DMK PHARMACEUTICALS Corp - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended June 30, 2022

OR

For the transition period from                      to                     

Commission File Number: 001-36242

ADAMIS PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices, including zip code)

(858) 997-2400

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

 
The number of shares outstanding of the issuer’s common stock, par value $0.0001 per share, as of August 5, 2022, was 149,983,265.

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation 

               The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments and the elimination of intercompany accounts) considered necessary for a fair statement of all periods presented. The results of operations of Adamis Pharmaceuticals Corporation (“the Company”) for any interim periods are not necessarily indicative of the results of operations for any other interim periods or for a full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). 

For the three and six months ended June 30, 2022 and June 30, 2021, and year ended December 31, 2021, the assets, liabilities, operations, and cash flows of the Company’s subsidiary, US Compounding, Inc. (“USC”), have been separated from the comparative period amounts to conform to the current period presentation as discontinued operations as the result of the Company’s decision to wind down and cease operations of USC and liquidate its remaining assets. Moreover, for the three month and six months ended June 30, 2022 and 2021, all gains and losses on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to discontinued locations, have been aggregated in a single caption entitled “net loss from discontinued operations” in our consolidated statements of operations for all periods presented. See Note 2. 

Going Concern 

The Company’s cash and cash equivalents were $8,875,925 and $23,220,770 at June 30, 2022 and December 31, 2021, respectively.  

The Condensed consolidated financial statements were prepared under the assumption that the Company will 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 the Company’s future business as described below, which may preclude the Company from realizing the value of certain assets.    

The Company has significant operating cash flow deficiencies. Additionally, the Company will need additional funding in the future to help support commercialization of its products and conduct the clinical and regulatory activities relating to the Company’s product candidates, satisfy existing and future obligations and liabilities, and otherwise support the Company’s intended business activities and working capital needs. The preceding conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements for the six months ended June 30, 2022, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. Our unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Management’s plans include attempting to secure additional required funding through equity or debt financings, sales or out-licensing of intellectual property or other assets, products, product candidates or technologies, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions, and through revenues from existing agreements. There is no assurance that the Company will be successful in obtaining the necessary funding to meet its business objectives. In addition, a severe or prolonged economic downturn, political disruption or pandemic, such as the COVID-19 pandemic, could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all.

Basic and Diluted Loss per Share   

            The Company computes basic loss per share by dividing the loss attributable to holders of common stock for the period by the weighted average number of shares of common stock outstanding during the period. The diluted loss per share calculation is based on the treasury stock method and gives effect to dilutive options, warrants and other potential dilutive common stock. The effect of common stock equivalents was anti-dilutive and was excluded from the calculation of weighted average shares outstanding. Potential dilutive securities, which are not included in diluted weighted average shares outstanding for the six months ended June 30, 2022 and June 30, 2021, consist of outstanding equity classified warrants covering 14,202,824 shares and 15,095,238 shares, respectively, outstanding options covering 4,861,142 shares and 6,113,866 shares, respectively, and outstanding restricted stock units covering 650,000 shares and 2,034,260 shares, respectively. 

Discontinued Operations

            In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component/s of an entity meets the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes, shall be reported as components of net loss separate from the net loss of continuing operations.  The Company disposed of a component of its business in August 2021 and met the definition of a discontinued operation as of June 30, 2022. Accordingly, the operating results of the business disposed are reported as loss from discontinued operations in the accompany unaudited condensed statements of operations for the six months and year ended June 30, 2022 and December 31, 2021.

