rely on trade secrets, proprietary know-how and continuing innovation to develop and maintain our competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. We seek protection of these trade secrets, proprietary know-how and any continuing innovation, in part, through confidentiality and proprietary information agreements. However, these agreements may not provide meaningful protection for, or adequate remedies to protect, our technology in the event of unauthorized use or disclosure of information. Furthermore, our trade secrets may otherwise become known to, or be independently developed by, our competitors.  

Government Regulation  

The marketing of pharmaceutical products in the United States is subject to extensive government regulation. Likewise, if we seek to market and distribute any such products abroad, they would also be subject to extensive foreign government regulation. 

In the United States, the FDA regulates pharmaceutical products. FDA regulations govern the testing, manufacturing, marketing, advertising, promotion, labeling, sale and distribution of pharmaceutical products, and generally require a rigorous process for the approval of new drugs. We also may be subject to foreign regulatory requirements governing clinical trials and drug product sales if products are tested or marketed abroad. The approval process outside the United States varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval.  

Regulation in the United States  

 Seeking and obtaining FDA approval to market a drug requires substantial time, effort and money. Our product candidates that require marketing approval by the FDA will be regulated as drugs. In the United States, drugs are subject to regulation under the FDCA. The statute and related regulations govern, among other things, testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising, and other promotional practices. The FDA approval process for new drugs generally includes, without limitation:  

Failure to comply with FDA and other governmental regulations at any time during the product development process, approval process, or after approval can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs injunctions and criminal prosecution. Any of these actions could have a material adverse effect on us.

Preclinical Trials  

Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and effectiveness of the product. Most of these studies must be performed according to FDA’s Good Laboratory Practice, or GLP, requirements, a system of management controls for laboratories and research organizations to ensure the consistency and reliability of results. The results of the preclinical studies and existing clinical and/or human use data (if applicable), together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which we are required to file before we can commence any clinical trials for our product candidates in the United States. Clinical trials may begin 30 days after an IND is received, unless the FDA raises concerns or questions about the conduct of the clinical trials. If concerns or questions are raised, an IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot assure you that submission of any additional IND for any of our preclinical product candidates will result in authorization to commence clinical trials.

Human Clinical Trials under an IND 

Clinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under the supervision of a qualified principal investigator. Each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at each institution at which the study will be conducted. The IRB will consider, among other things, ethical factors, safety of human subjects and the possible liability of the institution arising from the conduct of the proposed clinical trial. Also, clinical trials must be performed according to standards, commonly referred to as Good Clinical Practice, or GCP, requirements, which are enumerated in FDA regulations and guidance documents. 

Clinical trials typically are conducted in sequential phases: Phases 1, 2 and 3. The phases may overlap. The FDA may require that we suspend clinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are being exposed to an unacceptable health risk.  In Phase 1 clinical trials, a drug is usually tested on a limited number of healthy subjects to determine safety, existence of adverse effects, proper dosage, absorption, metabolism, distribution, excretion and other drug effects.   In Phase 2 clinical trials, a drug is usually tested on a limited patient population to preliminarily evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks. In Phase 3 clinical trials, a drug is usually tested on a larger patient population to determine efficacy and to further determine safety, usually at multiple clinical sites.  We cannot assure you that any of our current or future clinical trials will result in approval to market additional products.    

U.S. Review and Approval Processes 

An NDA must include comprehensive and complete descriptions of the preclinical testing, clinical trials and the chemical, manufacturing and control requirements of a drug that enable the FDA to determine the drug’s or biologic’s safety and efficacy. An NDA must be accompanied by payment of a user fee unless a waiver or exemption applies, and must be submitted, filed and approved by the FDA before any drug product that we may successfully develop and that requires marketing approval by the FDA can be marketed commercially in the United States.  

Once the FDA receives an NDA, it has 60 days to review the application to determine if it is substantially complete and the data is readable, before it accepts the NDA for filing. The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable.  Once the submission is accepted for filing, the FDA begins an in-depth review of the submission to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity.

Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA agrees to specific goals for NDA review time through a two-tiered classification system, Priority Review and Standard Review. A Priority Review designation is given to drugs that are intended to treat serious conditions, and would provide a significant improvement in safety and effectiveness if approved.  For a Priority Review application, the FDA aims to complete the initial review cycle for New Molecular Entities, or NMEs, within six months of the 60 day filing date, and for non-NMEs within six months of the date of receipt. Standard Review applies to all applications that are not eligible for Priority Review. The FDA aims to complete Standard Review NDAs for NMEs within ten months of the 60 day filing date, and for non-NMEs within ten months of the date of receipt. Such dates are often referred to as the PDUFA dates. The FDA does not always meet its PDUFA dates for either Standard Reviews or Priority Reviews of NDAs. The review process and the PDUFA date may be extended by three months if the FDA requests or the sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA date. In addition, the FDA’s review processes can extend beyond, and in some cases significantly beyond, anticipated completion dates due to FDA requests for additional information or clarification, issuance of a complete response letter, difficulties scheduling an advisory committee meeting, negotiations regarding any required risk evaluation and mitigation strategies, FDA workload issues or other reasons.

The FDA also has established programs to expedite the development and review of drugs intended to treat serious conditions.  For example, the fast track designation is designed to facilitate the development, and expedite the review, of drugs that are intended to treat serious or life-threatening conditions and address an unmet medical need. The FDA generally attempts to facilitate early and frequent meetings with sponsors of fast track drugs.  The breakthrough therapy designation is granted to drugs intended to treat a serious or life-threatening condition where preliminary clinical evidence indicates the drug may demonstrate substantial improvement on one or more clinically significant endpoints over available therapies. In addition to early and frequent meetings between the sponsor and FDA, benefits of breakthrough designation include intensive guidance on efficient drug development from FDA, as well as organizational commitment from FDA.  Finally, accelerated approval may be granted for a drug that treats a serious or life-threatening condition and provides a meaningful therapeutic advantage over available treatments, and the drug demonstrates an effect on a surrogate endpoint reasonably likely to predict a clinical benefit or a clinical endpoint other than irreversible morbidity or mortality.  

The amount of time taken for the approval process is a function of a number of variables, including whether the product has received priority review or has received another expedited program designation, the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. The FDA may, during its review of an NDA, ask for additional test data or the conducting of additional clinical trials.

Prior to regulatory approval, the FDA may elect to obtain advice from outside experts regarding scientific issues and/or marketing applications under FDA review. These outside experts are convened through the FDA’s Advisory Committee process. An Advisory Committee will report to the FDA and make recommendations. Views of the Advisory Committee may differ from those of the FDA, and the FDA is not bound by the recommendations of an Advisory Committee.    

Before approving an NDA, the FDA generally will inspect the facilities at which the product is manufactured. The FDA will not approve the NDA unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications. The facilities, procedures and operations for any of our contract manufacturers must be determined to be adequate by the FDA before product approval. Foreign manufacturing facilities are also subject to periodic FDA inspections or inspections by foreign regulatory authorities. Vendors that may supply us with finished products or components used to manufacture, package and label products are also subject to similar regulations and periodic inspections. Among other things, the FDA may withhold approval of NDAs or other product applications if deficiencies are found at any of these facilities.

Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure that the clinical studies were conducted in compliance with GCP requirements. If the FDA determines that the processes and procedures used are not acceptable, it will outline the deficiencies in the submission and often will request additional clinical testing or information before an NDA can be approved. The FDA may also inspect one or more of the preclinical toxicology research sites to assure that the preclinical studies were conducted in compliance with GLP requirements. If the FDA determines that the studies were not performed in compliance with applicable GLP rules and regulations, the FDA may request additional preclinical testing or information before an NDA can be approved.

The FDA will issue a complete response letter if the agency decides not to approve the NDA. The complete response letter describes the specific deficiencies in the submission identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or more significant, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. 

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. The FDA also may impose restrictions on the use of the product, which may be difficult and expensive to administer.  Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling.  Moreover, the FDA may require prior approval of promotional materials. As a condition of approval, the FDA may require an applicant to develop a risk evaluation and mitigation strategy, or REMS.  A REMS uses risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks.  REMS can include medication guides, communication plans for healthcare professional, and elements to assure safe use.

In addition, the FDA may require post marketing studies, sometimes referred to as Phase 4 testing, which involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. After approval, certain changes to the approved drug or biologic, such as adding new indications, manufacturing changes or additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, an NDA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to an NDA, the FDA review period can be lengthy and is often significantly extended by FDA requests for additional information or clarification.

Post-approval requirements

Following receipt of regulatory approval, any products that we market continue to be subject to extensive regulation including, among other things, record-keeping requirements; reporting of adverse experiences with the product; providing the FDA with updated safety and efficacy information; product storage, sampling and distribution requirements; complying with certain electronic records and signature requirements; and complying with FDA promotion and advertising requirements, which include, among others, restrictions on direct-to-consumer advertising, promoting drugs for uses or in patient populations that are not described in the product’s approved labeling, known as “off-label” use, and requirements relating to industry-sponsored scientific and educational activities and promotional activities involving the internet. These regulations impact many aspects of our operations, including the manufacture, labeling, packaging, adverse event reporting, storage, distribution, advertising, promotion and record keeping related to the products. The FDA also frequently requires post-marketing testing and surveillance to monitor the effects of approved products or places conditions on any approvals that could restrict the commercial applications of these products. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, disgorgement of money, civil injunctions, operating restrictions and criminal prosecution.  

In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. This practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures. Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.   

The FDA closely regulates the post-approval marketing and promotion of drugs, including through standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. These “off-label” uses are not unusual across certain medical specialties and may constitute an appropriate treatment for many patients in varied circumstances. Federal regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments. Federal regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to delay its approval, and could result in other consequences such as recalls, fines, disgorgement of money, operating restrictions, injunctions, civil or criminal prosecution or penalties, or other possible legal or regulatory actions, such as warning letters, seizure of product, mandated corrective advertising or communications with healthcare professionals, or criminal penalties or other negative consequences, including adverse publicity. Any of these consequences could harm our business.

We will rely, and expect to continue to rely, on third-parties for the production of clinical and commercial quantities of our products. Our collaborators may also utilize third-parties for some or all of a product we are developing with such collaborator. Manufacturers are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Section 505(b)(2) New Drug Applications 

New drug products may obtain FDA marketing approval pursuant to a Section 505(b)(1) NDA filing or a 505(b)(2) NDA filing.  Whereas a 505(b)(1) NDA requires that the applicant must support its application with its own information or information to which it has a right of reference, a Section 505(b)(2) NDA enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA’s findings with respect to certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or provide other data to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.     

In seeking approval for a drug through an NDA, applicants are required to submit to the FDA information about each patent that claims the applicant’s drug or a method of using the drug, and for which a claim of patent infringement reasonably could be asserted. Upon approval of a drug, information about each of those patents is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.

To the extent that a Section 505(b)(2) NDA relies on published literature relating to a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, where the underlying studies were not conducted by or for the applicant and the applicant lacks a right of reference or use to the underlying data, the Section 505(b)(2) applicant must submit in its Section 505(b)(2) application a patent certification or statement with respect to any patents that are subject to the Orange Book listing requirement in connection with the previously approved product on which the applicant’s application relies. Specifically, the applicant must certify for each such patent that, in relevant part, (1) the required patent information has not been filed; (2) the patent has expired; (3) the patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. Alternatively, with respect to a method of use patent, the applicant may submit a statement that the patent does not claim a use for which the applicant is seeking approval. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge the listed patents through a Paragraph IV certification or submit a statement that a method of use patent does not claim a use for which the applicant is seeking approval, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents for the previously approved product have expired. Further, the FDA will also not approve a Section 505(b)(2) NDA until any applicable non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three-year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired.

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the FDA sends the Section 505(b)(2) NDA applicant notice that the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months beginning on the date the patent holder receives notice, unless, before the end of the 30-month period, a court determines that the patent is invalid, unenforceable or not infringed; a court enters a settlement order or consent decree stating that the patent is invalid, unenforceable, or not infringed; the patent owner or exclusive licensee consents to approval of the Section 505(b)(2) NDA; or the court enters an order of dismissal without a finding of infringement. Even if a patent infringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invoke the 30-month stay. Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted during the final year of a previously approved drug’s five-year exclusivity period and the patent holder brings suit within 45 days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and one-half year period if either party is found not to be reasonably cooperating in expediting the litigation.

Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last several years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.

Abbreviated New Drug Applications    

In contrast to the kind of clinical trial and other data that is required for an NDA submitted pursuant to Section 505(b)(1) or Section 505(b)(2) of the FDCA, an Abbreviated New Drug Application, or ANDA, contains data that, when submitted to the FDA pursuant to Section 505(j) of the FDCA, provides for the review and ultimate approval of a product commonly referred to as a “generic equivalent” or a “generic” drug product. These kinds of drug applications are called “abbreviated” because ANDA applicants are generally not required to conduct or submit preclinical (animal) and clinical (human) data to establish safety and effectiveness of their product, other than the requirement for bioequivalence testing. Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent, that is, that the product performs in the same manner as the listed drug. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug, among other requirements. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.  

