Information Relating to Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Report") includes forward-looking
statements. Such statements are not historical facts, but are based on our
current expectations, estimates and beliefs about our business and industry.
Such forward-looking statements may include, without limitation, statements
about our strategies, objectives and our future achievements; our expectations
for growth; estimates of future revenue; our sources and uses of cash; our
liquidity needs; our current or planned clinical trials or research and
development activities; anticipated completion dates for clinical trials;
product development timelines; anticipated dates for commercial introduction of
products; our future products; regulatory matters; our expectations concerning
the timing of regulatory approvals; anticipated dates for meetings with
regulatory authorities and submissions to obtain required regulatory marketing
approvals; expense, profit, cash flow, or balance sheet items or any other
guidance regarding future periods; the impact of broad-based business or
economic disruptions, including relating to the novel COVID-19 outbreak, on our
ongoing business and prospects; our expectations regarding the use of funds from
the Company's PPP Loan and the potential for forgiveness of the PPP Loan under
the terms of the PPP; and other statements concerning our future operations and
activities. Such forward-looking statements include those that express plans,
anticipation, intent, contingencies, goals, targets or future development and/or
otherwise are not statements of historical fact. These forward-looking
statements are based on our current expectations and projections about future
events, and they are subject to risks and uncertainties, known and unknown, that
could cause actual results and developments to differ materially from those
expressed or implied in such statements. In some cases, you can identify
forward-looking statements by terminology, such as "believe," "will," "expect,"
"may," "anticipate," "estimate," "intend," "plan," "should," and "would," or the
negative of such terms or other similar expressions. Any forward-looking
statements are qualified in their entirety by reference to the factors discussed
throughout this Report. These forward-looking statements are not guarantees of
future performance and concern matters that could subsequently differ materially
from those described in the forward-looking statements. Actual events or results
may differ materially from those discussed in this Report. In addition, many
forward-looking statements concerning our anticipated future business activities
assume that we are able to obtain sufficient funding in the near term and
thereafter to support such activities and continue our operations and planned
activities. As discussed elsewhere in this Report, we may require additional
funding to continue operations, and there are no assurances that such funding
will be available. Failure to timely obtain required funding would adversely
affect and could delay or prevent our ability to realize the results
contemplated by such forward-looking statements. New factors emerge from time to
time, and it is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Because factors referred to elsewhere in this Report and in our Annual Report on
Form 10-K for the year ended December 31, 2019 (sometimes referred to as the
"2019 Form 10-K") that we previously filed with the Securities and Exchange
Commission, including without limitation the "Risk Factors" section in this
Report and in the 2019 Form 10-K, could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, you should not place undue reliance on any forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is
made, and except as may be required by applicable law, we undertake no
obligation to release publicly the results of any revisions to these
forward-looking statements or to reflect events or circumstances arising after
the date of this Report. Important risks and factors that could cause actual
results to differ materially from those in these forward-looking statements are
disclosed in this Report including, without limitation, under the headings "Part
II, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in our 2019 Form
10-K, including, without limitation, under the headings "Part I, Item 1A. Risk
Factors," "Part I, Item 1. Business," and "Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as in our subsequent filings with the Securities and Exchange Commission,
press releases and other communications.
Unless the context otherwise requires, the terms "we," "our," "the company" and
"the Company" refer to Adamis Pharmaceuticals Corporation, a Delaware
corporation, and its subsidiaries.