Recent Accounting Pronouncements  

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

Note 2: Discontinued Operations and Assets Held for Sale 

             In August 2021, the Company announced an agreement with Fagron Compounding Services, LLC (“Fagron”) to sell to Fagron certain assets of the Company’s subsidiary, US Compounding, Inc. (“USC”), related to the Company’s human compounding pharmaceutical business including certain customer information and information on products sold to such customers by USC, including related formulations, know-how, and expertise regarding the compounding of pharmaceutical preparations, clinical support knowledge and other data and certain other information relating to the customers and products. The agreement includes fixed consideration of approximately $107,000 and variable consideration estimated at approximately $6,385,000, and the Company has recorded a gain of approximately $4,637,000 for the year ended December 31, 2021 within discontinued operations related to this asset sale to Fagron, which was the total estimated consideration net of approximately $1,856,000 of allocated costs related to USC’s customer relationships intangible that was sold to Fagron. The variable consideration is tied to Fagron’s sales to former USC customers over the twelve-month-period commencing on the agreement date. The Company used the expected value method to estimate Fagron’s sales over the twelve-month period following the agreement date. Additionally, the Company relied on historical data and its judgement to make estimates, and as such, the total variable consideration is subject to change as more information becomes available, which would result in adjustments to the receivable from Fagron recorded at December 31, 2021. At March 31, 2022, based on the Company’s evaluation, the estimated variable consideration related to the sale of certain assets to Fagron was reduced by approximately $440,000. Additionally, at June 30, 2022, based on the Company’s evaluation, the estimated variable consideration related to the sale of certain assets to Fagron was further reduced by approximately $758,000, because of the lower level of sales by Fagron to covered customers in part due to certain supply and materials difficulties and increased competitive conditions. The Company recognized a total loss of approximately $1.2 million, which was included in net loss from continued operations on the Company’s condensed consolidated statement of operations for the six months ended June 30, 2022, as the change occurred subsequent to the disposal of  the USC business. In connection with the transaction, the Company accrued as of December 31, 2021 and paid in January 2022 a $700,000 liability for a transaction fee payable to a financial advisor which was recorded in selling, general and administrative expenses of continuing operations. 

            In July 2021, the Company approved a restructuring process to wind down and cease the remaining operations at USC, with the remaining USC assets to be sold, liquidated or otherwise disposed of. The Company disposed of a component of its business in August 2021 and met the definition of a discontinued operation as of September 30, 2021. Accordingly, the operating results of the business disposed are reported as loss from discontinued operations in the accompany unaudited condensed statements of operations for the three months and six months ended June 30, 2022 and 2021. As of December 31, 2021, the Company had shut down the operations of USC, terminated all of USC’s employees and was engaged in the process of selling or attempting to sell or otherwise dispose of USC’s remaining assets.

           Discontinued operations comprise those activities that were disposed of during the period, abandoned or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that was previously distinguished as Compounded Pharmaceuticals segment for operational and financial reporting purposes in prior reported financial statements.

Assets Held for Sale

          The Company considers assets to be held for sale when management approves and commits to a plan to actively market the assets for sale at a reasonable price in relation to its fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company ceases to record depreciation and amortization expenses and measures the assets at the lower of their carrying value or estimated fair value less costs to sell. Assets held for sale are included as other current assets in the Company’s consolidated balance sheets and the gain or loss from sale of assets held for sale is included in the Company’s general and administrative expenses.

          The major assets and liabilities associated with discontinued operations included in our consolidated balance sheets are as follows (unaudited):

          Carrying amounts of major classes of assets included as part of discontinued operations (unaudited):

The revenues and expenses associated with discontinued operations included in our consolidated statements of operations were as follows (unaudited):

Discontinued Operations - Revenue

            Compounded Pharmaceuticals Facility Revenue Recognition. With respect to sales of prescription compounded medications by the Company’s USC subsidiary, revenue arrangements consist of a single performance obligation which is satisfied at the point in time when goods are delivered to the customer. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer which is the price reflected in the individual customer’s order. Additionally, the transaction price for medication sales is adjusted for estimated product returns that the Company expects to occur under its return policy. The estimate is based upon historical return rates, which has been immaterial.  The standard payment terms are 2%/10 and Net 30. The Company does not have a history of offering a broad range of price concessions or payment term changes, however, when the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes.  Variable consideration is not a significant component of the transaction price for sales of medications by USC. 

 Discontinued Operations - Lease

              USC has two operating leases, one for an office space and one for office equipment. As of June 30, 2022, the leases have remaining terms between more than one year and less than four years. The operating leases do not include an option to extend beyond the life of the current term. There are no short-term leases, and the lease agreements do not require material variable lease payments, residual value guarantees or restrictive covenants. The Company leases a building which requires monthly base rent of $10,824 through December 31, 2023.

             As part of the restructuring process to wind down and cease the operations at USC, the Company is working to cancel or transfer the leases of the discontinued operations. During the year ended December 31, 2021, the Right-of-Use assets related to the leases of approximately $448,000 were fully impaired because there is no benefit expected from the subject leases. As of June 30, 2022, and December 31, 2021 the liabilities of the discontinued operations included approximately $328,000 and $412,000 in lease liabilities, respectively.

