UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2022
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               For the transition period from ________ to ________
Commission file number 001-36728
ADMA BIOLOGICS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
56-2590442
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

465 State Route 17, Ramsey, New Jersey
 
07446
(Address of Principal Executive Offices)
 
(Zip Code)

(201) 478-5552
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
ADMA
Nasdaq Global Market

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 pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐

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

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

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

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

As of November 4, 2022, there were 196,777,308 shares of the issuer’s common stock outstanding.



ADMA BIOLOGICS, INC. AND SUBSIDIARIES

INDEX
 
PART I FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
1
 
 
 
 
 
 
2
 
 
 
 
 
 
3
 
 
 
 
 
 
4
 
 
 
 
 
 
5
 
 
 
 
 
Item 2.
23
 
 
 
 
 
Item 3.
36
 
 
 
 
 
Item 4.
36
 
 
 
 
38
 
 
 
Item 1.
38
 
 
 
 
 
Item 1A.
38
 
 
 
 
 
Item 2.
68
 
 
 
 
 
Item 3.
68
 
 
 
 
 
Item 4.
68
 
 
 
 
 
Item 5.
68
 
 
 
 
 
Item 6.
68
 
 
 
 
 
69

This Quarterly Report on Form 10-Q includes our trademarks, trade names and service marks, such as “ASCENIV,” “Nabi-HB®” and “BIVIGAM®,” which are protected under applicable intellectual property laws and are the property of ADMA Biologics, Inc., or its subsidiaries. Solely for convenience, trademarks, trade names and service marks referred to in this report may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

i

Special Note Regarding Forward-Looking Statements

Some of the information in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These statements include, among others, statements about: 


our ability to manufacture BIVIGAM and ASCENIV on a commercial scale and further commercialize these products as a result of their approval by the U.S. Food and Drug Administration (the “FDA”) in 2019;


our plans to develop, manufacture, market, launch and expand our commercial infrastructure and commercialize our current and future products and the success of such efforts;


the safety, efficacy and expected timing of and our ability to obtain and maintain regulatory approvals for our current products and product candidates, and the labeling or nature of any such approvals;


the achievement of or expected timing, progress and results of clinical development, clinical trials and potential regulatory approvals for our product candidates;


our dependence upon our third-party customers and vendors and their compliance with applicable regulatory requirements;


our belief that we have addressed the delays experienced with final drug product Current Good Manufacturing Practices (“cGMP”) release testing by our third-party vendors by adding additional release testing laboratories to our FDA-approved consortium listed in our drug approval documents;


our ability to obtain adequate quantities of FDA-approved plasma with proper specifications;


our plans to increase our supplies of source plasma, which include plasma collection center expansion, our ability to obtain and maintain regulatory compliance and receive FDA approvals of new plasma collection centers and reliance on third-party supply agreements as well as any extensions to such agreements;


the potential indications for our products and product candidates;


potential investigational new product applications;


the acceptability of any of our products, including BIVIGAM, ASCENIV and Nabi-HB, for any purpose, including FDA-approved indications, by physicians, patients or payers;


our plans to evaluate the clinical and regulatory paths to grow the ASCENIV franchise through expanded FDA-approved uses;


Federal, state and local regulatory and business review processes and timing by such governmental and regulatory agencies of our business and regulatory submissions;


concurrence by the FDA with our conclusions concerning our products and product candidates;


the comparability of results of our hyperimmune and immune globulin (“IG”) products to other comparably run hyperimmune and immune globulin clinical trials;


the potential for ASCENIV and BIVIGAM to provide meaningful clinical improvement for patients living with Primary Immune Deficiency Disease, Primary Humoral Immunodeficiency Disease (“PIDD” or “PI”)   or other immune deficiencies or any other condition for which the products may be prescribed or evaluated;


our ability to market and promote Nabi-HB in a highly competitive environment with increasing competition from other antiviral therapies and to generate meaningful revenues from this product;

ii


our intellectual property position and the defense thereof, including our expectations regarding the scope of patent protection with respect to ASCENIV or other future pipeline product candidates;


our manufacturing capabilities, third-party contractor capabilities and vertical integration strategy;


our plans related to the expansion and efficiencies of our manufacturing capacity, yield improvements, supply-chain robustness, in-house fill-finish capabilities, distribution and other collaborative agreements and the success of such endeavors;


our estimates regarding revenues, expenses, capital requirements, timing to profitability and positive cash flows and the need for and availability of additional financing;


possible or likely reimbursement levels for our currently marketed products;


estimates regarding market size, projected growth and sales of our existing products as well as our expectations of market acceptance of ASCENIV and BIVIGAM;


effects of the coronavirus COVID-19 pandemic or other pandemics on our business, financial condition, liquidity and results of operations, and our ability to continue operations in the same manner as previously conducted prior to the macroeconomic effects of the COVID-19 pandemic; and


future domestic and global economic conditions including, but not limited to, supply chain constraints, inflationary pressures or performance.

These statements may be found under the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Quarterly Report on Form 10-Q. Forward-looking statements  may be identified by the use of terms such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” or “should” or the negative thereof or other variations thereof or comparable terminology. Our actual results could differ materially from those contained in the forward-looking statements due to the factors described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022. Any forward-looking statement included or incorporated by reference in this Quarterly Report on Form 10-Q reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions related to our operations, industry and future growth. These forward-looking statements speak only as of the dates such statements are made and we undertake no obligation to publicly update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, unless otherwise required by the federal securities laws.

iii

PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements.

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

     September 30,      December 31,  
   
2022
   
2021
 
ASSETS  
(Unaudited)
       
Current assets:
           
Cash and cash equivalents
 
$
34,906,020
   
$
51,089,118
 
Accounts receivable, net
   
20,902,385
     
28,576,857
 
Inventories
   
162,913,633
     
124,724,091
 
Prepaid expenses and other current assets
   
5,372,484
     
4,339,245
 
Total current assets
   
224,094,522
     
208,729,311
 
Property and equipment, net
   
56,946,090
     
50,935,074
 
Intangible assets, net
   
1,192,254
     
1,728,768
 
Goodwill
   
3,529,509
     
3,529,509
 
Right to use assets
   
10,335,873
     
7,262,658
 
Deposits and other assets
   
4,459,322
     
4,067,404
 
TOTAL ASSETS
 
$
300,557,570
   
$
276,252,724
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
 
$
25,197,806
   
$
12,429,409
 
Accrued expenses and other current liabilities
   
18,378,932
     
17,214,988
 
Current portion of deferred revenue
   
142,834
     
142,834
 
Current portion of lease obligations
   
720,755
     
591,084
 
Total current liabilities
   
44,440,327
     
30,378,315
 
Senior notes payable, net of discount
   
141,365,706
     
94,866,239
 
Deferred revenue, net of current portion
   
1,868,739
     
1,975,865
 
End of term fee
    1,500,000       -  
Lease obligations, net of current portion
   
10,636,083
     
7,462,388
 
Other non-current liabilities
   
362,179
     
397,351
 
TOTAL LIABILITIES
   
200,173,034
     
135,080,158
 
                 
COMMITMENTS AND CONTINGENCIES
           
                 
STOCKHOLDERS’ EQUITY
               
Preferred Stock, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding
   
-
     
-
 
Common Stock - voting, $0.0001 par value, 300,000,000 shares authorized, 196,776,871 and 195,813,817 shares issued and outstanding
   
19,678
     
19,581
 
Additional paid-in capital
   
566,149,846
     
553,265,706
 
Accumulated deficit
   
(465,784,988
)
   
(412,112,721
)
TOTAL STOCKHOLDERS’ EQUITY
   
100,384,536
     
141,172,566
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
300,557,570
   
$
276,252,724
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
                         
REVENUES:
                       
Product revenue
 
$
41,054,429
   
$
20,644,842
   
$
103,991,112
   
$
54,452,633
 
License revenue
   
35,708
     
35,708
     
107,125
     
107,125
 
Total revenues
   
41,090,137
     
20,680,550
     
104,098,237
     
54,559,758
 
Cost of product revenue     31,433,496       20,295,213       83,010,156       56,897,959  
Gross profit (loss)     9,656,641       385,337     21,088,081       (2,338,201 )
                                 
OPERATING EXPENSES:
                               
Research and development
   
1,041,947
     
770,557
     
2,539,444
     
2,917,072
 
Plasma center operating expenses
   
4,859,450
     
3,146,221
     
12,755,525
     
8,191,890
 
Amortization of intangible assets
   
178,838
     
178,838
     
536,514
     
536,514
 
Selling, general and administrative
   
12,893,139
     
10,726,797
     
38,563,136
     
31,198,880
 
Total operating expenses
   
18,973,374
     
14,822,413
     
54,394,619
     
42,844,356
 
                                 
LOSS FROM OPERATIONS
   
(9,316,733
)
   
(14,437,076
)
   
(33,306,538
)
   
(45,182,557
)
                                 
OTHER INCOME (EXPENSE):
                               
Interest income
   
7,236
     
4,256
     
42,573
     
32,241
 
Interest expense
   
(5,580,366
)
   
(3,298,680
)
   
(13,542,419
)
   
(9,741,110
)
Loss on extinguishment of debt     -       -       (6,669,941 )     -  
Other expense
   
(9,641
)
   
18,546
   
(195,942
)
   
(106,772
)
Other expense, net
   
(5,582,771
)
   
(3,275,878
)
   
(20,365,729
)
   
(9,815,641
)
                                 
NET LOSS
 
$
(14,899,504
)
 
$
(17,712,954
)
 
$
(53,672,267
)
 
$
(54,998,198
)
                                 
BASIC AND DILUTED LOSS PER COMMON SHARE
 
$
(0.08
)
 
$
(0.13
)
 
$
(0.27
)
 
$
(0.44
)
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                               
Basic and Diluted
   
196,383,935
     
133,770,147
     
196,204,893
     
125,682,400
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (Unaudited)

For the Three and Nine Months Ended September 30, 2022

          Additional           Total  
   
Common Stock
   
Paid-in
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balance at December 31, 2021
   
195,813,817
   
$
19,581
   
$
553,265,706
   
$
(412,112,721
)
 
$
141,172,566
 
Stock-based compensation
   
-
     
-
     
1,641,388
     
-
     
1,641,388
 
Warrants issued in connection with notes payable     -       -       9,569,604       -       9,569,604  
Vesting of Restricted Stock Units, net of shares withheld for taxes and retired
   
533,712
     
54
     
(442,690
)
   