General
Company Overview
We are a specialty biopharmaceutical company focused on developing and
commercializing products in various therapeutic areas, including respiratory
disease, allergy and opioid overdose. Our products and product candidates in the
allergy, respiratory, and opioid overdose markets include: SYMJEPI (epinephrine)
Injection 0.3mg, which was approved by the U.S. Food and Drug Administration, or
FDA, in 2017 for use in the emergency treatment of acute allergic reactions,
including anaphylaxis; SYMJEPI (epinephrine) Injection 0.15mg which was approved
by the FDA in September 2018, for use in the treatment of anaphylaxis for
patients weighing 33-66 pounds; a naloxone injection product candidate
("ZIMHI™") based on the approved Symject injection device and intended for the
treatment of opioid overdose for which the company submitted a New Drug
Application, or NDA, in December 2018 and with respect to which the company
received a Complete Response Letter, or CRL, from the FDA in November 2019; a
Beclomethasone metered dose inhaler product candidate (APC-1000) intended for
the treatment of asthma for which the company submitted an Investigational New
Drug application, or IND, in January 2018 and has initiated the start-up phase
of Phase 3 studies, which has been suspended; and a fluticasone (APC-4000) dry
powder inhaler, or DPI, product candidate for the treatment of asthma. Our goal
is to create low cost therapeutic alternatives to existing treatments.
Consistent across all specialty pharmaceuticals product lines, we intend to
submit NDAs under Section 505(b)(2), of the U.S. Food, Drug & Cosmetic Act, as
amended, or FDCA, or Section 505(j) Abbreviated New Drug Applications, or ANDAs,
to the FDA, whenever possible, in order to potentially reduce the time to market
and to save on costs, compared to those associated with Section 505(b)(1) NDAs
for new drug products.
Our U.S. Compounding, Inc., subsidiary, or USC, which we acquired in April 2016
and which is registered as a drug compounding outsourcing facility under Section
503B of the FDCA and the U.S. Drug Quality and Security Act, or DQSA, provides
prescription compounded medications, including compounded sterile preparations
and nonsterile compounds, to patients, physician clinics, hospitals, surgery
centers and other clients throughout most of the United States. USC's product
offerings broadly include, among others, corticosteroids, hormone replacement
therapies, hospital outsourcing products, and injectables. USC also provides
compounded pharmaceutical products for animals.
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SYMJEPI (epinephrine) Injection
On June 15, 2017, the FDA approved the company's SYMJEPI (epinephrine) Injection
0.3mg product for the emergency treatment of allergic reactions (Type I)
including anaphylaxis. SYMJEPI (epinephrine) Injection 0.3mg is intended to
deliver a dose of epinephrine, which is used for emergency, immediate
administration in acute anaphylactic reactions to insect stings or bites,
allergic reaction to certain foods, drugs and other allergens, as well as
idiopathic or exercise-induced anaphylaxis for patients weighing 66 pounds or
more.
Our SYMJEPI (epinephrine) Injection 0.15mg and 0.3mg products allow users to
administer a pre-measured epinephrine dose quickly with a device that we
believe, based on human factors studies, to be intuitive to use. If the person
using the auto-injector is not familiar with the function of the device and if
not administered properly, there is a risk that it could misfire or be misused.
On September 27, 2018, FDA approved our lower dose SYMJEPI (epinephrine)
Injection 0.15mg, for the emergency treatment of allergic reactions (Type I)
including anaphylaxis in patients weighing 33 to 66 pounds. In July 2018, we
entered into a Distribution and Commercialization Agreement with Sandoz Inc. to
commercialize both of our SYMJEPI products. Under the terms of the agreement, we
appointed Sandoz as the exclusive distributor of SYMJEPI in the United States
and related territories, or the Sandoz Territory, in all fields including both
the retail market and other markets, and granted Sandoz an exclusive license
under our patent and other intellectual property rights and know-how to market,
sell, and otherwise commercialize and distribute the product in the Sandoz
Territory, subject to the provisions of the agreement, in partial consideration
of an upfront fee by Sandoz and potential performance-based milestone
payments. The agreement provides that Sandoz will pay to us 50% of the Net
Profit from Net Sales, as each such term is defined in the agreement, of the
product in the Sandoz Territory to third parties, determined on a quarterly
basis. We will be the supplier of the product to Sandoz, and Sandoz will order
and pay us a supply price for quantities of products ordered. We will be
responsible for all manufacturing and, prior to Sandoz paying the supply price,
the component and supply costs related to manufacturing and supplying the
product to Sandoz. The agreement does not include minimum payments to us by
Sandoz, minimum requirements for sales of product by Sandoz or, with certain
exceptions, minimum purchase commitments by Sandoz. Under the agreement, Sandoz
has sole discretion in determining pricing, terms of sale, marketing, and
selling decisions relating to the product.