Discontinued Operations - Restructuring Costs 

           As of June 30, 2022, and December 31, 2021, the outstanding liabilities related to the contract termination costs recorded in contingent loss liability of discontinued operations was approximately $410,000, reflecting estimated costs of termination of a contract between USC and a vendor. As of June 30, 2022, and December 31, 2021, the outstanding liabilities related to chemical destruction costs recorded in accounts payable of discontinued operations was approximately $0 and $3,000, respectively.

 Discontinued Operations - Building Loan

           On November 10, 2016, a Loan Amendment and Assumption Agreement was entered with into the lender. Pursuant to the agreement, as subsequently amended, the Company agreed to pay the lender monthly payments of principal and interest which were approximately $19,000 per month, with a final payment due and payable in August 2021.

           In July 2021, the Company, in connection with the sale of certain USC assets to Fagron, paid to the lender the outstanding principal balance, accrued unpaid interest and other obligations under the Company’s loan agreement, promissory note and related loan documents relating to the outstanding building loan relating to the building and property on which USC’s offices are located. The land and building were included in the assets of discontinued operations.

         The loan bore an interest of 6.00% per year and interest expense for the three months ended June 30, 2022 and June 30, 2021, was approximately $0 and $30,000, respectively. Interest expense for the six months ended June 30, 2022 and 2021 was approximately $0 and $61,000 respectively. The amount of interest allocated to the discontinued operations was based on the legal obligations of USC. 

Note 3: Revenues 

Revenue Recognition 

             Revenue is recognized pursuant to ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. This principle is applied using the following 5-step process:

            Adamis is a specialty biopharmaceutical company focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory and inflammatory disease. The Company’s subsidiary US Compounding, Inc. or USC, provided compounded sterile prescription medications and certain nonsterile preparations and compounds, for human and veterinary use by patients, physician clinics, hospitals, surgery centers, vet clinics and other clients throughout most of the United States. USC’s product offerings broadly included, among others, corticosteroids, hormone replacement therapies, hospital outsourcing products, and injectables.  In July 2021, the Company sold certain assets relating to USC’s human compounding pharmaceutical business and approved a restructuring process to wind down the remaining USC business and sell, liquidate or otherwise dispose of the remaining USC assets.  Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit and is no longer selling compounded pharmaceutical or veterinary products.  

             Adamis and USC have contracts with customers when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.  

Exclusive Distribution and Commercialization Agreement for SYMJEPI^® and ZIMHI^™ with US WorldMeds 

             On May 11, 2020 (the “Effective Date”) the Company entered into an exclusive distribution and commercialization agreement (the “USWM Agreement”) with USWM for the United States commercial rights for the SYMJEPI products, as well as for the Company’s ZIMHI (naloxone HCI Injection, USP) 5mg/0.5mL product intended for the emergency treatment of opioid overdose.  The Company’s revenues relating to its FDA approved products SYMJEPI and ZIMHI are dependent on the USWM Agreement.    

             Under the terms of the USWM Agreement, the Company appointed USWM as the exclusive (including as to the Company) distributor of SYMJEPI in the United States and related territories (“Territory”) effective upon the termination of a Distribution and Commercialization Agreement previously entered into with Sandoz Inc., and of the ZIMHI product if approved by the U.S. Food and Drug Administration (“FDA”) for marketing, and granted USWM an exclusive license under the Company’s patent and other intellectual property rights and know-how to market, sell, and otherwise commercialize and distribute the products in the Territory, subject to the provisions of the USWM Agreement, in partial consideration of an initial payment by USWM and potential regulatory and commercial based milestone payments totaling up to $26 million, if the milestones are achieved. There can be no assurances that any of these milestones will be met or that any milestone payments will be paid to the Company.  The Company retains rights to the intellectual property subject to the USWM Agreement and to commercialize both products outside of the Territory.  In addition, the Company may continue to use the licensed intellectual property (excluding certain of the licensed trademarks) to develop and commercialize other products (with certain exceptions), including products that utilize the Company’s Symject™ syringe product platform.

            The initial term for the USWM Agreement began on the Effective Date and continues for a period of 10 years from the launch by USWM of the first product in the United States pursuant to the agreement, unless terminated earlier in accordance with its terms. We have determined that the individual purchase orders, whose terms and conditions taken with the distribution and commercialization agreement, creates a contract according to ASC 606. The term will automatically renew for five-year terms after the initial 10-year term, unless terminated by either party. 