-
     
(442,636
)
Net loss
   
-
     
-
     
-
     
(25,007,857
)
   
(25,007,857
)
Balance at March 31, 2022
   
196,347,529
     
19,635
     
564,034,008
     
(437,120,578
)
   
126,933,065
 
Stock-based compensation
   
-
     
-
     
1,191,047
     
-
     
1,191,047
 
Vesting of Restricted Stock Units, net of shares withheld for taxes and retired
    8,703       1       41,320       -       41,321  
Net loss
   
-
     
-
     
-
     
(13,764,906
)
   
(13,764,906
)
Balance at June 30, 2022     196,356,232    
19,636    
565,266,375    
(450,885,484 )  
114,400,527  
Stock-based compensation     -       -       1,313,494       -       1,313,494  
Vesting of Restricted Stock Units, net of shares withheld for taxes
    420,639       42       (430,023 )     -       (429,981 )
Net loss     -       -       -       (14,899,504 )     (14,899,504 )
Balance at September 30, 2022     196,776,871     $
19,678     $
566,149,846     $
(465,784,988 )   $
100,384,536  

For the Three and Nine Months Ended September 30, 2021

          Additional           Total  
   
Common Stock
   
Paid-in
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balance at December 31, 2020
   
104,902,888
   
$
10,490
   
$
428,704,039
   
$
(340,465,103
)
 
$
88,249,426
 
Stock-based compensation
   
-
     
-
     
781,397
     
-
     
781,397
 
Issuance of common stock, net of offering expenses
   
18,080,708
     
1,808
     
41,910,707
     
-
     
41,912,515
 
Vesting of Restricted Stock Units, net of shares withheld for taxes and retired     61,385       6       (59,317 )     -       (59,311 )
Net loss
    -       -       -       (18,379,941 )     (18,379,941 )
Balance at March 31, 2021
   
123,044,981
     
12,304
     
471,336,826
     
(358,845,044
)
   
112,504,086
 
Stock-based compensation
   
-
     
-
     
805,189
     
-
     
805,189
 
Issuance of common stock, net of offering expenses
   
8,827,045
     
883
     
17,188,677
     
-
     
17,189,560
 
Net loss
   
-
     
-
     
-
     
(18,905,303
)
   
(18,905,303
)
Balance at June 30, 2021     131,872,026    
13,187    
489,330,692    
(377,750,347 )  
111,593,532  
Stock-based compensation     -       -       688,274       -       688,274  
Vesting of Restricted Stock Units, net of shares withheld for taxes and retired     3,515       -       (2,287 )     -       (2,287 )
Issuance of common stock, net of offering expenses     6,438,276       644       8,212,958       -       8,213,602  
Net loss     -       -       -       (17,712,954 )     (17,712,954 )
Balance at September 30, 2021     138,313,817     $
13,831     $
498,229,637     $
(395,463,301 )   $
102,780,167  

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine Months Ended September 30,
 
   
2022
   
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (53,672,267 )  
$
(54,998,198
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
5,176,492
     
3,977,786
 
Loss on disposal of fixed assets
   
8,408
     
80,479
 
Interest paid in kind     2,023,932       -  
Stock-based compensation
   
4,145,929
     
2,274,860
 
Amortization of debt discount
   
1,908,127
     
1,394,142
 
Loss on extinguishment of debt
    6,669,941       -  
Amortization of license revenue
   
(107,125
)
   
(107,125
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
7,674,472
     
(7,155,331
)
Inventories
   
(38,189,543
)
   
(32,587,272
)
Prepaid expenses and other current assets
   
(1,033,238
)
   
(2,812,580
)
Deposits and other assets
   
195,756
     
(813,415
)
Accounts payable
   
12,768,396
     
6,209,132
 
Accrued expenses
   
667,193
     
5,526,220
 
Other current and non-current liabilities
   
(365,415
)
   
107,552
 
Net cash used in operating activities
   
(52,128,942
)
   
(78,903,750
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
   
(10,162,650
)
   
(9,835,404
)
Net cash used in investing activities
   
(10,162,650
)
   
(9,835,404
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Principal payments on notes payable
    (100,000,000 )     -  
Proceeds from issuance of common stock, net of offering expenses
   
-
     
67,315,677
 
Payment of debt refinancing fees
   
(2,000,000
)
   
-
 
Proceeds from issuance of note payable
    151,750,000       -  
Taxes paid on vested Restricted Stock Units
   
(831,297
)
   
(61,598
)
Payments on finance lease obligations
   
(27,281
)
   
(25,507
)
Payment of deferred financing fees
    (2,782,928 )     -  
Net cash provided by financing activities
   
46,108,494
     
67,228,572
 
                 
Net decrease in cash and cash equivalents
   
(16,183,098
)
   
(21,510,582
)
Cash and cash equivalents - beginning of period
   
51,089,118
     
55,921,152
 
Cash and cash equivalents - end of period
 
$
34,906,020
   
$
34,410,570
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND BUSINESS


ADMA Biologics, Inc. (“ADMA” or the “Company”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. The Company’s targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons.



ADMA operates through its wholly-owned subsidiaries ADMA BioManufacturing, LLC (“ADMA BioManufacturing”) and ADMA BioCenters Georgia Inc. (“ADMA BioCenters”). ADMA BioManufacturing was formed in January 2017 to facilitate the acquisition of the Biotest Therapy Business Unit (“BTBU”) from BPC Plasma, Inc. (formerly Biotest Pharmaceuticals Corporation) (“BPC” and, together with Biotest AG, “Biotest”) on June 6, 2017. The acquisition included certain assets of BTBU, including the U.S. Food and Drug Administration (“FDA”)-licensed BIVIGAM and Nabi-HB immunoglobulin products, and an FDA-licensed plasma fractionation manufacturing facility located in Boca Raton, FL (the “Boca Facility”) (the “Biotest Transaction”). BTBU had previously been the Company’s third-party contract manufacturer. ADMA BioCenters is the Company’s source plasma collection business with ten plasma collection facilities in various stages of approval and development located throughout the U.S., seven of which hold an approved license with the FDA, with two additional collection facilities in operation and collecting plasma presently under FDA licensing preparation and review and another facility under construction.


The Company has three FDA-approved products, all of which are currently marketed and commercially available: (i) BIVIGAM (Immune Globulin Intravenous, Human), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”), and for which the Company received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; (ii) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an IVIG product indicated for the treatment of PI, for which the Company received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing Hepatitis B surface antigen (“HBsAg”) and other listed exposures to Hepatitis B. In addition to its commercially available immunoglobulin products, the Company provides contract manufacturing and laboratory services for certain clients and generates revenues from the sale of intermediate by-products that result from the immunoglobulin production process. The Company seeks to develop a pipeline of plasma-derived therapeutics, and its products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases.


As of September 30, 2022, the Company had working capital of $179.7 million, including $34.9 million of cash and cash equivalents. Based upon the Company’s current projected revenue and expenditures, including capital expenditures and continued implementation of the Company’s commercialization and expansion activities, the Company’s management currently believes that its cash, cash equivalents, projected revenue and accounts receivable, together with the remaining available funds under the distribution agreement entered into in September of 2021 (see Note 8) and the additional proceeds available from the refinancing of the Company’s senior debt on March 23, 2022 (see Note 7), will be sufficient to fund ADMA’s operations, as currently conducted, into the first quarter of 2024, at which time the Company believes it will begin to generate positive cash flow from operations. These estimates may change based upon several factors, including the success of the Company’s commercial efforts with respect to the sale of its products, whether or not the assumptions underlying the Company’s projected revenues and expenses are correct and the acceptability of ADMA’s immune globulin products by physicians, patients or payers. Depending on the cost of capital, the Company may decide to raise capital through public or private equity offerings or debt financings, or may enter into a corporate collaboration or licensing arrangement. The sale of additional or equity or debt securities, if convertible, could result in dilution to the Company’s stockholders and, in such event, the value and potential future market price of its common stock may decline. There can be no assurance that the Company’s approved products will be commercially viable, or that plant capacity expansion, plasma center buildouts or other capital improvements will be successfully completed or that any product developed in the future will be approved. The Company is subject to risks common to companies in the biologics, biotechnology and pharmaceutical manufacturing industries including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, inflationary pressures, supply chain constraints, protection of proprietary technology and compliance with FDA and other governmental regulations and approval requirements.



The Company continues to evaluate a variety of strategic alternatives through its ongoing engagement with Morgan Stanley. The exploration of value-creating opportunities remains a top corporate priority for ADMA.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (the “FASB”).



The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 24, 2022.  The accompanying consolidated balance sheet as of December 31, 2021 was derived from the audited financial statements as of and for the year ended December 31, 2021. These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X, and therefore omit or condense certain footnotes and other information normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2022, its results of operations and changes in stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021.


During the three and nine months ended September 30, 2022 and 2021, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated statements of operations. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year.

Use of Estimates


The preparation of financial statements requires management 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include rebates and chargebacks deducted from gross revenues, the realizable value of accounts receivable, valuation of inventory, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under the Company’s equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for the Company’s deferred tax assets.

Fair Value of Financial Instruments


The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, are shown at cost which approximates fair value due to the short-term nature of these instruments. The debt outstanding under the Company’s senior secured term loan (see Note 7) approximates fair value due to the variable interest rate on this debt.

Accounts Receivable


Accounts receivable is reported at realizable value, net of allowances for contractual credits and doubtful accounts in the amount of $0.1 million and $0.2 million at September 30, 2022 and December 31, 2021, respectively, which are recognized in the period the related revenue is recorded. The Company extends credit to its customers based upon an evaluation of each customer’s financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. Based on these evaluations, the Company has concluded that its credit risk is minimal. At September 30, 2022, four customers accounted for an aggregate of 93% of the Company’s total accounts receivable, and at December 31, 2021, three customers accounted for approximately 94% of the Company’s total accounts receivable.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Inventories


Raw materials inventory consists of various materials purchased from suppliers, including normal source plasma and RSV plasma, used in the production of the Company’s products. Work-in-process and finished goods inventories (see Note 3) reflect the cost of raw materials as well as costs for direct and indirect labor, primarily salaries, wages and benefits for applicable employees, as well as an allocation of overhead costs related to the Boca Facility including utilities, property taxes, general repairs and maintenance, consumable supplies and depreciation. The allocation of Boca Facility overhead to inventory is generally based upon the estimated square footage of the Boca Facility that is used in the production of the Company’s products relative to the total square footage of the facility.