On January 16, 2019, we announced that Sandoz had launched SYMJEPI (epinephrine)
0.3 mg Injection in the U.S. market, initially available in the institutional
setting. On July 9, 2019, we announced the full launch (institutional and
retail) by Sandoz of both dose forms of the SYMJEPI injection products. We have
had discussions with Sandoz regarding alternative commercialization strategies
for SYMJEPI. See Note 2 to the condensed consolidated financial statements for
further information about the agreement.
On May 11, 2020, we entered into an agreement with Sandoz to terminate the
existing Distribution and Commercialization Agreement and reacquire rights to
the SYMJEPI products, and we also entered into an exclusive distribution and
commercialization agreement with USWM for the United States commercial rights
for the SYMJEPI products, as well as for the company's ZIMHI™ (naloxone HCI
Injection, USP) 5mg/0.5mL product candidate intended for the emergency treatment
of opioid overdose. See Note 12 to the interim condensed consolidated financial
statements for further information about the termination agreement.
ZIMHI (naloxone) Injection, APC-6000
Naloxone is an opioid antagonist used to treat narcotic overdoses. Naloxone,
which is generally considered the drug of choice for immediate administration
for opioid overdose, blocks or reverses the effects of the opioid, including
extreme drowsiness, slowed breathing, or loss of consciousness. Common opioids
include morphine, heroin, tramadol, oxycodone, hydrocodone and fentanyl.
On December 31, 2018, we filed an NDA with the FDA relating to our higher dose
naloxone injection product, ZIMHI, for the treatment of opioid overdose. On
November 22, 2019, we received a Complete Response Letter, or CRL, from the FDA
regarding our NDA for ZIMHI. The CRL stated that the FDA determined that it
could not approve the NDA in its present form and provided recommendations
needed for resubmission. A CRL is issued by the FDA's Center for Drug Evaluation
and Research when it has completed its review of a file and questions remain
that preclude the approval of the NDA in its current form. The questions raised
by the FDA related generally to Chemistry, Manufacturing and Controls (CMC). No
other clinical safety or efficacy issues were raised. In December 2019, we
provided responses to the FDA to the comments included in the CRL. In February
2020, we had a Type A meeting with the FDA to discuss the company's response to
the CRL and the process and timeline for resubmission of the NDA to the FDA. At
the meeting, the company obtained concurrence from the agency on the Chemistry,
Manufacturing and Controls, or CMC, information required for resubmission of the
NDA, including additional information involving extractables and leachables
testing from the syringe and glassware. On May 15, 2020, the company resubmitted
to the FDA the NDA for ZIMHI. In the February meeting, the FDA expressed its
intent to review a resubmitted NDA in a timely manner, consistent with agency
guidelines. However, the FDA's review processes can extend beyond, and in some
cases significantly beyond, anticipated completion dates due to the timing of
the FDA's review process, FDA requests for additional data, information,
materials or clarification, difficulties scheduling an advisory committee
meeting, FDA workload issues, extensions resulting from the submission of
additional information or clarification regarding information already in the
submission within the last three months of the target PDUFA date, or other
reasons. As a result, the dates FDA review and action regarding our resubmitted
NDA for ZIMHI or any other NDA that we may resubmit, or of regulatory approval,
if obtained, and commercial introduction of our products could be delayed beyond
our expectations. The development of an intramuscular injection of naloxone for
the treatment of opioid overdose will require commercial scale manufacturing
subject to review and approval by the FDA.