            The Company has determined that there are two performance obligations in the contract: (i) the manufacture and supply and the exclusive distribution and commercialization in the United States of SYMJEPI and ZIMHI products to USWM; and (ii) material rights related to future sales of SYMJEPI and ZIMHI.              

As the optional future sales of SYMJEPI and ZIMHI reflect a significant or incremental discount, they are material rights, and are accounted for as performance obligations. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that USWM will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires.

Revenues from product sales are recognized at a point in time upon delivery to USWM. Variable consideration from product sales is allocated directly to the products being sold. Under the USWM Agreement, the Company is entitled to receive various amounts and milestone payments, including regulatory milestone payments; net-profit sharing payments based on certain percentages of net profit generated from the sale of products over a given quarter; and commercial milestone payments. Payments from regulatory milestone payments were excluded from the transaction price as the Company utilizes the most likely amount method to estimate variable consideration. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. Receivable from USWM has a payment term of Net 30.

            Revenues do not include any state or local taxes collected from customers on behalf of governmental authorities. The Company made the accounting policy election to continue to exclude these amounts from revenues. 

Product Recall    

              On March 21, 2022, we announced a voluntary recall of four lots of SYMJEPI (epinephrine) Injection 0.15 mg (0.15 mg/0.3 mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled Single-Dose Syringes to the consumer level, due to the potential clogging of the needle preventing the dispensing of epinephrine. USWM will handle the entire recall process for the Company, with Company oversight. SYMJEPI is manufactured and tested for us by Catalent Belgium S.A.  The costs of the recall and the allocation of costs of the recall, including the costs to us resulting from the recall, were estimated at approximately $2.0 million; moreover, the recall could cause the Company to suffer reputational harm, depending on the resolution of matters relating to the recall could result in the Company incurring financial costs and expenses which could be material, could adversely affect the supply of SYMJEPI products until manufacturing is resumed, and depending on the resolution of matters relating to the recall could have a material adverse effect on our business, financial condition, and results of operations.

           For the period ended June 30, 2022 and December 31, 2021, a liability of approximately $0.6 million and $2.0 million, respectively, associated with the recall is reflected in the balance sheet. The estimated costs of the recall was reflected in the consolidated statement of operations for the year ended December 31, 2021 as a reduction of net sales because we expect to offer the customers a cash refund or credit. The Company may be able to be reimbursed by certain third parties for some of the costs of the recall under the terms of its manufacturing agreements or insurance policies, but there are no assurances regarding the amount or timing of any such recovery.

Deferred Revenue 

             Deferred Revenue are contract liabilities that the Company records when cash payments are received or due in advance of the Company’s satisfaction of performance obligations. The Company’s performance obligation is met when control of the promised goods is transferred to the Company’s customers. For the three months ended June 30, 2022 and 2021, $25,000 and $25,000 of the revenues recognized were reported as deferred revenue as of March 31, 2022 and 2021, respectively, and for the six months ended June 30, 2022 and 2021, $50,000 and $50,000 of the revenues recognized were reported as deferred revenue as of December 31, 2021 and 2020, respectively. Included in the deferred revenue balance at June 30, 2022 and December 31, 2021 was $800,000 and $850,000, respectively, relating to the non-refundable upfront payment received from USWM pursuant to the USWM Agreement.

 Cost to Obtain a Contract

             The Company capitalizes incremental costs of obtaining a contract with a customer if the Company expects to recover those costs and that it would not have been incurred if the contract had not been obtained. The deferred costs, reported in the prepaid expenses and other current assets and other non-current assets on the Company’s consolidated balance sheets, will be amortized over the economic benefit period of the contract.  

Practical Expedients 

             As part of the adoption of the ASC Topic 606, the Company elected to use the following practical expedients: (i) incremental costs of obtaining a contract in the form of sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded within Selling, General and Administrative expenses; (ii) taxes collected from customers and remitted to government authorities and that are related to the sales of the Company’s products, are excluded from revenues; and (iii) shipping and handling activities are accounted for as fulfillment costs and recorded in cost of sales.

Note 4: Inventories 

Inventories at June 30, 2022 and December 31, 2021 consisted of the following: 

Reserve for obsolescence as of June 30, 2022 and December 31, 2021 was approximately $0 and $ 0, respectively.

Note 5: Fixed Assets, net 

Fixed assets at June 30, 2022 and December 31, 2021 are summarized in the table below:

Depreciation expense for the three months ended June 30, 2022 and 2021 was approximately $368,000 and $369,000, respectively; and for the six months ended June 30, 2022 and 2021, depreciation expense was approximately $713,000 and $697,000, respectively.  