Inventories, including plasma intended for resale and plasma intended for internal use in the Company’s manufacturing, commercialization or research and development activities, are carried at the lower of cost or net realizable value determined by the first-in, first-out method. Net realizable value is generally determined based upon the consideration the Company expects to receive when the inventory is sold, less costs to deliver the inventory to the recipient. The estimates for net realizable value of inventory are based on contractual terms or upon historical experience and certain other assumptions, and the Company believes that such assumptions are reasonable. Inventory is periodically reviewed to ensure that its carrying value does not exceed its net realizable value, and adjustments are recorded to write down such inventory, with a corresponding charge to cost of product revenue, when the carrying value or historical cost exceeds its estimated net realizable value. In addition, costs associated with the production of conformance or engineering lots that would not qualify as immediately available for commercial sale are charged to cost of product revenue and not capitalized into inventory.

Goodwill


Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company.  Goodwill at September 30, 2022 and December 31, 2021 was $3.5 million. All of the Company’s goodwill is attributable to its ADMA BioManufacturing business segment and is related to the Biotest Transaction.


Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, then it must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company performs its annual goodwill impairment test as of October 1 of each year. The Company’s annual goodwill impairment test as of October 1, 2022 did not result in a goodwill impairment charge, and the Company did not record any impairment charges related to goodwill for the nine months ended September 30, 2022 and 2021.

Impairment of Long-Lived Assets


The Company assesses the recoverability of its long-lived assets, which include property and equipment and finite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the nine months ended September 30, 2022 and 2021, the Company determined that there was no impairment of its long-lived assets.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition


Revenues for the three and nine months ended September 30, 2022 and 2021 are comprised of (i) revenues from the sale of the Company’s immunoglobulin products, BIVIGAM, ASCENIV and Nabi-HB, (ii) product revenues from the sale of human plasma collected through the Company’s Plasma Collection Centers business segment, (iii) contract manufacturing and laboratory services revenue, (iv) revenues from the sale of intermediate by-products; and (v) license and other revenues primarily attributable to the out-licensing of ASCENIV to Biotest in 2012 to market and sell this product in Europe and selected countries in North Africa and the Middle East. Biotest has provided the Company with certain services and financial payments in accordance with the related Biotest license agreement and is obligated to pay the Company certain amounts in the future if certain milestones are achieved. Deferred revenue is amortized into income over the term of the Biotest license, representing a period of approximately 22 years.


Product revenue is recognized when the customer is deemed to have control over the product. Control is determined based on when the product is shipped or delivered and title passes to the customer. Revenue is recorded in an amount that reflects the consideration the Company expects to receive in exchange. Revenue from the sale of the Company’s immunoglobulin products is recognized when the product reaches the customer’s destination, and is recorded net of estimated rebates, price protection arrangements and customer incentives, including prompt pay discounts, wholesaler chargebacks and other wholesaler fees. These estimates are based on historical experience and certain other assumptions, and the Company believes that such estimates are reasonable. For revenues associated with contract manufacturing and the sale of intermediates, control transfers to the customer and the performance obligation is satisfied when the customer takes possession of the product from the Boca Facility or from a third-party warehouse that is utilized by the Company.


Product revenues from the sale of human plasma collected at the Company’s plasma collection centers are recognized at the time control of the product has been transferred to the customer, which generally occurs at the time of shipment. Product revenues are recognized at the time of delivery if the Company retains control of the product during shipment.


For the nine months ended September 30, 2022, two customers represented an aggregate of 72% of the Company’s consolidated revenues. For the nine months ended September 30, 2021, four customers represented an aggregate of 74% of the Company’s consolidated revenues.

Cost of Product Revenue


Cost of product revenue includes costs associated with the manufacture of the Company’s FDA approved products, intermediates and the sale of human source plasma, as well as expenses related to conformance batch production, process development and scientific and technical operations when these operations are attributable to marketed products. When the activities of these operations are attributable to new products in development, the expenses are classified as research and development expenses.

Loss Per Common Share


Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share is calculated by dividing net loss attributable to common stockholders, as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common stock includes the shares of common stock issuable upon the exercise of outstanding stock options and warrants, using the treasury stock method, as well as Restricted Stock Units (“RSUs”). Potentially dilutive common stock is excluded from the diluted loss per common share computation to the extent that it would be anti-dilutive. As a result, no potentially dilutive securities are included in the computation of any of the accompanying diluted loss per share amounts in the accompanying condensed consolidated financial statements as the Company reported a net loss for all periods presented. For the nine months ended September 30, 2022 and 2021, the following securities were excluded from the calculation of diluted loss per common share because of their anti-dilutive effects:

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   
For the Nine Months Ended September 30,
 
   
2022
   
2021
 
Stock options
   
8,334,313
     
7,831,622
 
Restricted Stock Units
   
4,129,487
     
4,469,133
 
Warrants
   
13,556,898
     
4,528,160
 
     
26,020,698
     
16,828,915
 

Stock-Based Compensation


The Company follows recognized accounting guidance which requires all equity-based payments, including grants of stock options, to be recognized in the statement of operations as compensation expense based on their fair values at the date of grant. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis over the associated vesting period of the award based on the grant date fair value of the award. Stock options granted under the Company’s equity incentive plans generally have a four-year vesting period and a term of 10 years. Pursuant to ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), the Company has elected not to establish a forfeiture rate, as stock-based compensation expense related to forfeitures of unvested stock options is fully reversed at the time of forfeiture.

Income Taxes


The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or its tax returns. Under this method, deferred tax assets and liabilities are recognized for the temporary differences between the tax bases of assets and liabilities and their respective financial reporting amounts at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company records a valuation allowance on its deferred tax assets if it is more likely than not that the Company will not generate sufficient taxable income to utilize its deferred tax assets. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2017 and for previous periods as it relates to the Company’s net operating loss carryforwards.


In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2022 and December 31, 2021, and during the three and nine months ended September 30, 2022 and 2021, the Company recognized no adjustments for uncertain tax positions.

3.
INVENTORIES


The following table provides the components of inventories:

   
September 30,
2022
   
December 31,
2021
 
Raw materials
 
$
47,777,758
   
$
36,755,720
 
Work-in-process
   
47,517,076
     
58,968,535
 
Finished goods
   
67,618,799
     
28,999,836
 
Total inventories
 
$
162,913,633
   
$
124,724,091
 


Raw materials includes plasma and other materials expected to be used in the production of BIVIGAM, ASCENIV and Nabi-HB. These materials will be consumed in the production of goods expected to be available for sale or otherwise have alternative uses that provide a probable future benefit. All other activities and materials associated with the production of inventories used in research and development activities are expensed as incurred.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Work-in-process inventory primarily consists of bulk drug substance and unlabeled filled vials of the Company’s immunoglobulin products.



Finished goods inventory is comprised of immunoglobulin product inventory and related intermediates that are available for commercial sale, as well as plasma collected at the Company’s plasma collection centers which is expected to be sold to third-party customers.

4.
INTANGIBLE ASSETS


Intangible assets at September 30, 2022 and December 31, 2021 consist of the following:

   
September 30, 2022
   
December 31, 2021
 
           Accumulated                  Accumulated        
   
Cost
   
Amortization
   
Net
   
Cost
   
Amortization
   
Net
 
Trademark and other intangible rights related to Nabi-HB
 
$
4,100,046
   
$
3,123,845
   
$
976,201
   
$
4,100,046
   
$
2,684,554
   
$
1,415,492
 
Rights to intermediates
   
907,421
     
691,368
     
216,053
     
907,421
     
594,145
     
313,276
 
   
$
5,007,467
   
$
3,815,213
   
$
1,192,254
   
$
5,007,467
   
$
3,278,699
   
$
1,728,768
 


All of the Company’s intangible assets were acquired in the Biotest Transaction. Amortization expense related to these intangible assets was $0.5 million for the nine months ended September 30, 2022 and 2021 and $0.2 million for the three months ended September 30, 2022 and 2021. Estimated future aggregate amortization expense is expected to be as follows:

Remainder of 2022
 
$
178,838
 
2023
   
715,352
 
2024
   
298,064
 

5.
PROPERTY AND EQUIPMENT


Property and equipment and related accumulated depreciation are summarized as follows:

   
September 30, 2022
   
December 31, 2021
 
Manufacturing and laboratory equipment
 
$
18,245,894
   
$
16,702,991
 
Office equipment and computer software
   
5,251,818
     
4,082,462
 
Furniture and fixtures
   
4,680,870
     
3,389,140
 
Construction in process
   
5,537,520
     
5,496,222
 
Leasehold improvements
   
17,520,132
     
11,129,639
 
Land
   
4,339,441
     
4,339,441
 
Buildings and building improvements
   
19,266,803
     
19,067,032
 
     
74,842,478
     
64,206,927
 
Less: Accumulated depreciation
   
(17,896,388
)
   
(13,271,853
)
Total property, plant and equipment, net
 
$
56,946,090
   
$
50,935,074
 


Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life. Land is not depreciated. The buildings were assigned a useful life of 30 years. Property and equipment other than land and buildings have useful lives ranging from three to 10 years. Leasehold improvements are amortized over the lesser of the lease term or their estimated useful lives.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded depreciation expense on property and equipment for the three months ended September 30, 2022 and 2021 of $1.7 million and $1.2 million, respectively, and for the nine months ended September 30, 2022 and 2021 of $4.6 million and $3.4 million, respectively.