On May 11, 2020, we entered into an exclusive distribution and commercialization
agreement with USWM for the United States commercial rights for the SYMJEPI
products, as well as for the company's ZIMHI™ (naloxone HCI Injection, USP)
5mg/0.5mL product candidate intended for the emergency treatment of opioid
overdose. See Note 12 to the interim condensed consolidated financial
statements for further information about the USWM agreement.
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Asthma; APC-1000 Metered Dose Inhaler
Our APC-1000 product candidate is a steroid hydrofluoroalkane, or HFA, metered
dose inhaler product, intended for the treatment of asthma. Our product
candidate, if developed and approved for marketing, will target a small niche
within the larger market for respiratory products. We estimate that the annual
global sales of prescription steroid HFA and similar products were approximately
$3.0 billion in 2019, of which we intend to target a subset of that market.
In January 2018, we submitted an IND application to the FDA to begin Phase 3
efficacy studies for a new formulation of APC-1000. We received approval from
the agency to proceed with the Phase 3 studies, and in December 2018, we
initiated the start-up phase of the phase 3 studies of APC-1000. However, we
have delayed the continuation of the start-up phase and start of patient
enrollment for the studies, and have suspended the study, in light of, among
other factors, the availability of adequate funding to continue and complete the
studies. The timing of enrollment for, and the pace of conduct, progress, and
completion of, such studies, and our decisions concerning such matters, are
affected by a number of factors, including without limitation the availability
of adequate funding, the absence of unexpected regulatory issues or delays, the
time period required to enroll a sufficient number of patients in the study, and
the time required to complete and analyze the results of the studies. As
discussed elsewhere in this Report, we will require additional funding in 2020
to continue all of our anticipated product development activities, and product
development times are subject to a number of risks and uncertainties, which can
delay the actual development time beyond our estimates.
Asthma; Fluticasone
Our first product candidate utilizing the DPI technology platform, APC-4000,
will deliver Fluticasone Propionate (fluticasone) as a dry powder formulation
for the treatment of asthma. Fluticasone belongs to the family of medicines
known as corticosteroids or steroids. It works by preventing certain cells in
the lungs and breathing passages from releasing substances that cause asthma
symptoms. APC-4000 is designed to deliver the same active ingredient as
GlaxoSmithKline's Flovent® Diskus® for the treatment of asthma. We estimate that
Flovent® Diskus® generated more than $469 million in U.S. sales and $802 million
in global sales in 2019, based on GSK's publicly announced results. We conducted
proof of concept studies with the DPI for APC-4000 in 2018 and 2019. In
considering development and commercialization alternatives for APC-4000, we may
seek to enter into development or commercialization agreements, license
agreements, or other strategic agreements with third parties relating to
development, commercialization and marketing of this product candidate.
Going Concern and Management's Plan
The financial statements included elsewhere herein for the three months ended
March 31, 2020, and our financial statements for the year ended December 31,
2019 and 2018, were prepared under the assumption that we would continue our
operations as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities during the normal course of business. However,
as of March 31, 2020, we had cash and cash equivalents of approximately $10.5
million, an accumulated deficit of approximately $192.6 million, and liabilities
of approximately $12.1 million. We have incurred substantial recurring losses
from operations, have used, rather than provided, cash in our continuing
operations, and are dependent on additional financing to fund operations. These
conditions raise substantial doubt about our ability to continue as a going
concern. The financial statements included elsewhere herein do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty. In February 2020, we completed
a registered direct offering of common stock, and a concurrent private placement
of warrants, resulting in estimated net proceeds of approximately $6.2 million.
In April 2020, we secured an approximately $3.2 million Paycheck Protection
Program (PPP) loan provided for by the Coronavirus Aid, Relief and Economic
Security Act and administered by the U.S. Small Business Administration (the
"SBA"). However, we anticipate that we will need additional funding before the
end of fiscal 2020 to continue operations, satisfy our obligations, fund the
future expenditures that we believe will be required to support
commercialization of our products and conduct the clinical and regulatory work
to develop our product candidates.