In seeking approval for a new drug through an NDA, applicants are required to submit to the FDA information about each patent that claims the applicant’s drug or a method of using the drug. Upon approval of a drug, information about each of those patents is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be referenced by potential competitors in support of approval of an ANDA. The ANDA applicant is required to submit to the FDA an appropriate certification or statement concerning any patents listed for the approved product in the FDA’s Orange Book, in a manner generally similar to the certification or statement that is required in connection with Section 505(b)(2) applications as described above. As with Section 505(b)(2) applications, if the applicant does not challenge the listed patents and has not submitted a statement that a method of use patent does not claim a use for which the applicant is seeking approval, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA applicant has provided a Paragraph IV certification to the FDA, then the procedures described above in connection with Section 505(b)(2) applications also apply, and the risks of the patent holder initiating a patent infringement lawsuit as described above also apply. The ANDA application also will not be approved until any applicable non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. Federal law provides a period of five years following approval of a drug containing a new chemical entity, during which ANDAs for generic versions of those drugs cannot be submitted unless the submission contains a Paragraph IV certification to a listed patent, in which case the submission may be made four years following the original product approval. Federal law provides for a period of three years of exclusivity following approval of a listed drug that does not contain a new chemical entity, but is approved, for example, in a new dosage form, route of administration or combination, or for a new use, the approval of which was supported by new clinical trials (other than bioavailability studies) that were conducted or sponsored by the applicant and were essential to approval of the application, during which FDA cannot grant effective approval of an ANDA referencing that listed drug for the conditions of approval supported by the new clinical trials. 

Regulation Outside the United States   

If we market our products in foreign countries, we also will be subject to foreign regulatory requirements governing human clinical trials, marketing approval, and commercial sales and distribution for pharmaceutical products. The requirements governing the conduct of clinical trials, product approval, pricing and reimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained before manufacturing or marketing the product in those countries. The approval process varies from country to country and the time required for such approvals may differ substantially from that required for FDA approval. There is no assurance that any future FDA approval of any of our clinical trials or drugs will result in similar foreign approvals or vice versa.  

Additional Regulation

Third-Party Reimbursement   

In the United States, physicians, hospitals and other healthcare providers that purchase pharmaceutical products generally rely on third- party payors, principally private health insurance plans, Medicare, or Medicaid, to reimburse the cost of the product and related procedure, with varying degrees of patient cost sharing. Even if a product is approved for marketing by the FDA, there is no assurance that third- party payors will cover the cost of the product and related medical procedures. If they do not, end-users of the product generally would not be eligible for any reimbursement of the cost, and our ability to successfully market any such product would be materially and adversely impacted. The level of reimbursement also varies significantly by payor and setting of care, and inadequate reimbursement also could materially and adversely impact our ability to successfully market our products. 

Reimbursement systems vary significantly by country and, within some countries, by region, and coverage and reimbursement for our products must be obtained on a country-by-country basis. In many foreign markets, the pricing of prescription pharmaceuticals is subject to government pricing control or other mechanisms, including health technology assessments, mandatory rebates, and reference pricing. In these markets, once marketing approval is received, establishing coverage and reimbursement could take significant additional time. The lack of satisfactory reimbursement or inadequate government pricing of any of our products would limit their widespread use and lower potential product revenues.  

Fraud and Abuse Laws and Reporting Laws  

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws may restrict certain research and marketing practices in the pharmaceutical industry. These laws include federal and state anti-kickback and false claims laws. The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service reimbursable under a federal healthcare program, or purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under a federal healthcare program. The Anti-Kickback Statute has been interpreted to apply to various arrangements between pharmaceutical manufacturers and prescribers, purchasers, formulary managers and other entities, including arrangements where any one purpose of the remuneration was a prohibited inducement under the Statute even if the primary purpose was compensation of legitimate services. Violations of the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Regulations finalized by the Department of Health and Human Services have amended existing safe harbors or added new safe harbors, and certain of these regulations are subject to ongoing review.  Additionally, if a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Medicare Prescription Drug Improvement and Modernization Act of 2003, as amended, and other federal laws. Compliance with these fraud and abuse and reporting requirements requires significant resources. We could be required to devote significant additional financial resources and management attention if we ever become the focus of an investigation for failure to comply with these requirements.

The federal civil False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, including any claim submitted in violation of fraud and abuse and reporting requirements, or knowingly making, or causing to be made, a false statement to have a false claim paid. Claims that include items or services resulting from a violation of the Anti-Kickback Statute can constitute false or fraudulent claims under the False Claims Act. In addition, certain marketing practices, including off-label promotion, may violate the False Claims Act. Actions under the civil False Claims Act may be brought by the Attorney General or by a private individual acting as an informer or whistleblower in the name of the government, and violations can result in significant monetary penalties. The federal government has used the civil False Claims Act, and the threat of significant liability, in its investigations of healthcare providers, suppliers and drug and device manufacturers throughout the country for a wide variety of drug and device marketing and research practices, and has obtained large settlements. Numerous pharmaceutical and other healthcare companies have been pursued under this law, including for allegedly inflating drug prices used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. There is also a criminal False Claims Act, which prohibits making or presenting any false, fictitious or fraudulent claims to the government and authorizes penalties including imprisonment and fines for individuals and organizations. Many states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment.  Federal and state authorities may continue to devote substantial resources toward investigating healthcare providers’, suppliers’ and drug and device manufacturers’ compliance with these and other fraud and abuse and reporting requirements.    

HIPAA 

We may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, addresses the privacy, security, and transmission of individually identifiable health information and, among other things, requires the use of standard transactions, imposes privacy and security standards and requires breach notification, by covered entities, which include many healthcare providers, health plans and healthcare clearinghouses. HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, such as independent contractors or agents of covered entities, that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. Material monetary penalties and other remedies can result from violation of these laws and regulations. In addition, many state laws also address the privacy and security of health information, and many of these laws differ from each other in significant ways, thus complicating compliance efforts. In addition, the European Union, or EU, has a separate data security and privacy legal framework, including the European General Data Protection Regulation, or GDPR, which was adopted in 2018, which contains new provisions specifically directed at the processing of health information.  To the extent that we conduct clinical trials in the EU or otherwise expand our business operations to include operations in the EU, we would be subject to increased governmental regulation in the EU countries in which we might operate, including the GDPR.

Healthcare Reform 

The Patient Protection and Affordable Care Act, or ACA, enacted in 2010, was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and impose additional health policy reforms. The law thus included changes that significantly impact the pharmaceutical industry. The Physician Payments Sunshine Act, which is part of the ACA, and its implementing regulations impose federal reporting and disclosure requirements for pharmaceutical and device manufacturers with regard to payments or other transfers of value made to covered recipients, including physicians, teaching hospitals, advanced-practice nurses and physician assistants. In addition, pharmaceutical and device manufacturers also are required to report certain investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties. 

The ACA also established: an annual nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; a new Medicare Part D coverage gap discount program; and a new formula that increased the rebates that a manufacturer must pay under the Medicaid Drug Rebate Program. In December 2017, portions of the ACA dealing with the individual mandate insurance requirement were effectively repealed by the Tax Cuts and Jobs Act of 2017, and other aspects of the ACA may be altered or repealed by future legislation. A court challenge to the validity of the ACA failed in June 2021, when the U.S. Supreme Court decided that the plaintiffs in the lawsuit did not have standing to challenge the constitutionality of the individual mandate provisions of the ACA. As of the date of this Report the ACA remains in effect. 

In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products, including several U.S. Congressional inquiries and proposed and enacted federal and state legislation and regulation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and patient assistance programs, reduce the cost of drugs under federal and state healthcare programs, and reform government program reimbursement methodologies for drugs. In August 2022, Congress enacted the Inflation Reduction Act, or IRA, which includes significant changes to potential Medicare drug product reimbursement, as well as manufacturer rebate and discount obligations.  It is unclear how the IRA will be implemented but will likely have a significant impact on the pharmaceutical industry. The IRA and any changes at the federal or state level to drug pricing or reimbursement policies could affect our ability to successfully commercialize approved products. 

Additionally, several states require pharmaceutical companies to report information to state agencies, including information relating to drug pricing, marketing and promotion expenses, and gifts and payments to individual health care providers in the states. Other states limit or prohibit certain marketing related activities. In addition, certain states require pharmaceutical companies to implement compliance programs or marketing codes. Additional states may consider similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties. If in the future some of our business activities were subject to challenge under one or more of such laws, an adverse outcome could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Other Laws 

We are also subject to other federal, state and local laws of general applicability, such as laws regulating working conditions, and various federal, state and local environmental protection laws and regulations, including laws such as the Occupational Safety and Health Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal and state laws regarding, among other things, occupational safety, the use and handling of radioisotopes, environmental protection and hazardous substance control. There can be no assurance that we will not be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development activities may involve the controlled use of hazardous materials, including chemicals that cause cancer, volatile solvents, radioactive materials and biological materials that have the potential to transmit disease, and our operations may produce hazardous waste. If we fail to comply with these laws and regulations, we could be subjected to criminal sanctions and substantial financial liability or be required to suspend or modify our operations. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources.

 In addition, as an owner and operator of real property, we may also be subject to liability for environmental investigations and cleanups, including at properties currently or previously owned or operated by us, even if such contamination was not caused by us, as well as to claims for harm to health or property or for natural resource damages arising out of contamination or exposure to hazardous substances. Liability in many situations may be imposed not only without regard to fault, but may also be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share. We may also be subject to similar liabilities and claims in connection with locations at which hazardous substances or wastes that we have generated have been stored, treated, otherwise managed or disposed. The costs of complying with, or other impact of, current or future environmental, health and safety requirements could adversely affect our business, financial condition and results of operations.    

Outsourcing Facility Regulation  

Our compounding business formerly conducted by USC was subject to federal, state and local laws, regulations, and administrative practices, including, among others: requirements relating to federal registration as an outsourcing facility; state and local licensure and registration requirements concerning the operation of outsourcing facilities; HIPAA; ACA and the Health Care and Education Reconciliation Act of 2010; statutes and regulations of the FDA and the U.S. Drug Enforcement Administration, or DEA; and state laws and regulations promulgated by comparable state agencies concerning the preparation, sale, advertisement and promotion of drugs that were sold by USC.  As described elsewhere in this Report, we have ceased the sale of compounding pharmaceutical formulations and are winding down the business of USC, but it is possible that issues could arise in the future relating to our previous activities or the activities of USC under such laws, which could have an adverse impact on our business.  In addition, see “Legal Proceedings” elsewhere in this Report for additional matters relating to our former compounding pharmaceutical formulation business.  

Employees and Human Capital Resources  

As of December 31, 2022, we had 11 full-time employees and 1 part-time employee, all located in the United States. None of our employees is subject to a collective bargaining agreement or represented by a labor or trade union, and we believe that our relations with our employees are good.

Our human capital management goals include, as applicable, identifying, attracting, retaining, and incentivizing our employees, directors and consultants. We seek to create a safe, supportive, and rewarding work environment and to align employees’ goals with our overall strategic direction.  Our equity and cash compensation and incentive plans are primarily intended to attract, retain and motivate personnel through compensation and equity-based and cash-based compensation awards, with a goal of increasing the success of our company.

COVID-19.  As a result of the COVID-19 pandemic, we have implemented safety protocols to mitigate the risks of infection to our employees. Our COVID-19 pandemic preparedness and response was and is a focus.  Our pandemic response measures incorporate guidance issued by external health authorities and are designed with the goal of keeping workers at our facilities safe and healthy.

Corporate Background; Investor Information   

Adamis Pharmaceuticals Corporation was founded in June 2006 as a Delaware corporation. Effective April 1, 2009, the company formerly named Adamis Pharmaceuticals Corporation, or Old Adamis, completed a business combination transaction with Cellegy Pharmaceuticals, Inc., or Cellegy. Before the merger, Cellegy was a public company and Old Adamis was a private company. In connection with the consummation of the merger and pursuant to the terms of the definitive merger agreement relating to the transaction, Cellegy was the surviving corporation in the merger and changed its name from Cellegy Pharmaceuticals, Inc. to Adamis Pharmaceuticals Corporation, and Old Adamis survived as a wholly-owned subsidiary and changed its corporate name to Adamis Corporation. We have three wholly-owned subsidiaries: Adamis Corporation, USC and Biosyn, Inc.  

Our corporate headquarters are located at 11682 El Camino Real, Suite 300, San Diego, CA 92130, and our telephone number is (858) 997-2400. Financial and other information about us is available on our website at www.adamispharmaceuticals.com. We have included our website address as a factual reference and do not intend it to be an active link to our website. We make available on our website, free of charge, copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or SEC. In addition, we have previously filed registration statements and other documents with the SEC. Any document we file may be inspected, without charge, at the SEC’s website at www.sec.gov. (These website addresses are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing.)  

You should consider carefully the following information about the risks described below, together with the other information contained in this Annual Report on Form 10-K and in our other public filings in evaluating our business.  Our business, financial condition, results of operations and future prospects could be materially and adversely affected by these risks if any of them actually occurs.  In these circumstances, the market price of our common stock would likely decline.  The risks and uncertainties described below are not the only ones we face.  Additional risks not currently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business.

Risks Related to Our Financial Condition  

There is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.   

Our 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, as shown in our consolidated financial statements for the year ended December 31, 2022, included in this Report, we have sustained substantial recurring losses from operations.  In addition, we have used, rather than provided, cash in our continuing operations.  The above conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that our financial statements are issued.  Our 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 we be unable to continue in existence.  Uncertainty concerning our ability to continue as a going concern, among other factors, may hinder our ability to obtain future financing.  Continued operations and our ability to continue as a going concern are dependent, among other factors, on our ability to successfully develop and commercialize products, the market acceptance and success of our products and our ability to obtain additional required funding in the near term and thereafter.  If we cannot continue as a viable entity, we might be required to reduce or cease operations or seek dissolution and liquidation or bankruptcy protection, and our stockholders would likely lose most or all of their investment in us.

We will require additional funding to continue as a going concern.    