Note 6: Leases 

The Company has one operating lease for an office space. As of June 30, 2022, the lease has a remaining term of approximately 17 months. The operating lease does not include an option to extend beyond the life of the current term. There are no short-term leases, and the lease agreement does not require material variable lease payments, residual value guarantees or restrictive covenants. 

The tables below present the operating lease assets and liabilities recognized on the condensed consolidated balance sheets as of June 30, 2022, and December 31, 2021:

The amortizable lives of operating assets are limited by the expected lease term.

The Company’s lease does not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating and financing lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for leases that commenced prior to that date.

The Company’s weighted average remaining lease term and weighted average discount rate for operating and financing leases as of June 30, 2022 and December 31, 2021 were:

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the unaudited condensed consolidated balance sheets as of June 30, 2022:

            Operating lease expense for the three months ended June 30,2022 and 2021 was approximately $88,000 and $88,000 respectively, and for the six months ended June 30, 2022 and 2021, operating lease expense was approximately $177,000 and $177,000, respectively. Operating lease costs are included within selling, general and administrative expenses on the condensed consolidated statements of operations.

            Cash paid for amounts included in the measurement of operating lease liabilities were approximately $93,000 and $90,000 for the three months ended June 30, 2022, and 2021, respectively, and approximately $185,000 and $180,000 for the six months ended June 30, 2022 and 2021, respectively.

Note 7: Debt

 First Draw Paycheck Protection Program Loan

On April 13, 2020, the Company received $3,191,700 in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company (the “Note”), in the principal amount of $3,191,700, to Arvest Bank (the “Bank”), the lender.  The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. Subsequent guidance from the SBA and the Department of the Treasury indicated that in assessing the economic need for the loan, a borrower must take into account its current activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds pursuant to the PPP Loan, and the forgiveness of the PPP Loan attendant to these funds, is dependent on the Company having initially qualified for the loan and, in the case of forgiveness, qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. 

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, unless sooner provided in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note (or later if a timely loan forgiveness application has been submitted), until the maturity date. 

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for and be granted forgiveness for all or part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during a specified period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week or 24-week period will qualify for forgiveness.

In December 2020, the Company submitted an application for the forgiveness of our PPP Loan.  In August 2021, the Company received notification through the Bank that as of August 5, 2021, the PPP Loan, including principal and interest thereon, has been fully forgiven by the SBA and that the remaining PPP Loan balance is zero. The Company recognized the amount forgiven as other income. 

Second Draw PPP Loan

On March 15, 2021, the Company entered into a Note (the “PPP2 Note”) in favor of the Bank, in the principal amount of $1,765,495 relating to funding under a Second Draw loan (the “Second Draw Loan”) pursuant to the terms of the PPP, the CARES Act, and the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act enacted in December 2020. Under the terms of the PPP2 Note and Second Draw Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the PPP2 Note was five years, unless sooner provided in connection with an event of default under the PPP2 Note. The Company may prepay the Second Draw Loan at any time prior to maturity with no prepayment penalties. Under the PPP, the proceeds of the Second Draw Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments. The Company may apply for forgiveness of some or all of the Second Draw Loan pursuant to the PPP. In order to obtain full or partial forgiveness of the Second Draw Loan, the borrower must timely request forgiveness, must provide satisfactory documentation in accordance with applicable SBA guidelines, and must satisfy the criteria for forgiveness under the PPP and applicable SBA requirements. The Company applied for forgiveness of the PPP2 Loan, and in October 2021 the Company received notification through the Bank that as of September 28, 2021, the Second Draw PPP Loan, including principal and interest thereon, was fully forgiven by the SBA. The Company recognized the amount forgiven as other income in the third quarter of 2021.  However, as described further in Note 9 below, in March 2022 the Company was informed that the Civil Division of the U.S. Attorney’s Office for the Southern District of New York was investigating the Company’s Second Draw PPP Loan and eligibility for that loan, and the Company’s financial statements for the quarter ended March 31, 2022, included a $1,850,000 contingent loss liability relating to the possible repayment of the full amount of the Second Draw PPP Loan as well as accrued interest and processing fees of the lending bank.  In June 2022, following the inquiry, the Company paid a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and such related interest and fees.