The above conditions raise substantial doubt about our ability to continue as a
going concern. The condensed consolidated financial statements included
elsewhere herein for the three months ended March 31, 2020, were prepared under
the assumption that we would continue our operations as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
during the normal course of business. In preparing these condensed consolidated
financial statements, consideration was given to our future business as
described elsewhere herein, which may preclude us from realizing the value of
certain assets. Our unaudited condensed consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.
This basis of accounting contemplates the recovery of our assets and the
satisfaction of liabilities in the normal course of business. Without additional
funds in 2020 from debt or equity financing, sales of assets, sales or
out-licenses of intellectual property, products, product candidates or
technologies, or from a business combination or a similar transaction, after
expenditure of our existing cash resources and revenues from existing agreements
and sales of prescription compounded formulations, we would exhaust our
resources and be unable to continue operations.
Our management intends to attempt to secure additional required funding through
equity or debt financing, sales or out-licensing of product candidates or
intellectual property assets, revenues from sales of compounded sterile
formulations, share of profits received relating to sales in the U.S. of our
SYMJEPI products, seeking partnerships or commercialization agreements with
other pharmaceutical companies or third parties to co-develop and fund research
and development or commercialization efforts of our products, from a business
combination, or similar transactions. However, there can be no assurance that we
will be able to obtain any sources of funding. Such additional funding may not
be available, may not be available on reasonable terms, and, in the case of
equity financing transactions, could result in significant additional dilution
to our stockholders. If we do not obtain required additional equity or debt
funding, our cash resources will be depleted and we could be required to
materially reduce or suspend operations, which would likely have a material
adverse effect on our business, stock price and our relationships with third
parties with whom we have business relationships, at least until additional
funding is obtained. If we do not have sufficient funds to continue operations,
we could be required to seek bankruptcy protection or other alternatives that
could result in our stockholders losing some or all of their investment in us.
23
Results of Operations
Three Months Ended March 31, 2020 and 2019
Revenues. Revenues were approximately $4,663,000 and $4,906,000 for the three
months ended March 31, 2020 and 2019, respectively. Revenues decreased by
approximately $243,000 in the first quarter of 2020 compared to the comparable
period of 2019. Approximately $385,000 of the decrease in revenues was due to
the ceasing of sales of certain USC non-sterile formulations and products. This
amount was partially offset by an increase of approximately $100,000 in sales of
USC's sterile pharmaceutical formulations resulting in part from an increase in
marketing personnel efforts, and by an increase of approximately $42,000 of
outsourced manufacturing revenue relating to sales of SYMJEPI (epinephrine)
Injection 0.3mg and 0.15mg. The COVID-19 outbreak has adversely affected
revenues from sales of USC products, in part due to reductions or cancellations
of elective surgeries and reduction in office visits to physicians' offices,
healthcare facilities or clinics by patients, and the resulting decreased demand
by USC's customers for certain of USC's products, and will likely continue to
adversely affect revenues from sales of USC products for a period of time which
cannot be predicted. USC has added certain products to its product offerings,
including hand sanitizer products, and is in the process of bringing to market
certain pharmaceutical products that are in short supply but are not listed on
FDA's Drug Shortage List, some of which may be used in connection with treatment
of acutely ill COVID-19 patients, although the COVID-19 outbreak could result in
shortages or delays in our ability to obtain supplies relating to certain of
these products.
Cost of Goods Sold. Cost of goods sold was approximately $3,687,000 and
$3,625,000 for the three months ended March 31, 2020 and 2019, respectively.