6.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES


Accrued expenses and other current liabilities at September 30, 2022 and December 31, 2021 are as follows:

   
September 30, 2022
   
December 31, 2021
 
Accrued rebates
 
$
9,112,871
   
$
5,040,200
 
Accrued distribution fees
   
2,486,555
     
4,739,651
 
Accrued incentives
   
2,866,982
     
4,066,109
 
Accrued testing
   
256,608
     
1,189,970
 
Accrued payroll and other compensation
   
1,550,263
     
1,197,337
 
Other
   
2,105,653
     
981,721
 
Total accrued expenses and other current liabilities
 
$
18,378,932
   
$
17,214,988
 

7.
DEBT


A summary of outstanding senior notes payable is as follows:

   
September 30, 2022
   
December 31, 2021
 
Notes payable
 
$
153,773,932
   
$
100,000,000
 
Less:
               
Debt discount
   
(12,408,226
)
   
(5,133,761
)
Senior notes payable
 
$
141,365,706
   
$
94,866,239
 


On March 23, 2022 (the “Hayfin Closing Date”), the Company and all of its subsidiaries entered into a Credit and Guaranty Agreement (the “Hayfin Credit Agreement”) with Hayfin Services LLP (“Hayfin”). The Hayfin Credit Agreement provides for a senior secured term loan facility in a principal amount of up to $175.0 million (the “Hayfin Credit Facility”), composed of (i) a term loan made on the Hayfin Closing Date in the principal amount of $150.0 million (the “Hayfin Closing Date Loan”), and (ii) a delayed draw term loan in the principal amount of $25.0 million (the “Hayfin Delayed Draw Loan” and, together with the Hayfin Closing Date Loan, the “Hayfin Loans”). The obligation of the lenders to make the Hayfin Delayed Draw Loan expires on March 22, 2023 and is subject to the satisfaction of certain conditions, including, but not limited to, the Company’s meeting certain 12-month revenue targets as set forth in the Hayfin Credit Agreement. The Hayfin Credit Facility has a maturity date of March 23, 2027 (the “Hayfin Maturity Date”), subject to acceleration pursuant to the Hayfin Credit Agreement, including upon an Event of Default (as defined in the Hayfin Credit Agreement).


On the Hayfin Closing Date, the Company used $100.0 million of the Hayfin Closing Date Loan to terminate and pay in full all of the outstanding obligations under the Company’s previously existing credit facility (the “Perceptive Credit Facility”) with Perceptive Credit Holdings II, LP (“Perceptive”). The Company also used $2.0 million of the Hayfin Closing Date Loan proceeds to pay a redemption premium to Perceptive and used approximately $1.0 million of the Hayfin Closing Date Loan proceeds to pay certain fees and expenses incurred in connection with this transaction. In addition, a $1.8 million upfront fee payable to Hayfin was paid “in kind” and was added to the outstanding principal balance in accordance with the terms of the Hayfin Credit Agreement. In connection with the retirement of the Perceptive Credit Facility and all of the obligations thereunder, the Company recorded a loss on extinguishment of debt in the amount of $6.7 million, consisting of the write-off of unamortized discount related to the Perceptive indebtedness and the redemption premium paid to Perceptive.


Borrowings under the Hayfin Credit Agreement bear interest, at the Company’s election, at either (a) a base rate (equal to the highest of (i) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the federal funds rate in effect on such day plus 0.50% and (iii) adjusted Term Secured Overnight Financing Rate (“SOFR”) for a one-month tenor in effect on such day plus 1.00%), plus an applicable margin of 8.5%, or (b) adjusted Term SOFR for either a one-month or three-month tenor, as elected by the Company, and subject to a floor of 1.25%, plus an applicable margin of 9.5% (the “Applicable Margin”); provided, however, that upon, and during the continuance of, an Event of Default, the Applicable Margin shall increase by an additional 3% per annum. On the last day of each calendar month or quarter during the term of the Hayfin Credit Facility, the Company will pay accrued interest to Hayfin. The rate of interest in effect as of the Hayfin Closing Date and as of September 30, 2022 was 10.75% and approximately 12.1%, respectively. The Company is also permitted to pay “in kind” a portion of the interest on the Hayfin Loans for each monthly or quarterly interest period in an amount equal to 2.5% per annum, which is added to the principal amount of the outstanding debt under the Hayfin Credit Facility. From the Hayfin Closing Date through September 30, 2022, approximately $2.0 million of interest was paid in kind and added to the balance of the outstanding Hayfin Loans.

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ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On the Hayfin Maturity Date, the Company will pay Hayfin the entire outstanding principal amount underlying the Hayfin Loans and any accrued and unpaid interest thereon, as well as an exit fee of 1.0% of the outstanding principal amount being paid. This exit fee is recorded separately as a non-current liability on the accompanying condensed consolidated balance sheet as of September 30, 2022. Prior to the Hayfin Maturity Date, there are no scheduled principal payments on the Hayfin Loans. The Company may prepay outstanding principal on the Hayfin Loans at any time and from time to time upon five business days’ prior written notice, subject to the payment to Hayfin of, (A) any accrued but unpaid interest on the prepaid principal amount plus (B) an early prepayment fee in the amount equal to (i) 7.0% of the prepaid principal amount, if prepaid on or prior to the first anniversary of the Hayfin Closing Date, (ii) 3.0% of the prepaid principal amount, if prepaid after the first anniversary of the Hayfin Closing Date and on or prior to the second anniversary of the Hayfin Closing Date, or (iii) 1.0% of the prepaid principal amount, if prepaid after the second anniversary of the Hayfin Closing Date and on or prior to the third anniversary of the Hayfin Closing Date. In addition, for any prepayments of principal or payment of principal on the Hayfin Maturity Date, the Company is also required to pay the exit fee.


All of the Company’s obligations under the Hayfin Credit Agreement are secured by a first-priority lien and security interest in substantially all of the Company’s tangible and intangible assets, including intellectual property and all of the equity interests in the Company’s subsidiaries. The Hayfin Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants restrict or limit the ability of the Company and its subsidiaries to, among other things and subject to certain exceptions contained in the Hayfin Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to the Company’s or its subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Hayfin Credit Agreement); change its fiscal year; pay dividends; repay certain other indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting the Company’s ability to make loan repayments under the Hayfin Credit Agreement. In addition, the Company is required (i) at all times prior to the Maturity Date to maintain a minimum cash balance of $6.0 million; and (ii) as of the last day of each fiscal quarter, report IVIG product and related revenues for the trailing 12-month period that exceed the amounts set forth in the Hayfin Credit Agreement, which range from $75.0 million for the fiscal quarter ended June 30, 2022 to $250.0 million for the fiscal quarter ended December 31, 2026. As of September 30, 2022, the Company was in compliance with all of the covenants contained in the Hayfin Credit Agreement.


As consideration for the Hayfin Credit Agreement, the Company issued to various entities affiliated with Hayfin, on the Hayfin Closing Date, warrants to purchase an aggregate of 9,103,047 shares of the Company’s common stock (the “Hayfin Warrants”). The Hayfin Warrants have an exercise price equal to $1.6478 per share, which is equal to the trailing 30-day Volume Weighted-average Price of the Company’s common stock on the business day immediately prior to the Hayfin Closing Date. The Hayfin Warrants were valued by the Company at approximately $9.6 million as of the Hayfin Closing Date and have an expiration date of March 23, 2029.



As a result of the upfront fee and exit fee paid or payable to Hayfin, the expenses incurred by the Company  in connection with this transaction and the value of the Hayfin Warrants, the Company recognized an aggregate discount on the Hayfin Loans in the amount of $13.9 million. The Company records debt discount as a reduction to the face amount of the debt, and the debt discount is amortized as interest expense over the life of the debt using the interest method. Based on the fair value of the Hayfin Warrants and the aggregate amount of fees and expenses associated with obtaining the Hayfin Credit Facility, the effective interest rate on the Hayfin Loans as of the Hayfin Closing Date and as of September 30, 2022 was approximately 13.0% and 14.3%, respectively.

12

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
STOCKHOLDERS’ EQUITY

Preferred Stock


The Company is currently authorized to issue up to 10 million shares of preferred stock, $0.0001, par value per share. There were no shares of preferred stock outstanding at September 30, 2022 and December 31, 2021.

Common Stock


As of September 30, 2022 and December 31, 2021, the Company was authorized to issue 300,000,000 shares of its common stock, $0.0001 par value per share, and 196,776,871 and 195,813,817 shares of common stock were outstanding as of September 30, 2022 and December 31, 2021, respectively. After giving effect to the 49,951,243 shares reserved for outstanding warrants and awards issued or reserved for future issuance under the Company’s equity incentive plans, as of September 30, 2022 there were 53,271,886 shares of common stock available for issuance.


On September 3, 2021, the Company entered into a distribution agreement with Raymond James & Associates, Inc., as agent (“Agent”), pursuant to which the Company may offer and sell, from time to time, at its option, through or to the Agent, up to an aggregate of $50 million of shares of the Company’s common stock (the “Distribution Agreement”). The Company intends to use any net proceeds from the sale of common stock under the Distribution Agreement for general corporate purposes, including procurement of source plasma and other raw materials, supply chain initiatives and production expenditures, funding expansion of plasma collection centers, working capital, capital expenditures, expansion and resources for commercialization activities, and other potential research and development and business opportunities. The Company currently has approximately $42.8 million of shares available to sell under the Distribution Agreement. There were no sales under the Distribution Agreement during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, the Company issued 5,540,831 shares of its common stock under the Distribution Agreement and received net proceeds of $6.9 million.



On August 5, 2020, the Company entered into an open market sale agreement (as amended from time to time, the “Sale Agreement”) with Jefferies LLC (“Jefferies”), pursuant to which the Company could offer and sell, from time to time, at its option, through or to Jefferies, up to an aggregate of $50 million of shares of the Company’s common stock. On November 5, 2020 and February 3, 2021, the Company and Jefferies amended the Sale Agreement to provide for increases in the aggregate offering amount under the Sale Agreement such that the Company could sell shares having an aggregate offering price of up to $105.4 million under the Sale Agreement, as amended. The Sale Agreement was terminated on August 31, 2021. During the nine months ended September 30, 2021, the Company issued and sold 27,805,198 shares of common stock under the Sale Agreement and received net proceeds of $60.4 million.

Warrants


In connection with the Hayfin Credit Agreement that the Company entered into on March 23, 2022 (see Note 7), the Company issued the Hayfin Warrants to purchase 9,103,047 shares of the Company’s common stock. The Hayfin Warrants were valued at $9.6 million using the Black-Scholes option-pricing model assuming an expected term of seven years, a volatility of 68.1%, a dividend yield of 0% and a risk-free rate of interest of 2.36%. During the nine months ended September 30, 2022, outstanding warrants to purchase 74,309 shares of the Company’s common stock expired in accordance with the terms of the warrants. At September 30, 2022, the Company had outstanding warrants to purchase an aggregate of 13,556,898 shares of common stock, with a weighted-average exercise price of $2.00 per share. At December 31, 2021, the Company had outstanding warrants to purchase an aggregate of 4,528,160 shares of common stock, with a weighted average exercise price of $2.82 per share and expiration dates ranging between June 2022 and December 2030.