Even though the PPP Loan has been forgiven and the Second Draw PPP Loan repaid, our PPP loans and applications for forgiveness of loan amounts remain subject to review and audit by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form, including without limitation the required economic necessity certification by the Company that was part of the PPP loan application process. Accordingly, the Company is subject to audit or review by federal or state regulatory authorities as a result of applying for and obtaining the PPP Loan and Second Draw PPP Loan or obtaining forgiveness of those loans.  If the Company were to be audited or reviewed and receive an adverse determination or finding in such audit or review, including a determination that the Company was ineligible to receive the applicable loan, the Company could be required to return or repay the full amount of the applicable loan and could be subject to additional fines or penalties, which could reduce the Company's liquidity and adversely affect our business, financial condition and results of operations.  

Note 8. Fair Value Measurement

The carrying value of the Company’s cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to the short-term nature of these items. 

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows: 

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy: 

The fair value measurement of the warrants issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable and thus represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using the Black Scholes Option Pricing Model. Key assumptions at June 30, 2022 include the expected volatility of the Company’s stock of approximately 70%, the Company’s stock price at valuation date of $0.501, expected dividend yield of 0.0% and average risk-free interest rate of approximately 2.991%. The Level 3 estimates are based, in part, on subjective assumptions. During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. 

The fair value measurement of the warrants issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable and thus represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using the Black Scholes Option Pricing Model. Key assumptions at December 31, 2021 include the expected volatility of the Company’s stock of approximately 70%, the Company’s stock price at valuation date of $0.605, expected dividend yield of 0.0% and average risk-free interest rate of approximately 1.038%. The Level 3 estimates are based, in part, on subjective assumptions. During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs.

Note 9: Legal Matters

            We may from time to time become party to actions, claims, suits, investigations or proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims and other matters.  We may also become party to litigation in federal and state courts relating to opioid drugs.  Any litigation could divert management time and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses, or could result in an adverse outcome having a material adverse effect on our financial condition, cash flows or results of operations.  Actions, claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty.  Except as described below, we are not currently involved in any legal proceedings that we believe are, individually or in the aggregate, material to our business, results of operations or financial condition.  However, regardless of the outcome, litigation can have an adverse impact on us because of associated cost and diversion of management time.  

Investigations 

            On May 11, 2021, the Company and USC each received a grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York (“USAO”).  The USAO issued the subpoenas in connection with a criminal investigation and requested a broad range of documents and materials relating to, among other matters, certain veterinary products sold by USC, certain practices, agreements, and arrangements relating to products sold by USC, including veterinary products, and certain regulatory and other matters relating to the Company and USC.  The Audit Committee of the Board engaged outside counsel to conduct an independent internal investigation to review the matters brought forth in the subpoenas and certain other matters.  The investigation involved, among other matters, interviews with employees and collection and review of a large number of documents.  The Company has taken a number of actions in response to the internal investigation, including personnel actions relating to certain USC veterinary sales employees.  In addition, following the commencement of the investigation, as disclosed elsewhere in this Report the Company has sold assets relating to its compounding pharmacy business, ceased selling human and veterinary compounded pharmaceutical products, has effectively wound down USC’s business, and the employment of substantially all USC employees has ended.  As a result, the Company is no longer engaged in the sale of human or veterinary compounded pharmaceutical products.  The Company is also considering a number of additional actions in response to the internal investigation and the USAO investigation.  As of the date of this Report, we believe that the investigation initially commenced by the Audit Committee is substantially complete.  However, additional issues or facts could arise or be determined, which may expand the scope, duration, or outcome of the Audit Committee’s investigation.  The Company has also received requests from the U.S. Securities and Exchange Commission (“SEC”) for the voluntary production of documents and information relating to the subject matter of the USAO’s subpoenas and certain other matters.  The Company has produced documents and will continue to produce and provide documents in response to the subpoenas and requests as needed.   Additionally, on March 16, 2022, the Company was informed that the Civil Division of the USAO (“Civil Division”) was investigating the Company’s Second Draw PPP Loan application and the company’s eligibility for the Second Draw PPP Loan.  The Audit Committee of the Board engaged outside counsel to conduct an internal inquiry into the matter.  The Company intends to continue cooperating with the USAO, SEC, and Civil Division. At this time, the Company is unable to predict the duration, scope, or outcome of the investigations by the USAO, SEC, Civil Division, or other agencies; what, if any, proceedings the USAO, SEC, Civil Division, or other federal or state authorities may initiate; what, if any, remedies or remedial measures the USAO, SEC, Civil Division or other federal or state authorities may seek; or what, if any, impact the foregoing matters may have on the Company’s business, previously reported financial results, financial results included in this Report, or future financial results.  We could receive additional requests from the USAO, SEC, Civil Division, or other authorities, which may require further investigation.  There can be no assurance that any discussions with the USAO, SEC or Civil Division to resolve these matters will be successful.  The foregoing matters may divert management’s attention, cause the Company to suffer reputational harm, require the company to devote significant financial resources, subject the Company and its officers and directors to civil or criminal proceedings, and depending on the resolution of the matters or any proceedings, result in fines, penalties or equitable remedies, and affect the Company’s business, previously reported financial results, financial results included in this Report, or future financial results. The occurrence of any of these events, or any determination that our activities were not in compliance with existing laws or regulations, could have a material adverse effect on the Company’s business, liquidity, financial condition, and results of operations. 