Our cost of goods sold includes direct and indirect costs to manufacture
formulations and sell products, including active pharmaceutical ingredients,
personnel costs, packaging, storage, shipping and handling costs, the write-off
of obsolete inventory and other related expenses. The gross margin percentage
for the three months ended March 31, 2020 was approximately 21% compared to
approximately 26% for the three months ended March 31, 2019. The gross profit
trend is expected to improve in the succeeding periods. The cost of goods sold
for the three-month 2020 period compared to the three-month period of 2019
increased primarily due to the increase of approximately $1,344,000 in direct
materials, depreciation, maintenance fees, obsolete inventory and other related
expenses associated with the production of SYMJEPI (epinephrine) Injection 0.3mg
and 0.15mg. This amount was partially offset due to the decrease of
approximately $1,282,000 in materials costs, compensation, consulting services
and other employee benefits as a result of the elimination of a second
production shift at the USC outsourcing facility and the ceasing of sales of
certain formulations at the USC outsourcing facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") consist primarily of depreciation and
amortization, legal fees, accounting and audit fees, professional/consulting
fees and employee compensation. SG&A expenses for the three months ended March
31, 2020 and 2019 were approximately $6,054,000 and $8,021,000, respectively.
The decrease was primarily attributable to decreases in wages, benefits and
other compensation expenses of approximately $1,250,000, $217,000 of operational
expenses relating to the ceasing of sales of certain USC products, and decreases
of approximately $500,000 in patent, consulting, outside services, professional
fees, PDUFA fees for the SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg,
depreciation and other related expenses.
Research and Development Expenses. Our research and development costs are
expensed as incurred. Non-refundable advance payments for goods and services to
be used in future research and development activities are recorded as an asset
and are expensed when the research and development activities are performed.
Research and development expenses were approximately $2,037,000 and $2,197,000
for the three months ended March 31, 2020 and 2019, respectively. The decrease
in research and development expenses for the three months ended March 31, 2020,
compared to the comparable 2019 period was primarily due to a decrease
of approximately $1,633,000 in development costs of our product candidates,
including SYMJEPI, APC-1000 and APC-4000. The decrease was partially offset by
an increase of approximately $419,000 in development costs attributed to other
product development expenses. Compensation for research and development
employees increased by approximately $84,000 for the three months ended March
31, 2020, compared to the comparable 2019 period, primarily due to hires in the
later part of 2019. The decrease in research and development expense for the
three months ended March 31, 2020 was further offset by the refund received of
approximately $970,000, relating to our APC-8000 NDA filed in December 2018 and
subsequently withdrawn, which reduced the research and development expenses
during the three months ended March 31, 2019.
24
Impairment Expense. Impairment expenses for the three months ended March 31,
2020 and 2019 were approximately $3,143,000 and $0, respectively. As described
in Note 5 to the condensed consolidated financial statements included elsewhere
herein, in light of recent events associated with the global spread of COVID-19
and other factors, the Company performed a goodwill impairment review as of
March 31, 2020, and recorded a charge of approximately $3,143,000 for impairment
of goodwill during the first quarter of 2020. As a result of entering into the
Termination Agreement described above providing for the termination of the
Sandoz Agreement with Sandoz, we have determined that our financial results for
the quarter ending June 30, 2020, will include an impairment of the capitalized
cost to obtain a contract of $1,750,000 reflected on the condensed consolidated
balance sheet as of March 31, 2020. For further information, see Note 2 to the
condensed consolidated financial statements included elsewhere in this Report.
Other Expense. Other Income (Expenses) consists primarily of interest income and
interest expense. Other income (expense) for the three months ended March 31,
2020 and 2019 was approximately ($15,000) and $50,000, respectively. The
decrease in other income and increase in other expense during the three-month
period in 2020, compared to the same period in 2019, was primarily due to the
decrease of approximately $51,000 in interest income and an increase of debt
related expense of approximately $14,000.