13

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equity Incentive Plans


The fair value of stock options granted under the ADMA Biologics, Inc. 2014 Omnibus Incentive Compensation Plan, as amended and restated (the “2014 Plan”), was determined on the date of grant using the Black-Scholes option valuation model. The Black-Scholes model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of certain subjective assumptions including the expected stock price volatility. The stock options granted to employees and directors have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. The following assumptions were used to determine the fair value of options granted during the nine months ended September 30, 2022 and 2021:

   
Nine Months Ended September 30,
 
   
2022
   
2021
 
Expected term
 
5.5 - 6.3 years
   
5.5 - 6.3 years
 
Volatility
 
68%

 
69%

Dividend yield
 
0.0
   
0.0
 
Risk-free interest rate
 
1.72-1.73%

 
0.80-1.14%



On June 21, 2022, the Company’s stockholders approved the ADMA Biologics, Inc. 2022 Compensation Plan (the “2022 Equity Plan”).  Approval of the 2022 Equity Plan resulted in approximately 18 million additional shares of the Company’s common stock being reserved for future awards. During the nine months ended September 30, 2022 and 2021, the Company granted options to purchase an aggregate of 1,194,032 and 1,757,050 shares of common stock, respectively, to its directors and employees.  The weighted average remaining contractual life of stock options outstanding and expected to vest at September 30, 2022 is 6.3 years. The weighted average remaining contractual life of stock options exercisable at September 30, 2022 is 5.4 years.


A summary of the Company’s option activity under the Company’s equity incentive plans and related information is as follows:

           Weighted  
           Average  
   
Shares
   
Exercise Price
 
Options outstanding, vested and expected to vest at December 31, 2021
   
7,862,722
   
$
3.93
 
Forfeited
   
(31,021
)
 
$
2.37
 
Expired
   
(691,420
)
 
$
6.91
 
Granted
   
1,194,032
   
$
1.67
 
Options outstanding, vested and expected to vest at September 30, 2022
   
8,334,313
   
$
3.36
 
                 
Options exercisable
   
5,992,738
   
$
3.86
 


As of September 30, 2022, the Company had $2.8 million of unrecognized compensation expense related to options granted under the Company’s equity incentive plans, which is expected to be recognized over a weighted-average period of 2.3 years.


       During the nine months ended September 30, 2022 and 2021, the Company granted RSUs representing an aggregate of 1,119,266 and 4,332,244 shares, respectively, to certain management employees of the Company and to members of its Board of Directors. Except for the RSUs granted under the Company’s retention incentive program discussed below, these RSUs generally vest annually over a period of four years for employees and semi-annually over a period of one year for directors. On September 28, 2021, the Company implemented a retention incentive program for the Company’s executive management and certain employees (see Note 10), whereby the Company issued an aggregate of 3,780,000 RSUs, of which 2,632,500 are time-based RSUs and 1,147,500 are milestone-based RSUs. Fifty percent of the time-based RSUs granted under the retention bonus program will vest on December 31, 2022, with the remainder vesting in quarterly installments through December 31, 2024. The milestone-based RSUs vest upon achievement of the applicable milestone, and all of the milestone-based RSUs vested during the nine months ended September 30, 2022. During the nine months ended September 30, 2022, an aggregate of 1,409,912 shares of common stock vested in connection with grants of RSUs, including all of the milestone-based RSUs. With respect to the vested RSUs, 446,858 shares valued at approximately $0.8 million were withheld by the Company to cover employees’ tax liabilities. These shares have been retired by the Company or otherwise made available again for issuance under the 2022 Equity Plan and were no longer outstanding as of September 30, 2022. A summary of the Company’s unvested RSU activity and related information is as follows:


14

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
           Weighted  
           Average Grant  
   
Shares
   
Date Fair Value
 
Balance at December 31, 2021
   
4,485,133
   
$
1.34
 
Granted
   
1,119,266
   
$
1.69
 
Vested
   
(1,409,912
)
 
$
1.33
 
Forfeited
   
(65,000
)
 
$
1.40
 
Balance at September 30, 2022
   
4,129,487
   
$
1.44
 


As of September 30, 2022, the Company had $4.2 million of unrecognized compensation expense related to unvested RSUs granted under the Company’s equity incentive plans, which is expected to be recognized over a weighted-average period of 2.6 years.


Total stock-based compensation expense for all awards granted under the Company’s equity incentive plans for the three and nine months ended September 30, 2022 and 2021 is as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Research and development
 
$
4,952
   
$
1,526
   
$
14,521
   
$
149,232
 
Plasma center operating expenses
   
21,588
     
14,150
     
62,255
     
38,605
 
Selling, general and administrative
   
1,187,043
     
596,084
     
3,772,860
     
1,850,411
 
Cost of product revenue
   
99,911
     
76,514
     
296,293
     
236,612
 
Total stock-based compensation expense
 
$
1,313,494
   
$
688,274
   
$
4,145,929
   
$
2,274,860
 

9.
RELATED PARTY TRANSACTIONS


The Company leases an office building and equipment from Areth, LLC (“Areth”) pursuant to an agreement for services effective as of January 1, 2016, as amended from time to time. Rent expense for the nine months ended September 30, 2022 and 2021 amounted to $90,000 (see Note 14). Areth is a company controlled by Dr. Jerrold B. Grossman, the Vice Chairman of the Company’s Board of Directors, and Adam S. Grossman, the Company’s President and Chief Executive Officer. The Company also reimburses Areth for office and building-related (common area) expenses, equipment and certain other operational expenses, which were not material to the condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021.



During the nine months ended September 30, 2022 and 2021, the Company purchased certain specialized medical equipment and services related to the Company’s plasma collection centers, as well as personal protective equipment, from GenesisBPS and its affiliates (“Genesis”), aggregating to $0.1 million. Genesis is owned by Dr. Grossman and Adam Grossman.


See Note 7 for a discussion of the Company’s former credit facility and related transactions with Perceptive, a holder of more than 5% of the Company’s common stock during the nine months ended September 30, 2022.



During the nine months ended September 30, 2021, in connection with the resignation of Dr. James Mond, the Company’s former Chief Scientific and Medical Officer, the Company recognized an expense and corresponding liability in the amount of $0.8 million for estimated payments to be made under a separation and transition agreement with Dr. Mond. Such payments were made in scheduled installments over a period of 10 months.
15

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.
COMMITMENTS AND CONTINGENCIES

General Legal Matters


From time to time, the Company is or may become subject to certain legal proceedings and claims arising in connection with the normal course of its business. Management does not expect that the outcome of any such claims or actions will have a material effect on the Company’s liquidity, results of operations or financial condition.

COVID-19 Pandemic


The Company continues to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta and Omicron variants and other resistant strains of the coronavirus, and its impacts to the Company’s commercial and manufacturing operations and plasma collection facilities, including collections of source plasma, procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. A substantial portion of such testing has historically been performed by contract laboratories outside the United States.


Due to a combination of previous state and local “shelter-in-place” orders, as well as government stimulus packages, persisting social distancing measures and varying roll-outs of vaccinations by state, the Company was experiencing lower than normal donor collections at its FDA approved plasma collection centers. The Company was also subject to delays in shipments of source plasma from its contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of its products. In addition, the Company is subject to supply chain delays as a result of certain of its suppliers diverting significant resources towards the rapid development and distribution of COVID-19 vaccines and, as a result, the Company has elected to carry more raw materials inventory than it has in the past. The COVID-19 pandemic previously impacted, to a certain degree, the Company’s customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting the Company’s ability to communicate with potential customers.


The pandemic could also impact the Company’s ability to interact with the FDA or other regulatory authorities and may result in delays in the conduct of inspections or review of pending applications or submissions. Although the Company received several FDA approvals and two FDA inspections of the Boca Facility were completed during the year ended December 31, 2021, no assurances can be provided as to the timing for completion of any other regulatory submissions or applications that may be impacted by restrictions related to COVID-19.


During the nine months ended September 30, 2022 and 2021, revenue attributable to international customers was approximately 7% and 13%, respectively, of the Company’s total revenues. As the Company seeks to grow this aspect of its business, it may also be subject to the impacts of the COVID-19 pandemic in locations outside the United States.


Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on the Company’s financial condition or results of operations, and the Company does not believe that its production operations at the Boca Facility, the Company’s contract fill/finishers or its plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, the Company does not anticipate and has not experienced any material impairments with respect to any of its long-lived assets, including the Company’s property and equipment, goodwill or intangible assets.



Although the COVID-19 pandemic has not, to date, materially adversely impacted the Company’s capital and financial resources, because the Company is unable to determine the ultimate severity or duration of the COVID-19 pandemic or other pandemics or their long-term effects on, among other things, the global, national or local economies, the capital and credit markets or the Company’s workforce, customers or our suppliers, at this time the Company is unable to predict whether COVID-19 or other pandemics will have a material adverse impact on the Company’s business, financial condition, liquidity and results of operations.

16

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Vendor Commitments


Pursuant to the terms of a plasma purchase agreement with BPC dated as of November 17, 2011 (the “2011 Plasma Purchase Agreement”), the Company agreed to purchase from BPC an annual minimum volume of source plasma containing antibodies to RSV to be used in the manufacture of ASCENIV. The Company must purchase a to-be-determined and agreed upon annual minimum volume from BPC, but may also collect high-titer RSV plasma from up to five wholly-owned ADMA plasma collection facilities. During 2015, the Company and BPC amended the 2011 Plasma Purchase Agreement to allow the Company the ability to collect its raw material RSV high-titer plasma from other third-party collection organizations, thus allowing the Company to expand its reach for raw material supply as it executes its commercialization plans for ASCENIV. As part of the closing of the Biotest Transaction, the parties amended the 2011 Plasma Purchase Agreement to extend the initial term through the ten-year anniversary of the closing date of the Biotest Transaction. Unless terminated earlier, the 2011 Plasma Purchase Agreement expires in June 2027, after which it may be renewed for two additional five-year periods if agreed to by the parties. On December 10, 2018, BPC assigned its rights and obligations under the 2011 Plasma Purchase Agreement to Grifols Worldwide Operations Limited (“Grifols”) as its successor-in-interest, effective January 1, 2019. On January 1, 2019, Grifols and the Company entered into an additional amendment to the 2011 Plasma Purchase Agreement for the purchase of source plasma containing antibodies to RSV from Grifols. Pursuant to this amendment, until January 1, 2022, the Company could purchase RSV plasma from Grifols from the two plasma collection centers that were transferred to BPC on January 1, 2019 at a price equal to cost plus five percent (5%) (without any additional increase due to inflation). Effective January 1, 2022, RSV plasma purchased from these two plasma collection centers are subject to the pricing terms in effect for RSV plasma purchased from other plasma collection centers owned by Grifols.