We incurred significant net losses for the years ended December 31, 2022 and December 31, 2021.  Our continued operations and the development of our business will require additional capital.  Based on our current and anticipated level of operations, we do not believe that our cash, cash equivalents and short-term investments, together with anticipated revenues from operations and amounts that we expect to receive as a result of our sales of assets relating to our former USC business or from other sources, will be sufficient to meet our anticipated operating expenses, liabilities and obligations for at least 12 months from the date of this Report.  We will require additional funds to sustain operations, satisfy our obligations and liabilities, fund our ongoing operations, or for other purposes, and we intend to seek additional funds during 2023. There are no assurances that required funding will be available at all or will be available in sufficient amounts or on reasonable terms.  In addition to product revenues, we have historically relied upon sales of our equity or debt securities to fund our operations.  As of the date of this Report, we have a limited number of authorized shares available for issuance in any funding transactions involving the issuance of equity securities. We currently have no available balance in our credit facility or committed sources of capital, and a number of factors may limit or prevent our current ability to access capital markets to obtain any required equity or debt funding.  Delays in obtaining, or the inability to obtain, required funding from revenues relating to sales of our commercial products, debt or equity financings, sales of assets, sales or out-licenses of intellectual property assets, products, product candidates or technologies, or other transactions or sources, would materially and adversely affect our ability to satisfy our current and future liabilities and obligations, and would materially and adversely affect our ability to continue operations. 

Our ability to obtain required debt or equity financing or funds from other transactions will be subject to a number of factors, including without limitation market conditions, our capitalization, our operating performance and investor sentiment. The terms of any such funding, or the terms of any strategic transaction that we might enter into, could result in significant dilution to our stockholders. If we are unable to raise additional funds when required or on acceptable terms, we may have to significantly restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, and which could result in additional dilution to our stockholders.  If we do not have sufficient funds to continue operations, we could be required to seek dissolution and liquidation, bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.   

Statements in this Report concerning our future plans and operations are dependent on our ability to secure adequate funding and the absence of unexpected delays or adverse developments. We may not be able to secure required funding.   

Any statements contained in this Report concerning future events or developments or our future activities, such as concerning research and development activities or regulatory matters, commercial introduction of any products that we may develop in the future, anticipated outcome of any legal proceedings in which we are involved, and other statements concerning our future operations and activities, are forward-looking statements that in each instance assume that we have or are able to obtain sufficient funding to support such activities and continue our operations and satisfy our liability and obligations in a timely manner.  There can be no assurance that this will be the case.  Also, such statements assume that there are no significant unexpected developments or events that delay or prevent such activities from occurring.  Failure to timely obtain any required additional funding, or unexpected developments or events, could delay the occurrence of such events or prevent the events described in any such statements from occurring which could adversely affect our business, financial condition and results of operations.  

We have incurred losses since our inception, and we anticipate that we will continue to incur losses. We may never achieve or sustain profitability. 

We incurred significant net losses for the years ended December 31, 2022 and December 31, 2021, as reflected in the financial statements included elsewhere in this Report.  We expect that these losses may continue as we continue our research and development activities, support commercialization of our approved products, and continue to conduct our business.  These losses will cause, among other things, our stockholders’ equity and working capital to decrease.  Any future earnings and cash flow from operations of our business are dependent on our ability to further develop our products and on revenue and profitability from sales of products.

There can be no assurance that we will be able to generate sufficient product revenue and amounts payable to us under our commercialization agreement relating to our SYMJEPI and ZIMHI products or other commercialization agreements that we may enter into to become profitable at all or on a sustained basis.  We expect to have quarter-to-quarter fluctuations in revenue and expenses, some of which could be significant.  If our products do not achieve market acceptance, we may never become profitable. As we commercialize and market products, we may incur expenses for product marketing and brand awareness and conduct significant research, development, testing and regulatory compliance activities that, together with general and administrative expenses, could result in substantial operating losses for the foreseeable future.  Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.   

We have received grand jury subpoenas issued in connection with a criminal investigation and are subject to other investigations.

As we have previously disclosed, 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 in connection with the SEC’s investigation arising from the subject matter of the subpoenas. 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.

Our proposed merger transaction with DMK is subject to a number of risks and uncertainties. Failure to complete, or delays in completing, the proposed merger transaction with DMK could materially and adversely affect Adamis’ results of operations, business, financial condition and/or stock price.

Our recently announced proposed merger transaction with DMK Pharmaceuticals Corporation is subject to a number of risks and uncertainties. Some of those risks and uncertainties include the following, among others:

Failure to timely complete the proposed merger transaction with DMK could materially and adversely affect our results of operations, financial condition, business, prospects and our stock price.

Our PPP loans may be audited or reviewed by federal or state regulatory authorities.

We applied for and obtained loan funding under the PPP pursuant to the PPP Loan and PPP Note, the balance of which has been forgiven, and under the Second Draw PPP Loan and PPP2 Note in the principal amount of $1,765,495, the balance of which was initially forgiven.  However, in connection with an investigation by the Civil Division, in June 2022 we paid a total of $1,787,417 in repayment of our Second Draw PPP Loan principal and related interest and fees. Our PPP loans and applications for forgiveness of loan amounts remain subject to future 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 or obtaining forgiveness of that loan.  If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we 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 our liquidity and adversely affect our business, financial condition and results of operations. 

Risk Relating to Our Business and Industry

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

Except for our SYMJEPI and ZIMHI products, we have not received regulatory approval for any drugs or products.  Since our fiscal 2010 year, except for revenues from sales of products of our former discontinued pharmaceutical business, and amounts that we have received and may receive in the future pursuant to our commercialization agreements relating to our SYMJEPI and ZIMHI products, we have not generated commercial revenue from marketing or selling any drugs or other products.  We expect to incur substantial net losses for the foreseeable future.  We may never be able to commercialize any additional product candidates that are subject to regulatory approval or be able to generate revenue from sales of such products.  Because of the risks and uncertainties associated with developing and commercializing our specialty pharmaceuticals and other product candidates, we are unable to predict when we may commercially introduce such products, the extent of any future losses or when we will become profitable, if ever.

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

The development of new pharmaceutical products is a highly risky undertaking.  Any potential product that we might determine to research or develop in the future may require significant additional research and development before any commercial introduction, and our development plans concerning any such product candidate will be affected by many factors, many of which are difficult to predict.  Some of the factors that could affect development plans concerning any product candidates that we might determine to research or develop in the future include:  general market conditions and developments in the marketplace including the introduction of potentially competing new products by our competitors; the availability of adequate funding to support product development efforts and sales and marketing efforts for approved products; the regulatory pathway for the product candidate; the time required to conduct required clinical trials and unexpected delays in the anticipated timing of the commencement, conduct or completion of clinical trials; the outcome and results of pre-clinical or clinical trials; the FDA’s review of NDAs that we may file concerning any such product candidate; any unexpected difficulties in licensing or sublicensing intellectual property rights that may be required for other components of the product; patent infringement lawsuits relating to Paragraph IV certifications as part of any Section 505(b)(2) or ANDA filings; any unexpected difficulties in the ability of our suppliers to timely supply quantities for commercial launch of the product; and our ability to successfully market and sell our products or enter into commercialization arrangements with third parties to market our products.  There can be no assurance that future research, development or clinical trial efforts, if any, will be successful or result in viable products or meet efficacy standards. We cannot assure you that any testing or clinical trials will show potential products to be safe and efficacious or that any such product will be approved for a specific indication. Further, the results from preclinical studies and early clinical trials may not be indicative of the results that will be obtained in later-stage clinical trials.   Delays or setbacks in development efforts that we might determine to undertake could have a material adverse effect on our ability to achieve our financial goals.

Business or economic disruptions or global health concerns, including the COVID-19 pandemic, could harm our business.

Business or economic disruptions or global health concerns, such as the COVID-19 pandemic, could adversely affect our business.  The COVID-19 pandemic, which the World Health Organization announced in January 2020 was a global health emergency, spread throughout most of the world including the United States.  The outbreak resulted in extended shutdowns of businesses in the United States and elsewhere and had ripple effects on businesses and activities around the world. The COVID-19 outbreak and continued spread of COVID-19, including the identification of novel strains of COVID-19, has affected and may continue to affect our operations, our customers and third parties on which we rely.   In addition, we could experience delays in obtaining products or services from our third-party manufacturers or suppliers as a result of the impact of the COVID-19 pandemic or other similar outbreaks on such parties.   The extent to which the COVID-19 pandemic will continue to impact our business is difficult to predict and subject to change, and will depend on future developments, which are highly uncertain and cannot be predicted, including without limitation the severity of the disease and duration of the outbreak, travel restrictions and social distancing requirements in the United States and other countries, future mutations and variations of the coronavirus, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and address its impact.  In addition, 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.  A weak or declining economy or political disruption could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making purchases or payments for our products.  Any of the foregoing could harm our business.  In addition, the COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, at various times, quarantines, shelter-in-place or work-from-home orders or policies, travel restrictions, social distancing and business shutdowns.  The effects of any such future measures could negatively impact productivity of our employees and disrupt our business activities, the magnitude of which will depend, in part, on the length and severity of the restrictions and our ability to conduct business in the ordinary course.  

We intend to rely on third parties to conduct any clinical trials that we may conduct in the future. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain, or may experience delays in obtaining, trial results or regulatory approval.   

Like many companies our size, we do not have the ability to conduct preclinical or clinical studies for product candidates that we may in the future determine to develop without the assistance of third parties who conduct the studies on our behalf.  These third parties are often toxicology facilities and clinical research organizations, or CROs, that have significant resources and experience in the conduct of pre-clinical and clinical studies.  The toxicology facilities conduct the pre-clinical safety studies as well as associated tasks connected with these studies.  The CROs typically perform patient recruitment, project management, data management, statistical analysis, and other reporting functions.  In the past we have relied on third parties to conduct clinical trials of our product candidates and to use third party toxicology facilities and CROs for our pre-clinical and clinical studies, and if we undertake clinical trials for any product candidate that we may in the future develop we similarly intend to rely on such third parties.  We may also rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of any clinical trials that we might undertake in the future.

Our reliance on these third parties for development activities will reduce our control over these activities.  If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, we may be required to replace them, and our clinical trials may be extended, delayed or terminated.  Although we believe there are a number of third- party contractors that we could engage to continue these activities, replacing a third-party contractor may result in a delay of the affected trial.

If there are injuries or deaths associated with use of our products, or if there is a product recall affecting one or more of our products, we may be exposed to significant liabilities.

The testing of human product candidates entails an inherent risk of allegations of clinical trial liability, while the marketing and sale of approved products entails an inherent risk of allegations of product liability and associated adverse publicity. The production, manufacturing, labeling of pharmaceutical products and compounded pharmaceutical preparations is inherently risky.  We could be adversely affected if any of our products, or the formulations or other products previously sold by USC, prove to be, or are asserted to be, harmful to patients.  There are a number of factors that could result in the injury or death of a patient who receives one of our products or one of the compounded formulations previously sold by USC, including quality issues, manufacturing or labeling flaws, improper packaging or unanticipated or improper uses of the products, any of which could result from human or other error.  Any of these situations could lead to a recall of, safety alert, or other proceedings or actions, relating to one or more of such products.  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, due to the potential clogging of the needle preventing the dispensing of epinephrine. As of the date of this Report, neither USWM nor we have received, or is aware of, any adverse events related to this recall. However, if adverse events or deaths or a product recall, either voluntarily or as required by the FDA or a state board of pharmacy, were associated with our products, or one of the formulations or compounds previously sold by USC, we could become subject to product and professional liability lawsuits or other proceedings, including enforcement actions by state and federal authorities or other healthcare self-regulatory bodies or product liability claims or lawsuits.  In addition, such matters could result in indemnification claims by third parties or claims relating to the product recall or associated expenses, including third parties that have purchased our SYMJEPI products or that may purchase our ZIMHI product, or to which we have sold certain assets of USC, including claims pursuant to our agreements with third parties.  Any of the foregoing matters could result in a material adverse effect on our business, results of operations, financial condition and liquidity.  As of December 31, 2022, we have recognized approximately $2.5 million in costs associated with the SYMJEPI recall. The recall may have an adverse effect on the amount or the timing of our revenues, and on our financial results and liquidity in 2023 or thereafter, although as of the date of this Report the amount of any such impact cannot be predicted with certainty. In addition, current or future insurance coverage may prove insufficient to cover any liability claims brought against USC or us. Any of the foregoing matters could result in a material adverse effect on our business, results of operations, financial condition and liquidity.

Delays in the commencement or completion of pre-clinical or clinical testing of our product candidates could result in increased costs and delay our ability to generate future revenues relating to such product candidates.

The actual timing of commencement and completion of pre-clinical or clinical trials can vary substantially from our expectations due to factors such as funding limitations, scheduling conflicts with participating clinicians and clinical institutions, and the rate of patient enrollment. Pre-clinical or clinical trials involving any product candidates that we may determine in the future to develop may not commence or be completed as forecast. Delays in the commencement or completion of clinical testing could significantly impact our product development costs. The commencement of clinical trials can be delayed for a variety of reasons.  In addition, once a clinical trial has begun, it may be suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors.

Clinical trials require sufficient participant enrollment, which is a function of many factors, including the size of the target patient population, the nature of the trial protocol, the proximity of participants to clinical trial sites, the availability of effective treatments for the relevant disease, the eligibility criteria for our clinical trials and competing trials. Delays in enrollment can result in increased costs and longer development times.   In addition, the FDA could require us to conduct clinical trials with a larger number of participants than we may project for any of our product candidates.  As a result of these factors, we may not be able to enroll a sufficient number of participants in a timely or cost-effective manner.  Furthermore, enrolled participants may drop out of clinical trials, which could impair the validity or statistical significance of the clinical trials.  

We are subject to the risk of clinical trial and product liability lawsuits.  

The testing of human health care product candidates entails an inherent risk of allegations of clinical trial liability, while the marketing and sale of approved products entails an inherent risk of allegations of product liability and associated adverse publicity. We currently maintain liability insurance. However, such insurance policies are expensive, may not provide sufficient coverage, and may not be available in the future on acceptable terms, or at all. We are subject to the risk that substantial liability claims from the testing or marketing of pharmaceutical products could be asserted against us in the future. There can be no assurance that we will be able to obtain or maintain insurance on acceptable terms, particularly in overseas locations, for clinical and commercial activities or that any insurance obtained will provide adequate protection against potential liabilities. An inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could inhibit our business.  