            As a result of the investigation by the Civil Division, the Company’s financial statements for the first quarter of 2022 included a $1,850,000 contingent loss liability relating to the possible repayment of the full amount of the Second Draw PPP Loan as well as accrued interest and processing fees of the lending bank. In June 2022, following the inquiry the Company paid a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and related interest and fees.  The servicing bank waived the processing fees of approximately $63,000 related to the transaction, which the Company recognized as a gain for the same amount which was included in the other income (expense) portion of the condensed consolidated statements of operations. The Company is awaiting confirmation from the Civil Division’s whether any additional action is required to conclude the investigation into the Second Draw PPP Loan.

 Nasdaq Compliance            

            On December 31, 2021, we received a notice from the Nasdaq Listing Qualifications Department of The NASDAQ Capital Market (“Nasdaq”) informing us that because the closing bid price of our common stock had been below $1.00 per share for 30 consecutive business days, we no longer complied with the minimum bid price requirement for continued listing on The Nasdaq Capital Market.  Nasdaq Listing Rule 5550(a)(2) (the “Rule”) requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.   Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), we were provided an initial compliance period of 180 calendar days, or until June 29, 2022, to regain compliance.  To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period.   The notice letter also disclosed that if we do not regain compliance within the initial compliance period, we may be eligible for an additional 180-day compliance period.  To qualify for additional time, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of a plan to cure the deficiency during the second compliance period, including by effecting a reverse stock split if necessary.  We did not regain compliance with the Rule by June 29, 2022.  We requested additional time to regain compliance and provided notice to Nasdaq of our intention to cure the deficiency during the second compliance period, including by effecting a reverse stock split if necessary.  On June 30, 2022, Nasdaq notified us that we were granted an additional 180-day compliance period, or until December 27, 2022, to regain compliance with the Rule.  The letter also indicated that if at any time before December 27, 2022, the bid price of the Company’s Common Stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Company will regain compliance with the Rule.  If the Company does not meet the minimum bid requirement at some time during the additional 180-day grace period, Nasdaq will provide written notification to the Company that its shares will be subject to delisting. At such time, the Company may appeal the delisting determination to a Nasdaq Hearings Panel. The Company would remain listed pending the Panel’s decision. There can be no assurance that if the Company does appeal a subsequent delisting determination, that such appeal would be successful.  The letter and notification from Nasdaq had no immediate effect on the listing or trading of the Company’s shares, which will continue to trade on the Nasdaq Capital Market under the symbol “ADMP.” There are no assurances that we will be able to regain compliance with the minimum bid price requirements or will otherwise be in compliance with other Nasdaq listing rules. 