On June 6, 2017, the Company and BPC entered into a Plasma Supply Agreement pursuant to which BPC supplies, on an exclusive basis subject to certain exceptions, to ADMA BioManufacturing an annual minimum volume of hyperimmune plasma that contain antibodies to the Hepatitis B virus for the manufacture of Nabi-HB. The Plasma Supply Agreement has a 10-year term. On July 19, 2018, the Company and BPC entered into an amendment to the Plasma Supply Agreement to provide, among other things, that in the event BPC elects not to supply in excess of ADMA BioManufacturing’s specified amount of Hepatitis B plasma and ADMA BioManufacturing is unable to secure Hepatitis B plasma from a third party at a price that is within a low double- digit percentage of the price that ADMA BioManufacturing pays to BPC, then BPC shall reimburse ADMA BioManufacturing for the difference in price ADMA BioManufacturing incurs. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Supply Agreement to Grifols, effective January 1, 2019.


On June 6, 2017, the Company and BPC entered into a Plasma Purchase Agreement (the “2017 Plasma Purchase Agreement”), pursuant to which ADMA BioManufacturing purchases normal source plasma (“NSP”) from BPC at agreed upon annual quantities and prices. The 2017 Plasma Purchase Agreement has an initial term of five years after which the 2017 Plasma Purchase Agreement may be renewed for additional two terms of two years each upon the mutual written consent of the parties. On July 19, 2018, the Company and BPC entered into an amendment to the 2017 Plasma Purchase Agreement to, among other things, provide agreed upon amounts of normal source plasma to be supplied by BPC to ADMA BioManufacturing in calendar year 2019 at a specified price per liter, provided that ADMA BioManufacturing delivers a valid purchase order to BPC. Additionally, pursuant to the amendment to the 2017 Plasma Purchase Agreement, BPC agreed that, for calendar years 2020 and 2021, it shall supply no less than a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, provided that such requested NSP amounts are within an agreed range, at a price per liter to be mutually determined. Furthermore, pursuant to the amendment to the 2017 Plasma Purchase Agreement, in the event BPC fails to supply ADMA BioManufacturing with at least a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, BPC shall promptly reimburse ADMA BioManufacturing the difference in price ADMA BioManufacturing incurs due to BPC’s election not to supply NSP to ADMA BioManufacturing in such amounts as requested. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Purchase Agreement to Grifols, effective January 1, 2019.

17

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Effective as of May 12, 2021, the Company and Grifols amended the foregoing 2017 Plasma Purchase Agreement whereby, among other things, the term of the agreement was extended through December 31, 2022, while certain historical provisions were deleted. In order to maintain a reliable supply of raw material plasma thereafter, the Company has executed additional agreements with multiple third-party suppliers of NSP to supplement the 2017 Plasma Purchase Agreement. The Company has also increased its number of planned plasma collection center buildouts such that the Company expects to have ten FDA-approved plasma collection centers in operation by the end of 2023, while also continuing to increase its plasma collection capabilities at its ADMA BioCenters plasma collection centers business segment.


The Company purchases substantially all of its raw material plasma from Grifols. For the nine months ended September 30, 2022, plasma purchases from Grifols totaled $40.3 million, or approximately 68% of the Company’s total inventory purchases. For the nine months ended September 30, 2021, plasma purchases from Grifols totaled approximately $31.2 million, representing approximately 69% of the Company’s total inventory purchases.

Post-Marketing Commitments


In connection with the approval of the BLA for BIVIGAM, on December 19, 2012 Biotest committed to perform two additional post-marketing studies, a pediatric study to evaluate the efficacy and safety of BIVIGAM in children and adolescents, and a post-authorization safety study to further assess the potential risk of hypotension and hepatic and renal impairment in BIVIGAM-treated patients with primary humoral immunodeficiency. These studies are still pending completion. ADMA has assumed the remaining obligations, and the costs of the studies will be expensed as incurred as research and development expenses. For the three months ended September 30, 2022 and 2021, the Company incurred expenses related to these studies $0.7 million and $0.3 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company incurred expenses of $1.5 million and $1.3 million, respectively. The Company currently expects to incur expenses of  approximately $2.0 million to $3.0 million to complete these studies, with both studies to be completed by June of 2023.


In connection with the FDA’s approval of ASCENIV on April 1, 2019, the Company is required to perform a pediatric study to evaluate the safety and efficacy of ASCENIV in children and adolescents. For the three months ended September 30, 2022 and 2021, the Company incurred expenses related to these studies $0.1 million and $0.2 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company incurred expenses of $0.3 million and $0.5 million, respectively. The Company expects to incur expenses of approximately $2 million to complete this study, which is required to be completed by June of 2023.

Employment Contracts


The Company has entered into employment agreements with Mr. Grossman and with Brian Lenz, its Executive Vice President, Chief Financial Officer and General Manager, ADMA BioCenters.


Other Commitments


On September 28, 2021, following the approval of the Company’s Board of Directors upon recommendation of the Compensation Committee of the Board of Directors, and in consultation with an independent compensation consultant, the Company implemented a retention incentive program, consisting of cash payments and awards of RSUs (see Note 8), to the Company’s management, including Mr. Grossman and Mr. Lenz, and to certain other employees. The purpose of the retention program is to promote and ensure business continuity and provide an incentive to the Company’s executive management and certain other employees considering the operational challenges presented by the ongoing COVID-19 pandemic and the competitive work environment in which the Company operates as an FDA regulated manufacturer of specialized biologic therapies. The retention awards were granted considering the nationwide labor shortages and the increased employee turnover rates that the Company, its pharmaceutical peers and other companies outside of the Company’s industry have reported experiencing.



The cash portion of the retention program consists of two tranches. The first tranche was paid to employees on September 30, 2021 in the amount of $1.3 million, and the second tranche aggregating to approximately $1.3 million was paid on June 15, 2022. Based on the terms of the retention agreements the Company entered into with each applicable executive and employee, approximately $0.8 million of each tranche is being recognized over the retention service period, which began on October 1, 2021 and ends on December 31, 2022, with the remainder having been recognized as expense when paid.


18

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of September 30, 2022. The Company does not anticipate recognizing any significant losses relating to these arrangements.

11.
SEGMENTS


The Company is engaged in the manufacture, marketing and development of specialty plasma-derived biologics.  The Company’s ADMA BioManufacturing segment reflects the Company’s immunoglobulin manufacturing, commercial and development operations in Boca Raton, FL, acquired on June 6, 2017 (see Note 1).  The Plasma Collection Centers segment consists of ten plasma collection facilities located throughout the U.S., seven of which currently hold FDA licenses, with two additional plasma collection centers in operation and collecting plasma and the remaining facility under construction. The Corporate segment includes general and administrative overhead expenses. The Company defines its segments as those business units whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to analyze performance and allocate resources. The Company’s CODM is its President and Chief Executive Officer. Summarized financial information concerning reportable segments is shown in the following tables:

Three Months Ended September 30, 2022
 
     ADMA      Plasma Collection              
   
BioManufacturing
   
Centers
   
Corporate
   
Consolidated
 
                         
Revenues
 
$
37,280,798
   
$
3,773,631
   
$
35,708
   
$
41,090,137
 
                                 
Cost of product revenue
   
27,883,046
     
3,550,450
     
-
     
31,433,496
 
                                 
Income (loss) from operations
   
297,310
   
(4,636,269
)
   
(4,977,774
)
   
(9,316,733
)
                                 
Interest and other expense, net
   
(3,023
)
   
(154
)
   
(5,579,594
)
   
(5,582,771
)
                                 
Net income (loss)
   
294,287
   
(4,636,423
)
   
(10,557,368
)
   
(14,899,504
)
                                 
Total assets
   
242,983,498
     
39,125,933
     
18,448,139
     
300,557,570
 
Depreciation and amortization expense
   
1,214,529
     
647,463
     
-
     
1,861,992
 

19

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2021
 
     ADMA      Plasma Collection              
   
BioManufacturing
   
Centers
   
Corporate
   
Consolidated
 
                         
Revenues
 
$
19,063,077
   
$
1,581,765
   
$
35,708
   
$
20,680,550
 
                                 
Cost of product revenue
   
18,695,783
     
1,599,430
     
-
     
20,295,213
 
                                 
Loss from operations
   
(7,456,129
)
   
(3,163,886
)
   
(3,817,061
)
   
(14,437,076
)
                                 
Interest and other expense, net
   
22,822
   
(1,597
)
   
(3,297,103
)
   
(3,275,878
)
                                 
Net loss
   
(7,433,307
)
   
(3,165,483
)
   
(7,114,164
)
   
(17,712,954
)
                                 
Total assets
   
189,019,883
     
22,273,264
     
27,347,259
     
238,640,406
 
Depreciation and amortization expense
   
1,064,757
     
356,233
     
1,174
     
1,422,164
 

Nine Months Ended September 30, 2022
 
     ADMA      Plasma Collection              
   
BioManufacturing
   
Centers
   
Corporate
   
Consolidated
 
                         
Revenues
 
$
95,129,542
   
$
8,861,570
   
$
107,125
   
$
104,098,237
 
                                 
Cost of product revenue
   
74,383,948
     
8,626,208
     
-
     
83,010,156
 
                                 
Loss from operations
   
(4,423,228
)
   
(12,520,163
)
   
(16,363,147
)
   
(33,306,538
)
                                 
Interest and other expense, net
   
(70,084
)
   
(1,221
)
   
(13,624,483
)
   
(13,695,788
)
                                 
Loss on extinguishment of debt
    -       -       (6,669,941 )     (6,669,941 )
                                 
Net loss
   
(4,493,312
)
   
(12,521,384
)
   
(36,657,571
)
   
(53,672,267
)
                                 
Capital expenditures
   
4,292,246
     
5,870,404
     
-
     
10,162,650
 
Depreciation and amortization expense
   
3,486,212
     
1,689,362
     
918
     
5,176,492
 

20

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2021
 
     ADMA      Plasma Collection              
   
BioManufacturing
   
Centers
   
Corporate
   
Consolidated
 
                         
Revenues
 
$
48,832,000
   
$
5,620,633
   
$
107,125
   
$
54,559,758
 
                                 
Cost of product revenue
   
51,527,832
     
5,370,127
     
-
     
56,897,959
 
                                 
Loss from operations
   
(25,299,223
)
   
(7,928,946
)
   
(11,954,388
)
   
(45,182,557
)
                                 
Interest and other expense, net
   
(77,484
)
   
(2,349
)
   
(9,735,808
)
   
(9,815,641
)
                                 
Net loss
   
(25,376,707
)
   
(7,931,295
)
   
(21,690,196
)
   
(54,998,198
)
                                 
Capital expenditures
   
3,805,472
     
6,029,932
     
-
     
9,835,404
 
Depreciation and amortization expense
   
3,130,064
     
843,151
     
4,571
     
3,977,786
 

Net revenues according to geographic area, based on the location of where the product is shipped, is as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
United States
 
$
37,854,167
   
$
18,265,945
   
$
96,445,162
   
$
47,368,793
 
International
   
3,235,970
     
2,414,605
     
7,653,075
     
7,190,965
 
Total revenues
 
$
41,090,137
   
$
20,680,550
   
$
104,098,237
   
$
54,559,758
 

12.
LEASE OBLIGATIONS


The Company leases certain properties and equipment for its ADMA BioCenters and ADMA BioManufacturing subsidiaries, which leases provide the right to use the underlying assets and require lease payments through the respective lease terms which expire at various dates through 2032. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.