Moreover, our current and future coverages may not be adequate to protect us from all of the liabilities that we may incur. If losses from liability claims exceed our insurance coverage, we may incur substantial liabilities that exceed our financial resources. In addition, a product or clinical trial liability action against us would be expensive and time-consuming to defend, even if we ultimately prevailed. If we are required to pay a claim, we may not have sufficient financial resources and our business and results of operations may be harmed. A product liability claim brought against us in excess of our insurance coverage, if any, could have a material adverse effect upon our business, financial condition and results of operations.    

We do not have commercial-scale manufacturing capability, and we lack commercial manufacturing experience. We will likely rely on third parties to manufacture and supply our products.  

Except for our facilities at USC that were previously utilized to prepare compounded formulations, we do not own or operate manufacturing facilities for clinical or commercial production of pharmaceutical products and product candidates, we do not have any experience in drug formulation or manufacturing, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. Accordingly, we expect to depend on third- party contract manufacturers for the foreseeable future. Any performance failure on the part of our contract manufacturers could significantly disrupt the supply of our products to the marketplace or could delay clinical development, regulatory approval or commercialization of any product candidates that we may determine to develop in the future, depriving us of potential product revenue and resulting in additional losses. Additionally, we rely on third parties to supply the raw materials needed to manufacture our products.  Any business interruptions resulting from geopolitical actions, including war and terrorism, adverse public health developments such as the COVID-19 coronavirus pandemic, or natural disasters including earthquakes, typhoons, floods and fires, could adversely affect our supply chain.  Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality.  Any unanticipated disruption to our manufacturers or suppliers could delay shipment of any of our products, increase our cost of goods sold and result in lost sales.  

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production.

These problems can include difficulties with production costs and yields, quality control (including stability of the product candidate and quality assurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations. If our third- party contract manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations or under applicable regulations, our ability to provide commercial products to the marketplace or product candidates to patients in any clinical trials that we might undertake in the future would be jeopardized.

Our products can only be manufactured in a facility that has undergone a satisfactory inspection by the FDA and other relevant regulatory authorities. For these reasons, we may not be able to replace manufacturing capacity for our products quickly if we or our contract manufacturer(s) were unable to use manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure, or other difficulty, or if such facilities were deemed not in compliance with the regulatory requirements and such non-compliance could not be rapidly rectified. An inability or reduced capacity to manufacture our products could have a material adverse effect on our business, financial condition, and results of operations.  

We are subject to substantial government regulation, which could materially adversely affect our business. If we do not receive regulatory approvals, we may not be able to develop and commercialize our technologies.   

We need FDA approval to market our products in the United States that are subject to regulatory approval, and similar approvals from foreign regulatory authorities to market products outside the United States. The production and marketing of such products and potential products and our ongoing research and development, pre-clinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities in the United States and will face similar regulation and review for overseas approval and sales from governmental authorities outside of the United States. The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of our products that are subject to regulatory review, as well as the evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals. Many of the product candidates that we are currently developing must undergo rigorous pre-clinical and clinical testing and an extensive regulatory approval process before they can be marketed. This process makes it longer, more difficult and more costly to bring our potential products to market, and we cannot guarantee that any of our potential products will be approved. Many products for which FDA approval has been sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record-keeping procedures. If we or our collaboration partners do not comply with applicable regulatory requirements, such violations could result in non-approval, suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.  

Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decide after review of an application that the data submitted is insufficient to allow approval of the proposed product, as we have experienced with previous CRLs that we have received from the FDA. If regulatory authorities do not accept or approve our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatory authorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authorities believe is sufficient. Depending on the extent of these studies, acceptance or approval of applications may be delayed by several years, or may require us to expend more resources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval.

Failure to obtain FDA or other required regulatory approvals, or withdrawal of previous approvals, would adversely affect our business. Even if regulatory approval of a product is granted, this approval may entail limitations on uses for which the product may be labeled and promoted, or may prevent us from broadening the uses of products for different applications.  

Following regulatory approval of any of our drug candidates, we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability to commercialize our potential products.  

With regard to our drug products that are approved by the FDA or by another regulatory authority, we are held to extensive regulatory requirements over product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority. Previously unknown problems with the drug candidate, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market. In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.

We intend to pursue Section 505(b)(2) regulatory approval filings with the FDA for our products where applicable. Such filings involve significant costs, and we may also encounter difficulties or delays in obtaining regulatory approval for our products. Similar difficulties or delays may also arise in connection with any Abbreviated New Drug Applications that we may file.  

We submitted a Section 505(b)(2) NDA regulatory filing to the FDA in connection with our approved SYMJEPI products and our ZIMHI (naloxone) Injection product, and we may pursue Section 505(b)(2) NDA filings with the FDA in connection with one or more other future product candidates that we may develop. A Section 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing previously approved product, or published literature, in support of its application.  Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products.  Such filings involve significant filing costs, including filing fees. In addition, we may also encounter difficulties or delays in obtaining regulatory approval for our products.

To the extent that a Section 505(b)(2) NDA relies on published literature relating to a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, where the underlying studies were not conducted by or for the applicant and the applicant lacks a right of reference or use to the underlying data, the Section 505(b)(2) applicant must submit in its Section 505(b)(2) application a patent certification or statement with respect to any patents that are subject to the Orange Book listing requirement in connection with the previously approved product on which the applicant’s application relies. Specifically, the applicant must certify for each such patent that, in relevant part, (1) the required patent information has not been filed; (2) the patent has expired; (3) the patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. Alternatively, with respect to a method of use patent, the applicant may submit a statement that the patent does not claim a use for which the applicant is seeking approval. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge the listed patents through a Paragraph IV certification or submit a statement that a method of use patent does not claim a use for which the applicant is seeking approval, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents for the previously approved product have expired. Further, the FDA will also not approve a Section 505(b)(2) NDA until any applicable non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three-year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired.

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the FDA sends the Section 505(b)(2) NDA applicant notice that the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months beginning on the date the patent holder receives notice, unless, before the end of the 30-month period, a court determines that the patent is invalid, unenforceable or not infringed; a court enters a settlement order or consent decree stating that the patent is invalid, unenforceable, or not infringed; the patent owner or exclusive licensee consents to approval of the Section 505(b)(2) NDA; or the court enters an order of dismissal without a finding of infringement.  

If we rely in our Section 505(b)(2) regulatory filings on published literature relating to a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product where the underlying studies were not conducted by or for us and we lack a right of reference or use to the underlying data, and that involves patents referenced in the Orange Book, then we will need to make the patent certifications or the Paragraph IV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that we referenced in our application initiates patent litigation within the time periods described above, then any FDA approval of our 505(b)(2) application would be delayed until the earlier of 30 months, resolution of the lawsuit, or the other events described above. Accordingly, our anticipated dates relating to review and approval of a product that was subject to such litigation would be delayed. In addition, we would incur the expenses, which could be material, involved with any such patent litigation. As a result, we may invest a significant amount of time and expense in the development of our product only to be subject to significant delay and patent litigation before our product may be commercialized, if at all.

In addition, even if we submit a Section 505(b)(2) application, such as we may submit for other future products, that relies on published literature relating to a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product where there are no patents referenced in the Orange Book for such other product with respect to which we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on the particular previously approved product that we chose to rely on, conclude that such previously approved product is not an acceptable reference product, and require us instead to rely as a reference product on another previously approved product that involves patents referenced in the Orange Book, requiring us to make the certifications described above and subjecting us to additional delay, expense and the other risks described above.

Similarly, if we submit one or more ANDA applications to the FDA pursuant to Section 505(j) of the FDCA in connection with one or more of our product candidates, we could encounter generally similar difficulties or delays, including difficulties or delays resulting from the Paragraph IV certification process or from the development of any bioequivalence or other data that might be required in connection with any such ANDAs.

If we fail to obtain acceptable prices or appropriate reimbursement for our products, our ability to successfully commercialize our products will be impaired.

Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians and pharmaceutical companies such as Adamis, that plan to offer various products in the United States and other countries in the future. Physicians and patients may decide not to order our products unless third- party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid, pay a substantial portion of the price of the products. Market acceptance and sales of our products and potential products will depend in part on the extent to which reimbursement for the costs of such products will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the United States, our ability to have our products eligible for Medicare, Medicaid or private insurance reimbursement will be an important factor in determining the ultimate success of our products. If, for any reason, Medicare, Medicaid or the insurance companies decline to provide reimbursement for our products, our ability to commercialize our products would be adversely affected. 

Third-party payors may challenge the price of medical and pharmaceutical products. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that our product candidates are not experimental or investigations, effective, medically necessary, appropriate for the specific patient, cost-effective, supported by peer-reviewed publications, or included in clinical practice guidelines.  

If purchasers or users of our products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products, they may forego or reduce such use. Significant uncertainty exists as to the reimbursement status of newly approved pharmaceutical products, and there can be no assurance that adequate third- party coverage will be available for any of our products. Even if our products are approved for reimbursement by Medicare, Medicaid and private insurers, of which there can be no assurance, the amount of reimbursement may be reduced at times or even eliminated, which could have a material adverse effect on our business, financial condition and results of operations.  

Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably. 

In both the United States and certain foreign jurisdictions, there have been and are expected to be a number of legislative and regulatory changes to the healthcare system in ways that could impact our ability to sell our products profitably.  The impact of these changes on the biotechnology and pharmaceutical industries and our business is uncertain.

On August 16, 2022, President Biden signed the IRA into law, which sets forth meaningful changes to drug product reimbursement by Medicare. Among other actions, the IRA permits HHS to engage in price-capped negotiation to set the price of certain drugs and biologics reimbursed under Medicare Part D. The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increase the cost of a covered Medicare Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects.

The U.S. Congress continues to consider issues relating to the healthcare system, and future legislation or regulations may affect our ability to market and sell products on favorable terms, which would affect our results of operations, as well as our ability to raise capital, obtain additional collaborators or profitably market our products. Such legislation or regulation may reduce our revenues, increase our expenses or limit the markets for our products. In particular, we expect to experience pricing pressures in connection with the sale of our products due to the influence of health maintenance and managed health care organizations and additional legislative proposals. 

We are subject to a variety of federal, state and local laws and regulations relating to the general healthcare industry, which are subject to frequent change.

Participants in the healthcare industry, including the company and, before the winding down of its business as described elsewhere in this Report, USC, are subject to a variety of federal, state, and local laws and regulations.  Laws and regulations in the healthcare industry are extremely complex and, in many instances, industry participants do not have the benefit of significant regulatory or judicial interpretation.  Such laws and regulations are subject to change and often are uncertain in their application.  There can be no assurance that we will not be subject to scrutiny or challenge under one or more of these laws or regulations or that any such challenge would not be successful.  Any such challenge, whether or not successful, could adversely affect our business, financial condition or results of operations.

Laws that may affect our ability to operate include, but are not limited to, the federal Anti-Kickback Statute, federal civil and criminal false claims laws, state anti-kickback and false claims laws, HIPAA, as amended by HITECH, and the federal Physician Payments Sunshine Act, created under the ACA and its implementing regulations. Violations of these laws can result in imprisonment, civil or criminal fines, fines and disciplinary actions relating to our state licensure, disgorgement, exclusion of products from reimbursement under U.S. federal or state healthcare programs, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations. Moreover, any violation or alleged violation of such federal or state laws could harm our reputation, customer relationships or otherwise have a material adverse effect on our business, financial condition and results of operations.

We have limited sales, marketing and distribution experience. 

We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that we will be able to establish sales, marketing, and distribution capabilities or make arrangements with collaborators or others to perform such activities or that such efforts will be successful. If we decide to market any products directly ourselves, we would be required to either acquire or internally develop a marketing and sales force with technical expertise and with supporting distribution capabilities. The acquisition or development of a sales, marketing and distribution infrastructure would require substantial resources, which may not be available to us or, even if available, could divert the attention of our management and key personnel and have a negative impact on further product development efforts.  

We may seek to enter into arrangements to develop and commercialize our products. These collaborations, even if secured, may not be successful. 

We have entered and sought to enter into arrangements with third parties regarding development or commercialization of some of our products or product candidates and may in the future seek to enter into collaborative arrangements to develop and commercialize some of our potential products both in North America and international markets. There can be no assurance that we will be able to negotiate commercialization or collaborative arrangements on favorable terms or at all or that our current or future collaborative arrangements will be successful. The amount and timing of resources such third parties will devote to these activities may not be within our control. There can be no assurance that such parties will perform their obligations as expected. There can be no assurance that our collaborators will devote adequate resources to our products.  

Even if they are approved and commercialized, if our potential products are unable to compete effectively with current and future products targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated.    

The markets for our SYMJEPI products and ZIMHI product, and our other product candidates, are intensely competitive and characterized by rapid technological progress.  We face competition from numerous sources, including major biotechnology and pharmaceutical companies worldwide.  Many of our competitors have substantially greater financial and technical resources, and development, production and marketing capabilities, than we do.  Our SYMJEPI product competes with a number of other currently marketed epinephrine products for use in the emergency treatment of acute allergic reactions, including anaphylaxis.  Our ZIMHI product competes with a number of other currently marketed products utilizing naloxone, for the treatment of acute opioid overdose.   Certain companies have established technologies that may be competitive with our products and any future product candidates that we may determine to develop or acquire.  Some of these products may use different approaches or means to obtain results, which could be more effective or less expensive than our products for similar indications.  In addition, many of these companies have more experience than we do in pre-clinical testing, performance of clinical trials, manufacturing, and obtaining FDA and foreign regulatory approvals.  They may also have more brand name exposure and expertise in sales and marketing.  We also compete with academic institutions, governmental agencies and private organizations that are conducting research in the same fields.