Liquidity and Capital Resources
We have incurred net losses of approximately $10.3 million and $8.9 million for
the three months ended March 31, 2020 and 2019, respectively. Since inception,
and through March 31, 2020, we have an accumulated deficit of approximately
$192.6 million. Since inception and through March 31, 2020, we have financed
operations principally through debt financing and through public and private
issuances of common stock and preferred stock. In February 2020, we completed a
registered direct offering of 11,600,000 shares of common stock, and a
concurrent private placement of warrants to purchase 8,700,000 shares of common
stock, to a small number of accredited institutional investors, resulting in
estimated net proceeds of approximately $6.2 million. In April 2020, we secured
an approximately $3.2 million Paycheck Protection Program (PPP) loan provided
for by the Coronavirus Aid, Relief and Economic Security Act and administered by
the U.S. Small Business Administration. However, we will need significant
additional funding before the end of fiscal 2020 to satisfy our obligations and
fund the future expenditures that we believe will be required to support
commercialization of our products and conduct the clinical and regulatory work
to develop our product candidates. We may finance future cash needs primarily
through proceeds from equity or debt financings, loans, share of profits
anticipated to be received relating to sales in the U.S. of our SYMJEPI
products, sales of assets, out-licensing transactions, and/or collaborative
agreements with corporate partners, and from revenues from our sale of
compounded pharmacy formulations.
Total assets were approximately $45.3 million and $47.8 million as of March 31,
2020 and December 31, 2019, respectively. Current assets exceed current
liabilities by approximately $4.7 million and $3.7 million as of March 31, 2020
and December 31, 2019, respectively.
Net cash used in operating activities for the three months ended March 31, 2020
and 2019, was approximately $4.2 million and $8.3 million, respectively. Net
cash used in operating activities decreased primarily due to the decrease in
operating losses; decrease in accounts receivable and prepaid expenses; and an
increase in accrued expenses as compared to 2019.
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Net cash used in investing activities was approximately $274,000 and $1,666,000
for three months ended March 31, 2020 and 2019, respectively. The net cash used
in investing activities decreased primarily due to the reduction in purchases of
additional equipment during the quarter ended March 31, 2020 compared to the
quarter ended March 31, 2019.
Net cash provided (used) in financing activities was approximately $6,210,000
and ($142,000) for the three months ended March 31, 2020 and 2019, respectively.
Net cash flows provided by financing activities increased for the period ended
March 31, 2020 due to the issuance of common stock and warrants generating net
proceeds of approximately $6,233,000, partially offset by payment of loans and
finance leases of approximately $23,000. In the first quarter of 2019, net cash
used in financing activities consisted of principal payments of finance leases
and USC's building and equipment loans.
As noted above under the heading "Going Concern and Management Plan," through
March 31, 2020, Adamis has incurred substantial losses. The availability of any
required additional funding cannot be assured. If we do not obtain required
additional equity or debt funding, our cash resources could be depleted and we
could be required to materially reduce or suspend operations. Even if we are
successful in obtaining required additional funding to permit us to continue
operations at the levels that we desire, substantial time may pass before we
obtain regulatory marketing approval for any additional specialty pharmaceutical
products and begin to realize revenues from sales of such additional products,
and during this period Adamis could require additional funds. No assurance can
be given as to the timing or ultimate success of obtaining any required future
funding. The company will be required to devote additional cash resources, which
could be significant, in order to continue development and commercialization of
our product candidates and to support our other operations and activities. As a
result of the COVID-19 pandemic and actions taken to slow its spread, credit and
financial markets have experienced material volatility, unemployment rates have
materially increased, credit and financial markets have deteriorated, and
economic growth has declined. There can be no assurance that further
deterioration in credit and financial markets will not occur, which would make
it more difficult, or more costly or dilutive, to obtain any necessary debt or
equity financing.
26
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based on our unaudited condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these unaudited condensed consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, expenses, and related
disclosure of contingent assets and liabilities. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and on other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The company's critical accounting policies and estimates previously disclosed in
our Annual Report on Form 10-K for the year ended December 31, 2019 have not
significantly changed.
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 1 to the condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q.
Off Balance Sheet Arrangements
At March 31, 2020, Adamis did not have any off balance sheet arrangements.
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