The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. Right-to-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of the lease payments is determined using the Company’s then-incremental borrowing rate of 13%. The Company’s lease expense is recognized on a straight-line basis over the lease term and is reflected in Plasma center operating expenses and Selling, general and administrative expenses. Aggregate lease expense for the Company’s leases for the three months ended September 30, 2022 and 2021 was approximately $0.6 million and $0.4 million, respectively. Aggregate lease expense for the Company’s leases for the nine months ended September 30, 2022 and 2021 was approximately $1.5 million and $1.0 million, respectively. Cash paid for the Company’s leases for the three months ended September 30, 2022 and 2021 was approximately $0.5 million and $0.3 million, respectively. Cash paid for the Company’s leases for the nine months ended September 30, 2022 and 2021 was approximately $1.3 million and 1.1 million, respectively.



Including a finance lease the Company entered into in June 2018, the Company has aggregate lease liabilities of $11.4 million and $8.1 million as of September 30, 2022 and December 31, 2021, respectively, which are comprised primarily of the leases for the Company’s plasma collection centers and a warehouse lease for raw material storage related to the Company’s immunoglobulin manufacturing operations.  The Company’s operating leases have a weighted average remaining term of 8.8 years. Scheduled payments under the Company’s lease obligations are as follows:

21

ADMA BIOLOGICS, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Remainder of 2022
   
$
480,854
 
Year ended December 31, 2023
     
2,247,057
 
2024
     
2,223,314
 
2025
     
2,246,432
 
2026
     
1,996,036
 
2027
     
2,040,690
 
Thereafter
     
8,238,571
 
Total payments
     
19,472,954
 
Less: imputed interest
     
(8,116,116
)
Current portion
     
(720,755
)
Balance at September 30, 2022
   
$
10,636,083
 



In addition to the foregoing lease obligations, the Company leases an office building and equipment from Areth as discussed in Note 7. In connection with the amendment to this lease discussed in Note 14, the Company will pay an additional $0.5 million to Areth from October 1, 2022 through December 31, 2026.

13.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


Supplemental cash flow information for the nine months ended September 30, 2022 and 2021 is as follows:

   
2022
   
2021
 
SUPPLEMENTAL CASH FLOW INFORMATION:
           
Cash paid for interest
 
$
9,610,361
   
$
8,346,968
 
Noncash Financing and Investing Activities:
               
Equipment acquired reflected in accounts payable and accrued liabilities
 
$
1,749,746
   
$
1,382,818
 
Right-to-use assets in exchange for lease obligations
 
$
3,660,890
   
$
2,844,875
 
Warrants issued in connection with notes payable
  $
9,569,604
    $
-
 

14.
SUBSEQUENT EVENT
  

As discussed in Note 7, the Company leases an office building and equipment from Areth. The lease term was for a period of 12 months and provided for automatic one-year renewals unless ADMA provided written notice of termination to Areth 60 days prior to the end of the term. Effective as of October 1, 2022, the Company and Areth agreed to extend the term of the lease to December 31, 2026 at the current monthly rent.

22

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of our financial condition and results of operations, which refers to our historical results, should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including “Risk Factors” and our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 24, 2022 (the “2021 10-K”). The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout or referenced within this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements.”  Our actual results may differ materially from our current expectations.
 
OVERVIEW
 
Our Business

ADMA Biologics, Inc. (the “Company,” “ADMA,” “we,” “us” or “our”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. Our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons.

We currently have three products with U.S. Food and Drug Administration (the “FDA”) approval, all of which are currently marketed and commercially available: (i) BIVIGAM (Immune Globulin Intravenous, Human), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”), and for which we received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; (ii) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an IVIG product indicated for the treatment of PI, for which we received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing HBsAg and other listed exposures to Hepatitis B.

We may also seek to develop a pipeline of plasma-derived therapeutics, including but not limited to, a product based on our most recently approved patent application under U.S. Patent No. 10,259,865 related to methods of treatment and prevention of S. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of S. pneumoniae. In May 2022, the United States Patent and Trademark Office issued U.S. Pat. No. 11,339,206 (the “‘206 Patent”). The ‘206 Patent relates to methods of treating respiratory infections and expands ADMA’s estate of patents encompassing its proprietary immunotherapeutic compositions. In particular, the ‘206 Patent encompasses use of standardized, hyperimmune globulin for treating respiratory infections including those caused by respiratory syncytial virus (“RSV”), coronavirus, influenza virus, parainfluenza virus, and metapneumovirus. Our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases.

We manufacture these products at our FDA-licensed, plasma fractionation and purification facility located in Boca Raton, Florida with a peak annual source plasma processing capability of up to 600,000 liters (the “Boca Facility”). Based on current production yields, our completed and ongoing supply chain enhancements and capacity expansion initiatives, we believe this facility has the potential to produce quantities of our immune globulin (“IG”) products to generate approximately $250 million or more in annual revenue beginning in 2024 and approximately $300 million or more thereafter, as well as achieving profitability during the first quarter of 2024, as we ramp-up production over the next several years. Based on our current 2022 revenue growth year-to-date, we have increased our total annual revenue target to approximately $145 million for fiscal year 2022.

23

Through our ADMA BioCenters subsidiary, we currently operate seven FDA-licensed source plasma collection facilities in the U.S., with two additional collection facilities in operation and collecting plasma presently under FDA licensing preparation and review and another facility under construction. This business unit, which we refer to as our Plasma Collection Centers business segment, provides us with a portion of our blood plasma for the manufacture of our products, and also allows us to sell certain quantities of source and hyperimmune plasma to third-party customers for further manufacturing. As a part of our planned supply chain robustness initiative, we have opened four new plasma collection centers during the past 12 months, and we now have ten plasma collection centers in various stages of approval and development, including nine that are operational and collecting plasma. In addition, three of our FDA-approved plasma collection centers also have approvals from the Korean Ministry of Food and Drug Safety (“MFDS”), as well as FDA approval to operate a Hepatitis B immunization program. After giving effect to the progress we made in 2021 and thus far in 2022 with our plasma collection network expansion, we believe we remain on track to achieve our goal of having ten plasma collection centers licensed by the FDA by the end of 2023. A typical plasma collection center, such as those operated by ADMA BioCenters, can collect approximately 30,000 to 50,000 liters of source plasma annually, which may be sold for different prices depending upon the type of plasma, quantity of purchase and market conditions at the time of sale. Plasma collected from ADMA BioCenters’ facilities that is not used to manufacture our products or product candidates is sold to third-party customers in the U.S. and in other locations outside the U.S. where we are approved under supply agreements or in the open “spot” market.

We sell plasma-derived intermediate fractions to certain customers, which are generated as part of our FDA-approved manufacturing process for IG and IVIG products. In January 2020, we announced our entry into a five-year manufacturing and supply agreement to produce and sell these intermediate by-products, which are used as the starting raw material to produce other plasma-derived biologics. In addition, from time to time we provide contract manufacturing and testing services for certain third-party clients. We also provide laboratory contracting services to certain customers and anticipate providing contract filling, labeling and packaging services in light of the FDA approval of our in-house fill-finish capabilities.

On June 6, 2017, we completed the acquisition of certain assets (the “Biotest Assets”) of the Therapy Business Unit (“BTBU”) of Biotest Pharmaceuticals Corporation (“BPC” and, together with Biotest AG, “Biotest”), which included two FDA-licensed products, Nabi-HB and BIVIGAM, and the Boca Facility (the “Biotest Transaction”).

Our Products

BIVIGAM
 
BIVIGAM is a plasma-derived IVIG that contains a broad range of antibodies similar to those found in normal human plasma. These antibodies are directed against bacteria and viruses, and help to protect PI patients against serious infections. BIVIGAM is a purified, sterile, ready-to-use preparation of concentrated human Immunoglobulin G antibodies indicated for the treatment of PI, a group of genetic disorders. This includes, but is not limited to, the humoral immune defect in common variable immunodeficiency, X-linked agammaglobulinemia, congenital agammaglobulinemia, Wiskott-Aldrich syndrome and severe combined immunodeficiency. These PIs are a group of genetic disorders. Based on recent estimates, these disorders are no longer considered to be very rare, with as many as one in every 1,200 people in the United States having some form of PI.

On May 9, 2019, the FDA approved the Prior Approval Supplement (the “PAS”) for the use of our IVIG manufacturing process, thereby enabling us to re-launch and commercialize this product in the United States. We resumed production of BIVIGAM during the fourth quarter of 2017 and commercial production is ongoing, using our FDA-approved IVIG manufacturing process under U.S. Department of Health and Human Services (“HHS”) License No. 2019. The commercial re-launch and first commercial sales for this product commenced in August of 2019.

On April 28, 2021, we announced that the FDA granted approval for our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacture of our BIVIGAM IVIG product. This increased IVIG plasma pool scale allows us to produce BIVIGAM at an expanded capacity, utilizing the same equipment, release testing assays and labor force, and has had a favorable impact on our gross margins and operating results.