Competition among these entities to recruit and retain highly qualified scientific, technical and professional personnel and consultants is also intense.  As a result, there is a risk that one or more of our competitors will develop a more effective product for the same indications for which we are developing a product or, alternatively, bring a similar product to market before we can do so.  Failure to successfully compete will adversely impact the ability to raise additional capital and ultimately achieve profitable operations.  

Our product candidates may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generate revenue, which will undermine our future growth prospects. 

Even if our pharmaceutical product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, health care professionals and third- party payors, and our profitability and growth will depend on a number of factors, including:  

If any product candidate that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care or otherwise does not provide some additional patient benefit over the current standard of care, that product will likely not achieve market acceptance and we will not generate sufficient revenues to achieve profitability.

If we suffer negative publicity concerning the safety of our products in development, our sales may be harmed and we may be forced to withdraw such products.

If concerns should arise about the safety of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for these products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not these claims are supported by applicable law.  

Our failure to adequately protect or to enforce our intellectual property rights or secure rights to third party patents could materially harm our proprietary position in the marketplace or prevent the commercialization of our products. 

Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technologies and products. The patents and patent applications in our existing patent portfolio are either owned by us or licensed to us. Our ability to protect our product candidates from unauthorized use or infringement by third parties depends substantially on our ability to obtain and maintain, or license, valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions for which important legal principles are unresolved.

There is a substantial backlog of patent applications at the United States Patent and Trademark Office, or USPTO. There can be no assurance that any patent applications relating to our products or methods will be issued as patents, or, if issued, that the patents will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide a competitive advantage.  We may not be able to obtain patent rights on products, treatment methods or manufacturing processes that we may develop or to which we may obtain license or other rights.  Even if we do obtain or license patent rights, rights under any issued patents may not provide us with sufficient protection for our product candidates or provide sufficient protection to afford us a commercial advantage against our competitors or their competitive products or processes.  Patents and intellectual property that we own or license may not afford us the rights that we anticipate.  It is possible that no patents will be issued from any pending or future patent applications owned by us or licensed to us.  Others may challenge, seek to invalidate, infringe or circumvent any patents we own or license.  Alternatively, we may in the future be required to initiate litigation against third parties to enforce our intellectual property rights.  The defense and prosecution of patent and intellectual property claims are both costly and time consuming, even if the outcome is favorable to us.  Any adverse outcome could subject us to significant liabilities, require us to license disputed rights from others, or require us to cease selling our future products.

In addition, many other organizations are engaged in research and product development efforts that may overlap with our products. Such organizations may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products or methods under development or consideration by us. These rights may prevent us from commercializing technology, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and we cannot be sure that the patents underlying any such licenses will be valid or enforceable. As with other companies in the pharmaceutical industry, we are subject to the risk that persons located in other countries will engage in development, marketing or sales activities of products that would infringe our patent rights if such activities were conducted in the United States.  

Our patents also may not afford protection against competitors with similar technology. We may not have identified all patents, published applications or published literature that affect our business either by blocking our ability to commercialize our product candidates, by preventing the patentability of our products or by covering the same or similar technologies that may affect our ability to market or license our product candidates. Many companies have encountered difficulties in protecting and defending their intellectual property rights in foreign jurisdictions. If we encounter such difficulties or are otherwise precluded from effectively protecting our intellectual property rights in either the United States or foreign jurisdictions, our business prospects could be substantially harmed. In addition, we may not have adequate cash funding to devote the resources that might be necessary to prepare or pursue patent applications, either at all or in all jurisdictions in which we might desire to obtain patents, or to maintain already-issued patents.  

We may become involved in patent litigation or other intellectual property proceedings relating to our future product approvals, which could result in liability for damages or delay or stop our development and commercialization efforts. 

The pharmaceutical industry has been characterized by significant litigation and other proceedings regarding patents, patent applications, trademarks, and other intellectual property rights. The situations in which we may become parties to such litigation or proceedings may include any third parties initiating litigation claiming that our products infringe their patent or other intellectual property rights, or that one of our trademarks or trade names infringes the third party’s trademark rights; in such case, we will need to defend against such proceedings. For example, the field of generic pharmaceuticals is characterized by frequent litigation that occurs in connection with the regulatory filings under Section 505(b)(2) of the FDCA and attempts to invalidate the patent of the reference drug.   

The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial. Many of our potential competitors will be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significant management time.   

In the event that a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be costly, difficult, and time-consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time-consuming and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patent or other intellectual property rights against a challenge. If we are unsuccessful in enforcing and protecting our intellectual property rights and protecting our products, it could materially harm our business.  

We are subject to certain data privacy and security requirements, which are very complex and difficult to comply with at times. Any failure to ensure adherence to these requirements could subject us to fines and penalties, and damage our reputation.  

We are required to comply, as applicable, with numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, which govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who may prescribe products we may sell in the future and from whom we may obtain patient health information are subject to privacy and security requirements under HIPAA and comparable state laws. These laws could create liability for us or increase our cost of doing business, and any failure to comply could result in harm to our reputation, and potentially fines and penalties.  

There are significant limitations on our ability in the future to utilize any net operating loss carryforwards for federal and state income tax purposes.

At December 31, 2022, we had federal and state net operating loss carryforwards, or NOLs, and credit carryforwards which, subject to certain limitations, we may use to reduce future taxable income or offset income taxes due.  Insufficient future taxable income will adversely affect our ability to utilize these NOLs and credit carryforwards.  Pursuant to Internal Revenue Code Section 382, the annual use of the NOLs and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period.  As noted in Note 20 of the audited consolidated financial statements appearing in this Report, our existing NOLs are subject to limitations arising from previous ownership changes, and if we undergo additional ownership changes, our ability to use our NOLs could be further limited by Section 382 of the Code.  As a result of these limitations, we may be materially limited in our ability to utilize our NOLs and credit carryforward.  

Risks Related to Our Former Compounding Pharmacy Business  

We are engaged in the process of selling or otherwise disposing of the remaining assets of our former discontinued USC.  There is no assurance regarding the proceeds that we may receive from the sale or disposition of any assets of USC.  We may incur significant costs in connection with such winding down activities.

As previously disclosed in our reports with the SEC and as disclosed elsewhere in this Report, pursuant to the USC Agreement we have sold and transferred certain assets relating to the human compounding pharmaceutical business of USC and have agreed to a variety of restrictive covenants preventing us from engaging in certain business and competitive activities relating to the human compounding pharmaceutical business. The remaining operations and business of USC have been or will be wound down and terminated, and remaining assets relating to USC’s business have been sold or will be sold or otherwise transferred or disposed of.  Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit and is no longer engaged in the human or veterinary compounding pharmaceutical business.   

Other matters may arise relating to the former USC business, USC assets, or USC employees, or arising out of the restructuring, winding down and winding up activities, that could require us to pay amounts in the future.  The process of winding down and winding up the remaining business of USC could require us to incur significant expenses or pay significant amounts in connection with or relating to the termination of employment of USC’s employees, the disposition of remaining USC assets, the termination of agreements relating to the USC business, or the resolution of outstanding obligations, liabilities, or current or future claims or proceedings.  In addition, we could be required to pay significant fines, penalties or other amounts as a result of proceedings by federal or state regulatory authorities relating to the former business and operations of USC.  The compounding pharmaceuticals business formerly conducted by USC is subject to federal, state and local laws, regulations and administrative practices. There can be no assurance that we or USC have been or are compliant in material respects with applicable federal and state regulatory requirements.  Failure to comply with FDA requirements and other federal or state governmental laws and regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, exposure to product liability claims, total or partial suspension of production or distribution, enforcement actions, injunctions and civil or criminal prosecution, any of which could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to Our Common Stock 

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. 

Provisions of our restated certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us, even if a change of control would benefit our stockholders. For example, shares of our preferred stock may be issued in the future without further stockholder approval, and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine, including, for example, rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain investors might be willing to pay in the future for shares of our common stock and discourage those investors from acquiring a majority of our common stock. Similarly, our bylaws include a prohibition on stockholder action by written consent, which means that all stockholder action must be taken at an annual or special meeting of stockholders. Moreover, our charter documents to not provide for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates. Our bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations. The existence of these charter provisions could have the effect of entrenching management and making it more difficult to change our management. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, unless one or more exemptions from such provisions apply. These provisions under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future. 

The price of our common stock may be volatile. 

The market price of our common stock may fluctuate substantially. For example, from January 2020 to December 31, 2022, the market price of our common stock has fluctuated between $0.12 and $2.34. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:  

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation. Furthermore, market volatility may lead to increased shareholder activism if we experience a market valuation that activists believe is not reflective of our intrinsic value. Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our board of directors could have an adverse effect on our operating results and financial condition.

Trading of our common stock is limited.

Trading of our common stock is limited, and trading restrictions imposed on us by applicable regulations may further reduce our trading, making it difficult for our stockholders to sell their shares. 

The foregoing factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. In addition, without a large public float, our common stock is less liquid than the stock of companies with broader public ownership, and as a result, the trading price of our common stock may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate his or her investment in our common stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the case if our public float were larger. We cannot predict the price at which our common stock will trade at any given time.  

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.

Our common stock is listed on the Nasdaq Capital Market.  If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements, the minimum closing bid price requirement, or applicable market capitalization or shareholder equity requirements, Nasdaq may take steps to delist our common stock.  Such a delisting would have a negative effect on the price of our common stock, impair the ability to sell or purchase our common stock when persons wish to do so, and any delisting materially adversely affect our ability to raise capital or pursue strategic restructuring, refinancing or other transactions on acceptable terms, or at all.  Delisting from the Nasdaq Capital Market could also have other negative results, including the potential loss of institutional investor interest and fewer business development opportunities.  In the event of a delisting, we would attempt to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

On December 28, 2022, we were notified by the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that, based upon our non-compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”) as of December 27, 2022, our common stock was subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). We timely requested a hearing before the Panel, and a hearing was held on February 16, 2023.  On February 21, 2023, the Staff notified us that the Panel has granted our request for continued listing of our 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 our 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.  We intend 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 we 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.

Our common stock could become subject to additional trading restrictions as a “penny stock,” which could adversely affect the liquidity and price of such stock. If our common stock became subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.    

If our common stock was delisted from the NASDAQ Capital Market and began to trade on the over-the-counter OTC Markets platform, such trading platforms are viewed by most investors as a less desirable, and less liquid, marketplace.  As a result, an investor could find it more difficult to purchase, dispose of or obtain accurate quotations as to the value of our common stock.  

Unless our common stock is listed on a national securities exchange, such as the NASDAQ Capital Market, our common stock may also be subject to the regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations.  The following is a list of the general restrictions on the sale of penny stocks:  

These requirements can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing to undertake these compliance activities. If our common stock is not listed on a national securities exchange, the rules and restrictions regarding penny stock transactions may limit an investor’s ability to sell to a third party and our ability to raise additional capital. We make no guarantee that market-makers will make a market in our common stock, or that any market for our common stock will continue.  

Our stockholders may experience significant dilution as a result of any additional financing using our securities, or as the result of the exercise or conversion of our outstanding securities. 

In the future, to the extent that we raise additional funds by issuing equity securities or securities convertible into or exercisable for equity securities, our stockholders may experience significant dilution. In addition, conversion or exercise of other outstanding options, warrants or convertible securities could result in there being a significant number of additional shares outstanding and dilution to our stockholders. If additional funds are raised through the issuance of preferred stock, holders of preferred stock could have rights that are senior to the rights of holders of our common stock, and the agreements relating to any such issuance could contain covenants that would restrict our operations.  

We have not paid cash dividends on our common stock in the past and do not expect to pay cash dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock. 

No cash dividends have been paid on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on a stockholder investment will only occur if our stock price appreciates.  

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.  

Our restated certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock.

Future sales of substantial amounts of our common stock, or the possibility that such sales could occur, could adversely affect the market price of our common stock. 

If in the future we sell additional equity securities to help satisfy funding requirements, those securities may be subject to registration rights or may include warrants with anti-dilutive protective provisions. Future sales in the public market of our common stock, or shares issued upon exercise of our outstanding stock options, warrants or convertible securities, or the perception by the market that these issuances or sales could occur, could lower the market price of our common stock or make it difficult for us to raise additional capital. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon the sale of their shares. Also, new equity securities issued may have greater rights, preferences or privileges than our existing common stock.  

As of December 31, 2022, we had 149,983,265 shares of common stock outstanding, substantially all of which we believe may be sold publicly, subject in some cases to volume and other limitations, provisions or limitations in registration rights agreements, or prospectus-delivery or other requirements relating to the effectiveness and use of registration statements registering the resale of such shares.

As of December 31, 2022, we had reserved for issuance 4,431,429 shares of our common stock issuable upon the exercise of outstanding stock options under our equity incentive plans at a weighted-average exercise price of $4.10 per share, we had outstanding restricted stock units covering 650,000 shares of common stock, and we had outstanding warrants to purchase 14,952,824 shares of common stock at a weighted-average exercise price of $1.13 per share. Subject to applicable vesting requirements, upon exercise of these options or warrants or issuance of shares following vesting of the restricted stock units, the underlying shares may be resold into the public market, subject in some cases to volume and other limitations or prospectus delivery requirements pursuant to registration statements registering the resale of such shares. In the case of outstanding options or warrants that have exercise prices that are below the market price of our common stock from time to time, or upon issuance of shares following vesting of restricted stock units, our stockholders would experience dilution upon the exercise of these options.

Exercise of our outstanding warrants may result in dilution to our stockholders.

As of December 31, 2022, we had outstanding warrants, other than the warrants described in the next sentence, to purchase 58,824 shares of common stock, at a weighted average exercise price of $8.50 per share.  As of December 31, 2022, 13,794,000 shares of our common stock were issuable (subject to certain beneficial ownership limitations) upon exercise of warrants, at an exercise price of $1.15 per share, that we issued in connection with our underwritten public offering of common stock and warrants in August 2019; 350,000 shares of our common stock were issuable (subject to certain beneficial ownership limitations) upon exercise of warrants, at an exercise price of $0.70 per share, that we issued in connection with our private placement of warrants in February 2020 , and, 750,000 shares of our common stock were issuable (subject to certain beneficial ownership limitations) upon exercise of warrants, at an exercise price of $0.47 per share, that we issued in connection with the issuance of Series C Preferred Stock in July 2022.  

Our Bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for a wide variety of disputes between us and our stockholders, and that the federal district courts of the United States of the America are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Exclusive forum provisions in our Bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Bylaws, as amended, provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders, including (i) any derivative action or proceeding brought on behalf of the company; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the company to the company or the company’s stockholders; (iii) any action asserting a claim against the company or any director or officer or other employee of the company arising pursuant to any provision of the Delaware General Corporation Law, the certificate of incorporation or the Bylaws of the company, or as to which the Delaware General Corporation Law confers jurisdiction on the Courts of Chancery of the State of Delaware; or (iv) any action asserting a claim against the company or any director or officer or other employee of the company governed by the internal affairs doctrine, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants (including without limitation as a result of the consent of such indispensable party to the personal jurisdiction of such court). The Bylaws provide that the foregoing provisions do not apply to actions or suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our Bylaws do not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. In addition, our Bylaws, as amended, provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and to have consented to these provisions.

Under the Securities Act, federal and state courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act. There is uncertainty as to whether a court (other than state courts in the State of Delaware, where the Supreme Court of the State of Delaware decided in March 2020 that exclusive forum provisions for causes of action arising under the Securities Act are facially valid under Delaware law) would enforce forum selection provisions and whether investors can waive compliance with the federal securities laws and the rules and regulations thereunder. We believe the forum selection provisions in Bylaws, as amended, may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may have the effect of discouraging lawsuits against us and/or our directors, officers and employees as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers or employees. In addition, stockholders who do bring a claim in the Court of Chancery in the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a future court could find the choice of forum provisions contained in our Bylaws to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations. 

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, identify or discover material weaknesses in our internal control over financial reporting or fail to effectively remediate any identified material weaknesses, our business and financial condition could be materially and adversely affected and our stock price could decline.

 Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.  Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any material changes and weaknesses identified through such evaluation.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and our business and financial condition could be adversely affected.  If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.  Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud.  If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could decline significantly.

As disclosed in our Quarterly Reports on Form 10-Q for the first three quarters of 2021, we identified material weaknesses 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.  We believe that the identified weakness was remediated as of December 31, 2021. Nevertheless, any failure to effectively remediate an identified material weakness or otherwise maintain adequate internal controls over financial reporting could adversely impact our ability to report our financial results on a timely and accurate basis.  If our financial statements are not accurate, investors may not have a complete understanding of our operations.  Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, and legal proceedings by stockholders or regulatory authorities, which could result in a material adverse effect on our business.  We could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.  Failure to timely file required reports with the SEC, as occurred with respect to our Quarterly Reports on Form 10-Q for the first three quarters of 2021, results in loss of eligibility to utilize short form registration statements on Form S-3 and prospectuses outstanding under previous registration statements not being current or available, which may impair our ability to obtain required capital in a timely manner or issue shares for other purposes, and may subject us to legal claims from stockholders or warrant holders.  Inadequate internal control could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We take responsive actions to address identified material weaknesses in our internal control over financial reporting.  However, we can give no assurance that such measures will remediate any material weakness that are identified or that any additional material weaknesses or restatements of financial results will not arise in the future.  In the future, our management may determine that our disclosure controls and procedures are ineffective or that there are one or more material weaknesses in our internal controls over financial reporting, resulting in a reasonable possibility that a material misstatement to the annual or interim financial statements would not have been prevented or detected.  Accordingly, a material weakness increases the risk that the financial information we report contains material errors.  Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  Efforts to correct any material weaknesses or deficiencies that may be identified could require significant financial resources to address.  Moreover, if remedial measures are insufficient to address the deficiencies that are determined to exist, we may fail to meet our future reporting obligations on a timely basis, our consolidated financial statements could contain material misstatements, we could be required to restate our prior period financial results, our operating results may be harmed, and we could become subject to class action litigation or investigations or proceedings from regulatory authorities.   Any of these matters could adversely affect our business, reputation, revenues, results of operations, financial condition and stock price.

General Risk Factors

We depend on our officers. If we are unable to retain our key employees or to attract additional qualified personnel, our product operations and development efforts may be seriously jeopardized. 

Our success will be dependent upon the efforts of our management team and staff, including David J. Marguglio, our Chief Executive Officer. We currently do not have key person life insurance policies covering any of our executive officers or key employees. If key individuals leave us, we could be adversely affected if suitable replacement personnel are not quickly recruited.  There is competition for qualified personnel in all functional areas, which makes it difficult to attract and retain the qualified personnel necessary for the operation of our business.  Our success also depends in part on our ability to attract and retain highly qualified scientific, commercial and administrative personnel.  If we are unable to attract new employees and retain existing key employees, the development and commercialization of our product candidates could be delayed or negatively impacted.  In addition, any staffing interruptions resulting from geopolitical actions, including war and terrorism, adverse public health developments such as the COVID-19 pandemic, or natural disasters including earthquakes, typhoons, floods and fires, could have an adverse effect on our business.

We may experience difficulties in managing growth.  

We are a small company.  Any significant growth in the future could impose significant added responsibilities on members of management, including the need to identify, attract, retain, motivate and integrate highly skilled personnel.   Our future financial performance and our ability to compete effectively may depend, in part, on our ability to manage any future growth effectively.  To that end, we must be able to:  

We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results. 

Our business and operations would suffer in the event of cybersecurity or other system failures. 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.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers, as well as personally identifiable information of employees. Similarly, our third- party providers possess certain of our sensitive data. The secure maintenance of this information is material to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. Thus, any access, disclosure or other loss of information, including our data being breached at our partners or third- party providers, could result in legal claims or proceedings and liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely affect our business.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline and may impair our ability to raise capital in the future.

There have been and may continue to be periods when our common stock could be considered “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent.  Finance transactions resulting in a large amount of newly issued shares that become readily tradable, conversion of outstanding convertible notes or exercise of outstanding warrants and sale of the shares issuable upon conversion of such notes or exercise of such warrants, issuance of shares following vesting of outstanding restricted stock units, or other events that cause stockholders to sell shares, could place downward pressure on the trading price of our stock.  In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock.  If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, the market price of our common stock could decline.  Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.  We may never obtain substantial research coverage by industry or financial analysts.  If no or few analysts commence or continue coverage of us, the trading price of our stock would likely decrease.  Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline.  If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

None. 

The company’s principal headquarters, consisting of approximately 7,525 square feet of leased premises, is located at 11682 El Camino Real, Suite 300, San Diego, CA  92130.  As amended, the current lease term expires on November 30, 2023.  Commencing on December 1, 2018 with one month free rent, base rent was initially $28,219 per month for the succeeding 11 months and will increase annually to $31,760 per month for the 12 months ending November 30, 2023.

The company’s wholly owned subsidiary, USC, occupied a company-owned property consisting of approximately 16,065 square feet, two-story, office building/laboratory in a lot of approximately 1.65 acres located at 1270 Don’s Lane, Conway, Arkansas 72032. This property was included in the assets held for sale classification as a result of the sale of assets pursuant to the USC Agreement and the winding down of USC’s remaining business.  The company is actively marketing the sale of this asset. See Note 4 to the financial statements included elsewhere herein.

The company also entered into a lease agreement for additional space relating to the company’s compounding business, to lease a building consisting of approximately 44,880 square feet located in Conway, Arkansas, with a current term expiring December 31, 2023. Monthly rent for the period commencing January 1, 2019 is $10,000 per month for the succeeding 12 months, increasing annually to $10,824 per month for the 12 months ending December 31, 2023. As a result of the sale of assets pursuant to the USC Agreement and the winding down of USC’s remaining business, the company will not need the leased property. The Company is exploring alternatives with respect to transferring the lease or sub-leasing the property.

We 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 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 surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit effective October 31, 2021, paid a civil penalty of $75,000 relating to violations of various Arkansas pharmacy laws and the pharmacy board’s regulations, and paid $75,000 in investigative costs of the pharmacy board.

Nasdaq Compliance

             December 28, 2022, we were notified by the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that, based upon our non-compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”) as of December 27, 2022, our common stock was subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). We timely requested a hearing before the Panel, and a hearing was held on February 16, 2023.  On February 21, 2023, the Staff notified us that the Panel has granted our request for continued listing of our 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 our 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.  We intend 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 we 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. On April 4, 2022, the plaintiff filed a motion to amend the Complaint. The proposed amended Complaint added additional allegations relating to the manner in which the defendants established and disclosed the date of the Company’s 2021 annual meeting of stockholders and to statements the defendants made about the plaintiff to the Company’s stockholders. On April 28, 2022, the Court granted the motion. 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. 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. 

Not applicable.

PART II 

Common Stock 

Our common stock is traded on the Nasdaq Capital Market under the trading symbol “ADMP.”  As of December 31, 2022, we had approximately 82 common stockholders of record.  The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.  The actual number of common stockholders is greater than the number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.  This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.  Information required by Item 5 of Form 10-K regarding our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.

Dividend Policy 

We have never declared or paid any cash dividends on our common stock, and we do not intend to do so in the foreseeable future.  Accordingly, our stockholders will not receive a return on their investment unless the value of our shares increases, which may or may not occur.  Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, any applicable contractual restrictions and such other factors as our deems relevant.

Recent Sales of Unregistered Securities 

Information concerning our sales of unregistered securities during the year ended December 31, 2022, has previously been reported in reports on Form 10-Q and reports on Form 8-K that we filed during that fiscal year.

The following discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes of the company appearing elsewhere in this Report.  This discussion of our financial condition and results of operations contains certain statements that are not strictly historical and are “forward-looking” statements and involve a high degree of risk and uncertainty.  Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in our operations, development efforts and business environment, including those set forth in this Item 7, and in the sections entitled “1A.  Risk Factors” and “1.  Business” in this Report and uncertainties described elsewhere in this Report.  All forward-looking statements included in this Report are based on information available to the company as of the date hereof.

General 

Company Overview

Adamis Pharmaceuticals Corporation (“we,” “us,” “our,” “Adamis” or the “company”) is a specialty biopharmaceutical company focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory and inflammatory disease.  Our products in the allergy, respiratory, and opioid overdose markets include: SYMJEPI (epinephrine) Injection 0.3mg, which was approved by the U.S. Food and Drug Administration, or FDA, in 2017 for use in the emergency treatment of acute allergic reactions, including anaphylaxis, for patients weighing 66 pounds or more; SYMJEPI (epinephrine) Injection 0.15mg, which was approved by the FDA in September 2018, for use in the treatment of anaphylaxis for patients weighing 33-65 pounds; and ZIMHI (naloxone HCL Injection, USP) 5 mg/0.5 mL, which was approved by the FDA in October 2021 for the treatment of opioid overdose.  In June 2020, we entered into a license agreement with a third- party entity to license rights under patents, patent applications and related know-how of licensor relating to Tempol, an investigational drug. In September 2021 we commenced patient dosing in a Phase 2/3 clinical trial to examine the safety and efficacy of Tempol in COVID-19 patients. The Data Safety Monitoring Board, or DSMB, overseeing the Phase 2/3 clinical trial met in March and June 2022 to evaluate interim clinical and safety data and, following its evaluation, recommended that the study continue as planned. On September 21, 2022, we announced that the DSMB’s third interim analysis of the Phase 2/3 clinical trial, which was the first interim review where the DSMB evaluated the primary efficacy endpoint, determined that the trial did not achieve its primary endpoint and recommended that the study be halted early due to lack of efficacy. Based on the recommendation from the DSMB, we halted the trial and have stopped further development of Tempol.

On October 3, 2022, we announced that we initiated a process to explore a range of strategic and financing alternatives focused on maximizing stockholder value, and that we intended to pursue expense reduction measures. Such measures included, without limitation, employee headcount reductions and reduction or discontinuation of certain product development programs. We engaged the investment bank Raymond James & Associates, Inc. (“Raymond James”) to act as strategic advisor to assist us in evaluating certain alternatives.

After exploring a range of strategies and alternatives, on February 27, 2023, we announced that we 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.  The current DMK product candidates have been selected and developed from a proprietary portfolio of small molecule neuropeptide analogues.  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. For additional information, see the discussion elsewhere in this Form 10-K under the heading, “Business – Recent Developments.”

SYMJEPI (epinephrine) Injection Product  

On June 15, 2017, the FDA approved our SYMJEPI (epinephrine) Injection 0.3mg product for the emergency treatment of allergic reactions (Type I) including anaphylaxis.  SYMJEPI (epinephrine) Injection 0.3mg is intended to deliver a dose of epinephrine, which is used for emergency, immediate administration in acute anaphylactic reactions to insect stings or bites, allergic reaction to certain foods, drugs and other allergens, as well as idiopathic or exercise-induced anaphylaxis for patients weighing 66 pounds or more.  On September 27, 2018, the FDA approved our lower dose SYMJEPI (epinephrine) Injection 0.15mg product, for the emergency treatment of allergic reactions (Type I) including anaphylaxis in patients weighing 33 to 66 pounds.  Our SYMJEPI products are distributed by our distribution partner USWM pursuant to the USWM Agreement.