24

ASCENIV
 
ASCENIV is a plasma-derived IVIG that contains naturally occurring polyclonal antibodies, which are proteins that are used by the body’s immune system to neutralize microbes, such as bacteria and viruses, and prevent against infection and disease. We manufacture ASCENIV under HHS License No. 2019 using a process known as fractionation. The Centers for Medicare and Medicaid Services (“CMS”) has issued a permanent, product-specific-J-code for ASCENIV.  Under the Healthcare Common Procedure Coding System (“HCPCS”), the J-code (J1554) became effective April 1, 2021. As part of our proprietary manufacturing process for ASCENIV, we leverage our unique, patented plasma donor screening methodology and tailored plasma pooling design, which blends normal source plasma and plasma from donors tested to have high levels of neutralizing antibody titers to respiratory syncytial virus (“RSV”) using our proprietary microneutralization testing assay. We are able to identify the high titer or “hyperimmune” plasma that meets our internal and required specifications for ASCENIV with our patented testing methods and assay. This type of high titer plasma is typically found in less than 10% of the total donor collection samples we test.

ASCENIV is approved for the treatment of Primary Immune Deficiency Disorder (“PIDD”), a class of inherited genetic disorders that causes a deficient or absent immune system in adults and adolescents (12 to 17 years of age). Our pivotal Phase 3 clinical trial in 59 PIDD patients met the primary endpoint of no Serious Bacterial Infections reported during 12 months of treatment. Secondary efficacy endpoints further demonstrated the benefits of ASCENIV in the low incidence of infection, therapeutic antibiotic use, days missed from work/school/daycare and unscheduled medical visits and hospitalizations. We believe this clinical data together with the FDA approval for the treatment of PIDD better positions ADMA to potentially further evaluate ASCENIV in immune-compromised patients infected with or at-risk for RSV infection or potentially other respiratory viral pathogens at an appropriate time. Due to the COVID-19 pandemic, our plans have been delayed.  In the future however, we may work with the FDA and the immunology and infectious disease community to design an appropriate clinical trial to evaluate the use of ASCENIV in this patient population. Commercial sales of ASCENIV commenced in October of 2019 and our commercial and medical education efforts are focused on the labeled indication of patients with PIDD.

Nabi-HB
 
Nabi-HB is a hyperimmune globulin that is rich in antibodies to the Hepatitis B virus. Nabi-HB is a purified human polyclonal antibody product collected from plasma donors who have been previously vaccinated with a Hepatitis B vaccine. Nabi-HB is indicated for the treatment of acute exposure to blood containing HBsAg, prenatal exposure of infants born to HBsAg-positive mothers, sexual exposure to HBsAg-positive persons and household exposure to persons with acute Hepatitis B virus infection in specific, listed settings. Hepatitis B is a potentially life-threatening liver infection caused by the Hepatitis B virus. It is a major global health problem. It can cause chronic infection and puts people at high risk of death from cirrhosis and liver cancer. Nabi-HB has a well-documented record of long-term safety and effectiveness since its initial market introduction. The FDA approved Nabi-HB on March 24, 1999.  Production of Nabi-HB at the Boca Facility has continued under our leadership since the third quarter of 2017. In early 2018, we received authorization from the FDA for the release of our first commercial batch of Nabi-HB for commercial distribution in the U.S. and we continue to manufacture Nabi-HB under HHS License No. 2019.

POTENTIAL IMPACT OF COVID-19

We continue to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta, Omicron and BA.2 variants and other resistant strains of the coronavirus, and its impacts to our commercial and manufacturing operations and plasma collection facilities, including collections of source plasma, procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. A substantial portion of such testing has historically been performed by contract laboratories outside the United States.

25

Due to a combination of previous state and local “shelter-in-place” orders, as well as government stimulus packages, persisting social distancing measures and varying roll-outs of vaccinations by state, we were experiencing lower than normal donor collections at our FDA approved plasma collection centers. We are also subject to delays in shipments of source plasma from our contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of our products. In addition, we are subject to supply chain delays as a result of certain of our suppliers diverting significant resources towards the rapid development and distribution of COVID-19 vaccines and, as a result, we have elected to carry more raw materials inventory than we have in the past. The COVID-19 pandemic previously impacted, to a certain degree, our customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting our ability to communicate with potential customers.

The pandemic could also impact our ability to interact with the FDA or other regulatory authorities and may result in delays in the conduct of inspections or review of pending applications or submissions. Although we received several FDA approvals and two FDA inspections of the Boca Facility were completed during the year ended December 31, 2021, no assurances can be provided as to the timing for completion of any other regulatory submissions or applications that may be impacted by restrictions related to COVID-19.

During the nine months ended September 30, 2022 and 2021, our revenue attributable to international customers was approximately 7% and 13%, respectively, of our total revenues. As we seek to grow this aspect of our business, we may also be subject to the impacts of the COVID-19 pandemic in locations outside the United States.

Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on our financial condition or results of operations, and we do not believe that our production operations at the Boca Facility, our contract fill/finishers or our plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, we do not anticipate and have not experienced any material impairments with respect to any of our long-lived assets, including our property and equipment, goodwill or intangible assets.

Although the COVID-19 pandemic has not, to date, materially adversely impacted our capital and financial resources, because we are unable to determine the ultimate severity or duration of the pandemic or its long-term effects on, among other things, the global, national or local economies, the capital and credit markets or our workforce, customers or suppliers, at this time we are unable to predict whether COVID-19, or any known or future variant or government order, will have a material adverse impact on our business, financial condition, liquidity and results of operations. After the COVID-19 global pandemic has settled, we may continue to experience adverse impacts to our business as a result of evolving macroeconomic factors, including general economic uncertainty, unemployment rates, inflationary pressures and any actual economic recession that has occurred or may occur in the future.

RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. Significant estimates include rebates and certain other deductions from gross revenues, impairment of long-lived assets, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for our deferred tax assets.

26

Some of the estimates and assumptions we have to make under U.S. GAAP require difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, actual results could differ from those estimates. Due to the estimation processes involved, the following summary of accounting estimates and their application are considered to be critical to understanding our business operations, financial condition and results of operations. For a description of our significant accounting policies, see Note 2 to the Consolidated Financial Statements included in the 2021 10-K. Estimates and assumptions used in projecting future liquidity and capital requirements are described in Note 1 to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Revenues
 
Our gross product revenues are subject to a variety of deductions, which are estimated and recorded in the same period that the revenues are recognized. These deductions primarily consist of rebates, distribution fees, chargebacks and sales allowances. These deductions represent estimates of the related obligations, some of which are contractual in nature and do not require extensive judgment to be exercised by management, while other estimates require complex or subjective matters of knowledge and judgment when estimating the impact of these revenue deductions on net revenues for a reporting period.

Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. However, two of our primary immunoglobulin products, ASCENIV and BIVIGAM, were only approved for commercial sale by the FDA in 2019, and as such our historical experience with rebates with respect to these products is limited. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. Estimates that are most at risk for material adjustment are those associated with U.S. Medicaid rebates because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally take up to several years or more. While our results of operations to date have not required any material adjustment due to this risk, the lag time between when this obligation is initially recorded and ultimately settled could potentially materially impact our revenues and our results of operations in the future.

Stock-Based Compensation and Valuation of Warrants
 
All equity-based payments, including grants of stock options and Restricted Stock Units (“RSUs”) are recognized at their estimated fair value at the date of grant, and compensation expense is recognized on a straight-line basis over the grantee’s requisite vesting period. For the purpose of valuing stock options granted to our employees, directors and officers, we use the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the underlying Black-Scholes assumptions can materially affect the fair value estimate. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of the grant with a term consistent with the expected term of our awards. The expected term of the options granted is in accordance with U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletins 107 and 110 and is based on the average between vesting terms and contractual terms. The expected dividend yield reflects our current and expected future policy for dividends on our Common Stock. The expected stock price volatility for our stock options was calculated by examining the historical volatility of our Common Stock since our Common Stock became publicly traded in the fourth quarter of 2013. We will continue to analyze the expected stock price volatility and expected term assumptions and will adjust our Black-Scholes option pricing assumptions as appropriate. Any changes in the foregoing Black-Scholes assumptions, or if we were to elect to utilize an alternative method for valuing stock options granted to employees, directors and officers, could potentially impact our stock-based compensation expense and our results of operations.

We also use the Black-Scholes option valuation model for the purpose of estimating the fair value of warrants we issue from time to time in connection with the issuance of notes payable. Changes in our Black-Scholes assumptions, or if we were to utilize an alternative method for valuing warrants issued to our lenders, could impact our interest expense and results of operations.

27

Impairment of Long-Lived Assets
 
We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the nine months ended September 30, 2022 and 2021, we determined that there was no impairment of our long-lived assets. Examples of events or circumstances that may be indicative of impairment that would require the use of significant judgment by management include:


A significant adverse change in legal factors or in the business climate that could affect the value of the asset.

Significant and continued cash flow losses.

A significant adverse change in the extent or manner in which an asset is used, such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture our products using a particular asset.

An expectation of losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that impacts projected revenue growth, or a change in the  acceptance of a product by patients, physicians and payers that results in an inability to sustain projected product revenues.

Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The testing of goodwill for impairment requires us to determine whether or not the fair value of the reporting unit associated with the goodwill is less than its carrying amount, including goodwill and other intangible assets. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. In order to determine the fair value of the reporting unit, we utilize the fair value of the Company as a whole, as determined by its market capitalization. Determination of the fair value and carrying value of each reporting unit, relative to the fair value of the Company, requires management to employ certain estimates, assumptions and judgment, which we believe are reasonable. However, any changes to these estimates and assumptions could impact our determination of whether or not our goodwill is impaired. We did not recognize any impairment charges related to goodwill for the nine months ended September 30, 2022 and 2021.

Deferred Tax Assets
 
We maintain a full valuation allowance against all of our net deferred tax assets, and as a result have recorded no income tax benefit in the accompanying consolidated financial statements. This valuation allowance reflects our assessment of whether it is more likely than not that we will generate sufficient taxable income in the future to be able to utilize our deferred tax assets. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies. We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets.  We consider cumulative losses in recent years to be a significant type of negative evidence. Based on our history of losses, at this time we have not included future projected taxable income as a source of income to recognize our deferred tax assets.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
 
The following table presents a summary of the changes in our results of operations for the three months ended September 30, 2022, our third fiscal quarter, compared to the three months ended September 30, 2021:

28


 
Three Months Ended September 30,
 
   
2022
   
2021
   
Increase (Decrease)
 
Revenues
 
$
41,090,137
   
$
20,680,550
   
$
20,409,587
 
Cost of product revenue
   
31,433,496
     
20,295,213
     
11,138,283
 
Gross profit
   
9,656,641
     
385,337
     
9,271,304
 
Research and development expenses
   
1,041,947
     
770,557
     
271,390
 
Plasma center operating expenses