SYMJEPI is manufactured and tested for us by Catalent Belgium S.A. For the manufacture of SYMJEPI, the company utilizes “Ready-to-Fill,” or RTF, syringes that consist of a pre-assembled glass syringe barrel with a staked-in stainless steel needle. 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. The four lots were recalled due to the potential clogging of the needle preventing the dispensing of epinephrine. The recall was conducted with the knowledge of the FDA and USWM handled the entire recall process for the company, with company oversight. As of the date of this prospectus supplement, neither USWM nor we have received, or are aware of, any adverse events related to this recall. SYMJEPI is manufactured and tested for us by Catalent Belgium S.A. For the manufacture of SYMJEPI, the company utilizes “Ready-to-Fill,” or RTF, syringes that consist of a pre-assembled glass syringe barrel with a staked-in stainless steel needle. During routine inspection of epinephrine pre-filled syringe batches, a small number of syringes with clogged needles were identified. An initial investigation suggested a syringe component issue as the likely cause of the observed needle clogging. Catalent’s investigation determined the steel used in a specific stainless steel needle batch as the root cause for the clogged syringes observed. The company and the manufacturer have developed corrective and preventive actions. New RTF syringes, which used a different batch of steel for their needles, were sourced and Catalent has resumed manufacturing of SYMJEPI at its Belgium facility. However, we have not reviewed data that would permit us to release this latest batch. While we are committed to returning SYMJEPI to the market, as of the date of the Report we believe it is unlikely that SYMJEPI will be relaunched and commercially available during the first half of 2023. 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, but there are no assurances regarding the amount or the timing of any such recovery.

ZIMHI (naloxone Injection)

Naloxone is an opioid antagonist used to treat narcotic overdoses.  Naloxone, which is generally considered the drug of choice for immediate administration for opioid overdose, blocks or reverses the effects of the opioid, including extreme drowsiness, slowed breathing, or loss of consciousness.  Common opioids include morphine, heroin, tramadol, oxycodone, hydrocodone and fentanyl.

On December 31, 2018, we filed an NDA with the FDA relating to our higher dose naloxone injection product, ZIMHI, for the treatment of opioid overdose. Following receipt of Complete Response Letters, or CRLs, from the FDA regarding our NDA for ZIMHI, and resubmission of our NDA, on October 18, 2021, we announced that the FDA had approved ZIMHI for the treatment of opioid overdose. On March 31, 2022, our commercial partner USWM and we issued a press release announcing the commercial launch of ZIMHI. A website enables institutional customers to order and receive product directly.

Tempol

In June 2020, we entered into a license agreement with a third-party entity to license rights under patents, patent applications and related know-how of licensor relating to Tempol, an investigational drug. As previously disclosed in our filings with the SEC, in September 2021 we commenced patient dosing in a Phase 2/3 clinical trial to examine the safety and efficacy of Tempol in COVID-19 patients. The Data Safety Monitoring Board, or DSMB, overseeing the Phase 2/3 clinical trial met in March and June 2022 to evaluate interim clinical and safety data and, following its evaluation, recommended that the study continue as planned. On September 21, 2022, we announced that the DSMB’s third interim analysis of the Phase 2/3 clinical trial, which was the first interim review where the DSMB evaluated the primary efficacy endpoint, determined that the trial did not achieve its primary endpoint and recommended that the study be halted early due to lack of efficacy. Based on the recommendation from the DSMB, we halted the trial and have stopped further development of Tempol.

US Compounding, Inc.

Our US Compounding Inc. subsidiary, or USC, which we acquired in April 2016 and which was registered as a human drug compounding outsourcing facility under Section 503B of the FDCA and the U.S. Drug Quality and Security Act, or DQSA, provided prescription compounded medications, including compounded sterile preparations and nonsterile compounds, to patients, physician clinics, hospitals, surgery centers and other clients throughout most of the United States.

On July 30, 2021, the company and its USC subsidiary entered into the USC Agreement with the Purchaser, providing for the sale to the Purchase of certain assets of USC related to its human compounding pharmaceutical business, including certain customer information and information on products sold to such customers by USC, and certain related formulations and know-how.  The Purchaser made monthly payments to us based on formulas related to the amounts actually collected by the Purchaser or its affiliates for sales of products or services made to certain customers included in the acquired assets during the 12-month period following the effective date of the USC Agreement. As of December 31, 2022, the total amount received in connection with this agreement was approximately $5.5 million. 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 paid in 2022.

In light of a number of factors including the sale of assets to the Purchaser pursuant to the USC Agreement, in August 2021 the Board approved a restructuring process of winding down the remaining operations and business of USC and selling, transferring or disposing of the remaining assets of USC.  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 employment of all USC employees (except as determined to be necessary or appropriate in connection with resolving matters relating to the winding down of USC’s business) has been terminated, remaining activities include the sale or other disposition from time to time of the remaining equipment, real property, buildings and tangible and intangible assets relating to USC’s business; making regulatory filings and taking appropriate actions with federal and state regulatory authorities in connection with the winding down and winding up of USC’s business; and taking such other actions as the officers of the company or USC (as appropriate) determine are necessary or appropriate in connection with the restructuring and the winding down and winding up of the remaining business, operations and assets of USC.  As of December 31, 2022, the company has received approximately $318,000 in cash related to the disposition of USC assets held for sale. The primary asset that remains held for sale is the USC land and building with a net book value of approximately $2.9 million.

Going Concern and Management Plan

The financial statements included elsewhere herein for the year ended December 31, 2022, 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.  However, as of December 31, 2022, we had cash and cash equivalents of approximately $1.1 million, an accumulated deficit of approximately $304.6 million, and liabilities of approximately $11.6 million.  We have incurred substantial recurring losses from continuing operations, have used, rather than provided, cash in our continuing operations, and are dependent on additional financing to fund operations.  These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued.  The financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Our management intends to attempt to secure additional required funding through equity or debt financing if available, seeking to enter into a partnership or other strategic agreement regarding, or sales or out-licensing of, our commercial products, product candidates or intellectual property assets or other assets including assets held for sale related to our former USC business, revenues relating to supply and sale of SYMJEPI and ZIMHI products and share of net profits received relating to sales in the U.S. of our SYMJEPI and ZIMHI products, seeking partnerships or commercialization agreements with other pharmaceutical companies or third parties to co-develop and fund research and development or commercialization efforts of our products, from a merger or other business combination, or similar transactions.  As part of this process, we have engaged the investment bank Raymond James & Associates, Inc. to act as strategic advisor to assist us in evaluating certain alternatives. As of the date of this Report, we are presently engaged in communications with third parties regarding this process concerning one or more possible transactions.  However, there can be no assurance regarding the timing of the strategic review process or that we will be able to obtain any sources of funding.  As of the date of this Report, we have a limited number of authorized shares available for issuance in funding transactions involving issuances of equity securities. Such additional funding may not be available, may not be available on reasonable terms, and, in the case of equity financing transactions, could result in significant additional dilution to our stockholders.  There is no assurance that we will be successful in obtaining the necessary funding to sustain our operations or meet our business objectives. In addition, obtaining funding, or the terms of a strategic transaction, could result in significant dilution to our existing stockholders. If we do not obtain required funding, our cash resources will be depleted in the near term and we would be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships.  If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection, dissolution or liquidation, or other alternatives that could result in our stockholders losing some or all of their investment in us.  We have implemented expense reduction measures including, without limitation, employee headcount reductions and the reduction or discontinuation of certain product development programs. Any funding that we may receive during fiscal 2023 is expected to be used to satisfy existing and future obligations and liabilities and working capital needs, and for general working capital purposes.    

Results of Operations 

Our consolidated results of operations are presented for the year ending December 31, 2022 and December 31, 2021. The financial results (revenues and expenses) relating to the USC business are reflected in Note 4, Discontinued Operations and Assets Held for Sale, of the notes to the consolidated financial statements appearing elsewhere in this Report.  The discussion below, and the revenues and expenses discussed below, are based on and relate to the continuing operations of the company, which we sometimes refer to as our drug development and commercialization business, unless otherwise noted.   

Years Ended December 31, 2022 and 2021

Revenues. Revenues were approximately $4,756,000 and $2,209,000 for the year ended December 31, 2022 and 2021, respectively. The $2,547,000 increase in revenue was primarily attributable to an increase of approximately $4,421,000 of sales of ZIMHI to USWM recognized in that period (which was not yet FDA approved during most of 2021) and an increase of approximately $543,000 in recognition of deferred revenue due to the Company’s reassessment of performance obligations met under the USWM Agreement. A decrease in product recall costs of approximately $1,689,000 also contributed to the increase in revenue as $2,000,000 was recognized in 2021 upon establishing the initial product recall reserve and recorded as contra-revenue compared to approximately $310,000 of reserves recorded in 2022. These increases to revenue were offset by a decrease in SYMJEPI sales of approximately $4,109,000. No revenues relating to SYMJEPI were reported during the twelve months ended December 31, 2022, due to the manufacturing hold and the voluntary product recall announced in March 2022 which is currently ongoing. While there can be no assurances regarding the timing of the relaunch of SYMJEPI into the marketplace, the Company anticipates having SYMJEPI relaunched and commercially available in the first half of 2023.

Cost of Goods Sold. Our 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. Cost of goods sold was approximately $6,187,000 and $6,872,000 for the year ended December 31, 2022 and 2021, respectively. The gross loss percentage for the year ended December 31, 2022 was approximately 30% compared to approximately 211% for the year ended December 31, 2021. Cost of goods sold for the year ended December 31, 2022 compared to December 31, 2021 decreased by approximately $685,000 primarily due to a decrease in direct material costs, obsolescence and wastage of approximately $4,533,000 due to the lack of SYMJEPI production stemming from the manufacturing hold and voluntary product recall. Additionally in 2021, a loss on derecognition of inventory of approximately $300,000 was recorded due to a return of inventory to our supplier, no such loss was recorded in 2022. These decreases in cost of goods sold were offset by an increase in direct materials costs of approximately $4,266,000 related to the production of ZIMHI (which commercially launched in 2022.)

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses consist primarily of consulting and employee compensation, professional fees which include legal, accounting and audit fees, and depreciation and amortization expenses. Selling expenses also include product recall costs incurred greater than the associated revenue earned on the four impacted recall batches. SG&A expenses for the year ended December 31, 2022 and 2021 were approximately $13,248,000 and $16,144,000, respectively. The $2,896,000 decrease in SG&A expenses was primarily due to a decrease in legal expenses of approximately $2,508,000 related principally to the ongoing investigations (as discussed in Legal Proceedings in this Report), a decrease of approximately $1,460,000 related to compensation expenses principally due to the elimination of the bonus accrual and lower stock-based compensation expense resulting primarily from the modification of certain equity awards in connection with accelerated vesting pursuant to a separation agreement and a decrease of approximately $409,000 related to outside services principally due to an advisor fee recognized as expense in 2021 related to the USC Agreement. These decreases in SG&A expenses were offset primarily by the following increases: approximately $693,000 in severance payments, approximately $235,000 in product recall costs, approximately $233,000 in consulting expenses, approximately $224,000 in accounting and finance expenses and approximately $174,000 in insurance costs.

 Research and Development Expenses.  Our research and development, or R&D, costs are expensed as incurred and include costs to conduct clinical trials, contract research costs, R&D consulting and R&D employee compensation and R&D supplies. 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. R&D expenses were approximately $10,380,000 and $11,262,000 for the year ended December 31, 2022 and 2021, respectively. The $882,000 decrease was primarily attributable to a decrease of approximately $1,393,000 in R&D compensation expenses principally related to the elimination of the bonus accrual and lower stock-based compensation expense due to the modification of certain equity awards, a decrease of approximately $971,000 in development spending for ZIMHI and a decrease of approximately $415,000 in development spending for SYMJEPI and other R&D projects, offset by approximately $1,898,000 increased development spending costs for Tempol, in which the related Tempol trial was discontinued in the third quarter of 2022.

Other Income/Expense. Other Income/Expenses consists primarily of interest income, interest expense, changes to the fair value of warrant liabilities, and other transactions such as Employee Retention Credit (“ERC”) and insurance proceeds. Other income/expense for the year ended December 31, 2022 and 2021 was net expense of approximately $1,138,000 and $2,530,000 respectively. The $1,392,000 decrease in other expense during the year ended 2022, compared to 2021, was primarily attributable to a decrease in expense associated with the change in fair value of warrants of approximately $7,632,000, a gain of approximately $875,000 recognized in 2022 related to ERC and an increase in other income of approximately $600,000 from insurance proceeds primarily related to legal matters. These decreases to other expense were offset by the expense related to the contingent loss associated with the Second Draw PPP Loan of approximately $1,787,000 and additional expense of approximately $962,000 due to the true-up of the variable consideration related to the sale of certain assets to Fagron, pursuant to the USC Agreement. The decrease in variable consideration was due to lower level of sales by Fagron to customers covered in the USC Agreement, in part due to certain supply and materials difficulties and increased competitive conditions. Additionally, in 2022, there was no forgiveness of debt recognized, whereas in the comparable period of 2021, a gain of approximately $5,010,000 was recorded related to the forgiveness of the PPP loan debts.

Loss from Discontinued Operations. The company recorded net loss from discontinued operations, after taxes, of approximately $279,000 and $11,228,000 related to the former US Compounding business for the year ended December 31, 2022 and 2021, respectively. The $10,949,000 decrease in net loss from discontinued operations was primarily due to approximately $8,433,000 decrease in impairment charges in 2022 as almost all of USC’s assets were significantly impaired in 2021 and a decrease of approximately $7,430,000 in SG&A and R&D expenses associated with the former USC business, as only SG&A expenses continue to be incurred by the discontinued operation as management continues the wind-down of USC. Additionally, in 2021, a gain of approximately $4,637,000 was recorded related to the initial sale of certain non-financial assets to Fagron; no such gain was recorded in 2022. The $279,000 net loss from discontinued operations in 2022, primarily related to SG&A expenses of approximately $462,000 and approximately $200,000 of additional impairment charges to write-down the remaining equipment on USC’s books to $0. These losses were offset by the derecognition of a contingent liability of approximately $360,000 as the third- party vendor accepted the Company’s offer to settle a contingent liability which the Company paid in January 2023. The main components of the loss for the year ended 2021 were asset impairments totaling approximately $8,634,000 primarily related to adjustments associated with the winding down of the business of USC and approximately $7,892,000 of SG&A and R&D operating expenses, partially offset by approximately $4,637,000 of gain from the sale of non-financial assets to Fagron. For additional information on discontinued operations, see Note 4, Discontinued Operations and Assets Held for Sale, to our consolidated financial statements included elsewhere in this Report.

Liquidity and Capital Resources

We have incurred net losses of approximately $26.5 million and $45.8 million for the years ended December 31, 2022 and 2021, respectively.  Since our inception, June 6, 2006, and through December 31, 2022, we have an accumulated deficit of approximately $304.6 million.  Since inception and through December 31, 2022, we have financed our operations principally through debt financing and through public and private issuances of common stock and preferred stock.  Since inception, we have raised a total of approximately $270.0 million in debt and equity financing transactions, consisting of approximately $28.5 million in debt financing and approximately $241.5 million in equity financing transactions.

On March 14, 2023, we entered into a securities purchase agreement with a single, healthcare-focused institutional 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. The closing of the offering occurred on March 16, 2023. Gross proceeds from the offering were approximately $3.0 million, before deducting fees and other estimated offering expenses. The offering was made pursuant to a previously filed and effective shelf registration statement on Form S-3. However, we will need additional funding in the near future to satisfy our existing and future obligations and liabilities and working capital needs, to support commercialization of our products, and for other purposes.  We intend to seek to satisfy future cash needs primarily through proceeds from equity or debt financings if available, loans, a partnership or other agreement regarding our commercial products, revenues relating to sales of our SYMJEPI and ZIMHI products, sales or out-licensing of intellectual property assets or other assets, products, product candidates or technologies, a merger, sale or reverse merger of the Company, or other strategic transaction. As described elsewhere in this Report, we have initiated and are engaged in a review of strategic alternatives.  However, there is no assurance that the Company will be successful in obtaining the necessary funding to sustain its operations or meet its business objectives.

As of December 31, 2022, we had cash and cash equivalents of approximately $1.1 million.  Total assets were approximately $10.9 million and $38.3 million as of December 31, 2022 and December 31, 2021, respectively.   Current liabilities exceeded current assets by approximately $2.1 million as December 31, 2022.

Net cash used in operating activities for the years ended December 31, 2022, and 2021, was approximately $25.9 million and $37.8 million, respectively. Net cash used in operating activities decreased approximately $12.0 million primarily due to working capital changes of approximately $9.6 million.

Net cash provided by investing activities was approximately $3.5 million and $0.3 million for the years ended December 31, 2022, and 2021, respectively. The net cash provided by investing activities increased primarily due to the increase in payment received from Fagron related to the USC Agreement.

Net cash provided by financing activities was approximately $0.3 million and $53.9 million for the years ended December 31, 2022, and 2021, respectively. Net cash provided by financing activities for the year ended December 31, 2022, was due to proceeds from the issuance of Series C Preferred Stock, as compared to proceeds from the issuance of common stock in an underwritten public offering, the exercise of investor warrants and proceeds from the Second Draw PPP Loan during the year ended December 31, 2021.

At December 31, 2022, we did not have any off balance sheet arrangements. 

PPP Loans. As discussed in Note 12 to the financial statements included elsewhere herein, we applied for and obtained loan funding under the PPP pursuant to the PPP Loan and PPP Note in the principal amount of $3,191,700, the balance of which has been forgiven, and under the Second Draw PPP Loan and PPP2 Note in the principal amount of $1,765,495, the balance of which was also initially forgiven.  However, as a result of the investigation by the Civil Division described elsewhere under the heading “Legal Proceedings” and in Note 12 to the consolidated financial statements included elsewhere herein, in June 2022, the company paid a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and related interest and fees.  Our PPP loans and applications for forgiveness of loan amounts remain subject to future review and audit by SBA or other federal or state regulatory authorities for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form.  If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we 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 our liquidity and adversely affect our business, financial condition and results of operations.

For additional information concerning our debt and equity financing transactions, and our loan agreements, see Notes 10, 17 and 18 accompanying our consolidated financial statements included elsewhere herein.

As noted above under the heading “Going Concern and Management Plan,” through December 31, 2022, we have incurred substantial losses.  We will be required to obtain additional cash resources in the near term in order to support our operations and activities.  The availability of required additional funding cannot be assured.  As of the date of this Report, we have a limited number of authorized shares available for issuance in funding transactions involving the issuance of equity securities. In addition, an adverse outcome in legal or regulatory proceedings in which we are or in the future could be involved could adversely affect our liquidity and financial position.  See Note 14, Legal Matters, of the notes to our consolidated financial statements included elsewhere herein.  If we are not able to obtain additional required equity or debt funding or funding from other sources, our cash resources could be depleted and we could be required to materially reduce or suspend operations, or seek dissolution and liquidation, or bankruptcy protection.  No assurance can be given as to the timing or ultimate success of obtaining future funds.  Even if we are successful in obtaining required additional funding to permit us to continue operations at the levels that we desire, substantial time may pass before we realize additional significant revenues from our commercial products or obtain regulatory marketing approval for any additional pharmaceutical products and begin to realize revenues from sales of such additional products. No assurance can be given as to the timing or ultimate success of obtaining any required future funding. In addition, as a result of the COVID-19 pandemic and actions taken to slow its spread, national or global developments, inflation or other economic considerations or other factors, there can be no assurance that deterioration in credit and financial markets will not occur, which would make it more difficult, or more costly or dilutive, to obtain any necessary debt or equity financing. In addition, as disclosed elsewhere in this Report, including in Part I, Item 3, “Legal Proceedings,” on May 11, 2021, both the USAO and the SEC have initiated investigations of the company 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. We or our USC subsidiary may be found to have violated one or more laws arising from the subject matter of the subpoenas. 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 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. 

Material Cash Requirements

Based on our current and anticipated level of operations, we do not believe that our cash, cash equivalents and short-term investments, together with anticipated revenues from operations and cash inflows from other sources, and amounts that we expect to receive as a result of our sales of assets relating to our former USC business, will be sufficient to meet our anticipated operating expenses, capital expenditures and obligations for at least 12 months from the date of this Report.  In addition to the approximately $3.0 million of gross proceeds that we received in March 2023 from the sale of common stock, warrants and prefunded warrants, we require additional funding to sustain operations, satisfy our obligations and liabilities, fund our ongoing operations, or for other purposes.  We will seek to raise additional funds or seek funding from a variety of sources including proceeds from equity or debt financings if available, loans, revenues relating to sales of our SYMJEPI and ZIMHI products, sales or out-licensing of intellectual property assets or other assets, products, product candidates or technologies.  As of the date of this Report, we have a limited number of authorized shares available for issuance in funding transactions involving the issuance of equity securities. Additional required capital may not be available on a timely basis, on favorable terms, or at all, and such funding, if raised, may not be sufficient to meet our obligations or enable us to continue to implement our long-term business strategy. In addition, obtaining additional funding or entering into other strategic transactions could result in significant dilution to our stockholders. If we do not receive required funding and are not able to engage in a merger, sale or other strategic transaction, we would likely be required to reduce or cease operations or seek dissolution and liquidation or bankruptcy protection. As of December 31, 2022, we had an operating lease for office space for our offices in San Diego, California, with a remaining term expiring in November 2023.  Monthly rent through the remaining term of the lease is approximately $32,000 per month.  We also have a lease agreement for space located in Conway, Arkansas, relating to the compounding pharmaceutical products business formerly conducted by our USC subsidiary, with a current term expiring December 31, 2023.  As a result of the sale of assets pursuant to the USC Agreement and the winding down of USC’s remaining business, the company will not need the leased property. Monthly rent for the remaining term of this lease is approximately $10,800 per month.  The company is exploring alternatives with respect to termination of the lease or sub-lease of the property.  See Note 10 of the notes to the consolidated financial statements included elsewhere herein for additional information about our lease obligations.

We have entered into arrangements with clinical sites and clinical research organizations, or CROs, for the conduct of our clinical trials. We make payments to these clinical sites and CROs based in part on the number of eligible patients enrolled, the length of their participation in the clinical trials and activities undertaken by the clinical sites and CROs. At this time, due to the variability associated with clinical site agreements, CRO agreements and manufacturing agreements, we are unable to estimate with certainty the future costs we will incur, including in connection with the close-out of the Phase 2/3 clinical trial relating to Tempol which was substantially completed in December 2022, but such expenses may be material. In addition, we have entered into agreements and arrangements with third parties for the manufacture and supply of clinical and commercial materials and drug products, including for our SYMJEPI and ZIMHI products and our halted clinical trial for our Tempol product candidate. In some of our agreements with manufacturers, we have a production threshold commitment where we would be required to pay for maintenance fees if we do not meet certain periodic purchase order minimums. Maintenance fees for the twelve months ended December 31, 2022 and December 31, 2021 were $0 and $0, respectively. Under certain of these agreements, we may be subject to penalties in the event that we prematurely terminate these agreements. We intend to use our current financial resources to fund our obligations under these commitments. As disclosed elsewhere in this Report, 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 is handling the recall process for the company, with company oversight. SYMJEPI is manufactured and tested for us by Catalent Belgium S.A. The ultimate costs of the recall and the allocation of costs of the recall, including the costs to us resulting from the recall, are unknown as of the date of this Report; however, 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 additional financial costs and expenses which could be material, has adversely affected and could continue to 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.

Critical Accounting Estimates 

The discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 

We believe the following accounting policies and estimates are most critical to aid you in understanding and evaluating our reported financial results. For further discussion of our accounting policies, see Note 3 in the accompanying notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Estimated Fair Value of Assets Held for Sale. As described in Note 4 - Discontinued Operations, in the notes to the consolidated financial statements appearing elsewhere in this Report, the company has $6.7 million of fixed assets held for sale and a $2.8 million valuation allowance for a total net fixed assets held for sale of $3.9 million as of December 31, 2022. On a quarterly basis, management assesses whether there are any indicators that the value of the company’s fixed assets held for sale may be impaired. When assets are identified by management as held for sale, management discontinues depreciating the assets and estimates the sales price, net of expected selling costs, of such assets. If the estimated sales price, net of expected selling costs, of the fixed assets, which have been identified as held for sale is less than the carrying value of the assets, a valuation allowance is established. In the absence of an executed sales agreement with a defined sales price, management’s estimate of the net sales price 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.

Of the fixed assets held for sale, the primary asset is USC’s land and building which continues to be actively marketed at a reasonable price-- at its fair value-- which is supported by a recent third-party valuation appraisal, which took into consideration comparable property’s price per square foot, market rents and market capitalization rates. As there has not been a definitive offer received as of the date of this Report, at December 31, 2022, we determined that USC’s land and building were not impaired as there is interest in the property and because the carrying value of the asset at $2.9 million is less than its appraised fair value at $3.2 million.

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 $2.2 million 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 $1.0 million at December 31, 2022. We received $0.2 million in 2022 and $0.8 million 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 $0.2 million was recorded in the net loss from discontinued operations.

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. The fair value measurement of the warrants issued by the company 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 include the expected volatility of the company’s stock, the company’s stock price at valuation date, expected time to maturity, expected dividend yield and average risk-free interest rate. The company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs.

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 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. The recall of certain lots of SYMJEPI from the marketplace was initiated in March 2022. As of the date of this Report, the Company believes that the product recall is substantially complete as customer returns to USWM were minimal in January 2023 and USWM has requested from the FDA that the voluntary product recall be lifted, although no assurance can be made. Total product recall costs incurred from inception through December 31, 2022, were approximately $2.5 million.

Recent Accounting Pronouncements 

We periodically monitor and review all current accounting pronouncements and standards from the Financial Accounting Standards Board for applicability to our operations. We do not expect the adoption of accounting pronouncements recently issued during 2022 to have a significant impact on our results of operations, financial position or cash flow.

As a smaller reporting company, we are not required to provide the information required by this item. 

The financial statements and financial information required by Item 8 are set forth below commencing on page F-1. 

None.  

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving their objectives.  In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

Management’s Report on Internal Control over Financial Reporting

The following report is provided by management in respect of the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).   Based on the testing performed, management has concluded that as of December 31, 2022, our internal control over financial reporting was effective.

This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules that permit us to provide only management’s report in this Annual Report.

Limitations on the Effectiveness of Controls

Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks, including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. 

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

 Not applicable.

PART III

The information required by Item 10 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K. 

The information required by Item 11 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.    

The information required by Item 12 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K. 

The information required by Item 13 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K. 

The information required by Item 14 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.

PART IV

Exhibits

The following exhibits are attached hereto or incorporated herein by reference.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California.

Power of Attorney

Each person whose signature appears below constitutes and appoints each of David J. Marguglio and David C. Benedicto, true and lawful attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated:

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

DECEMBER 31, 2022 AND 2021

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Adamis Pharmaceuticals Corporation

San Diego, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Adamis Pharmaceuticals Corporation (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, mezzanine equity and stockholders’ (deficit) equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Estimated Fair Value of Assets Held for Sale

As described in Note 4 to the consolidated financial statements, the Company has $2.9 million of fixed assets held for sale related to the land and building as of December 31, 2022. 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.

We identified the estimated fair value of land and buildings held for sale as a critical audit matter. Auditing the fair value of the land and building involved especially subjective and complex auditor judgment due to the significant judgment used by management to develop these estimates; the significant audit effort in evaluating the significant assumptions related to estimates of comparable properties’ price per square foot, market rents, and market capitalization rates; and the extent of specialized skills or knowledge needed in evaluating the reasonableness of estimates of comparable properties’ price per square foot, market rents, and market capitalization rates.

The primary procedures we performed to address this critical audit matter included:

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2020.

San Diego, California

March 16, 2023

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ (DEFICIT) EQUITY 

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Notes to the Consolidated Financial Statements

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.

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.