Jerald Hammann       

             On June 8, 2021, Jerald Hammann filed a complaint against the Company and each of its directors in the Court of Chancery of the State of Delaware, captioned Jerald Hammann v. Adamis Pharmaceuticals Corporation et al., C.A. No. 2021-0506-PAF (the “Complaint”), seeking injunctive and declaratory relief.  The Complaint alleges, among other things, that the defendants (i) violated Rule 14a-5(f) and 14a-9(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the Company’s 2021 annual meeting of stockholders—which was subsequently held on July 16, 2021 (the “2021 annual meeting”)—and disseminated false and misleading information in the Company’s proxy materials relating to the 2021 annual meeting, (ii) violated certain provisions of the Company’s bylaws relating to the 2021 annual meeting, (iii) violated section 220 of the Delaware General Corporation Law (“DGCL”) in connection with a request for inspection of books and records submitted by the plaintiff, and (iv) breached their fiduciary duties of disclosure and loyalty, including relating to establishing and disclosing the date of the Company’s 2021 annual meeting and to the Company’s determination that a solicitation notice delivered to the Company by plaintiff was not timely and was otherwise deficient.  The Complaint alleges, among other things, that plaintiff intended to initiate a proxy contest against the Company, that defendants’ conduct made it difficult or impossible for plaintiff to initiate a proxy context, and that the Company’s definitive proxy statement included false and misleading disclosures and omissions of material information.  The Complaint sought injunctive relief (i) to prevent the Board, the Company, and their employees and agents from soliciting any stockholders pursuant to the Company’s proxy statement and (ii) to prevent the defendants from interfering in the effectiveness of stockholder voting for the 2021 annual meeting.  The Complaint also seeks declaratory relief (i) finding that plaintiff’s solicitation notice was timely and properly submitted; (ii) directing the defendants to comply with Rules 14a-5(f) and 14a-9(a) of the Exchange Act; (iii) directing the Company to produce the materials set forth in the plaintiff’s books and records request; (iv) finding that the director defendants breached their fiduciary obligations to stockholders; and (v) finding that the director defendants engaged in self-dealing.  The Complaint seeks an award of fees, costs, and expenses in this action, including attorneys’ and experts’ fees.

            On June 10, 2021, the plaintiff filed a motion for a temporary restraining order and for expedited proceedings, seeking an order enjoining the Company from printing or disseminating its proxy statement relating to the 2021 annual meeting or from convening the 2021 annual meeting on July 16, 2021.  Following a hearing, on June 17, 2021, the Court determined that: (i) it did not have jurisdiction to consider the plaintiff’s claims relating to alleged violations of the Exchange Act; (ii) plaintiff’s claims regarding the books and records request and alleged violations of section 220 of the DGCL should be pursued in a separate proceeding, and the Court denied the plaintiff’s motion to expedite the books and records claims; (iii) certain of the plaintiff’s claims alleging breach of the fiduciary duty of disclosure against the individual defendants, including claims based on alleged misrepresentations and omissions in the Company’s proxy statement, were not colorable; and (iv) plaintiff’s claim alleging that the individual defendants violated their fiduciary duty by taking action purportedly intended to prevent the plaintiff from pursuing a proxy contest survived a low threshold of colorability, but the Court denied the plaintiff’s motion for a temporary restraining order.  The Court granted in part the motion to expedite the proceedings.

            In March 2022, plaintiff filed a motion for a temporary restraining order and for expedited proceedings, seeking an order enjoining the Company and its directors from (a) changing the number of members of the Company’s board of directors, (b) adding members to the Company’s board of directors, and/or (c) replacing any resigning members of the Company’s board of directors. The Company filed a response to the plaintiff’s motion. The Court held a hearing on March 28, 2022, and denied the plaintiff’s motion in full. On April 4, 2022, plaintiff filed a motion to amend the plaintiff’s complaint. The proposed amended Complaint adds additional allegations relating to the manner in which the defendants established and disclosed the date of the Company’s 2021 annual meeting of stockholders and to statements the defendants made about the plaintiff to the Company’s stockholders.  On April 28, 2022, the Court granted the motion, noting that as a general rule, leave to amend is freely given.  On April 25, 2022, plaintiff filed a motion for a preliminary injunction seeking to enjoin the Company from holding its 2022 annual meeting of stockholders until the plaintiff’s Complaint is resolved.  The Company opposed the motion, and on April 28, 2022, the Court denied the plaintiff’s motion.  On May 23, 2022, the Company filed a motion for summary judgment on Count VI and a motion to dismiss Counts VII, VIII, and IX of plaintiff’s amended Complaint.  Those motions are pending before the Court, and the case continues to proceed.  The Company believes the claims in plaintiff’s Complaint are without merit, and intends to vigorously dispute them. The Company has not recorded a contingent liability related to this matter.

           The Company records accruals for loss contingencies associated with legal matters when the Company determines it is probable that a loss has been or will be incurred and the amount of the loss can be reasonably estimated. Where a material loss contingency is reasonably possible and the reasonably possible loss or range of possible loss can be reasonably estimated, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made.

Note 10: Common Stock    

In January and February 2021, the Company issued common stock upon exercise of investor warrants. The warrant holders exercised for cash at exercise prices ranging from $0.70 to $1.15 per share. The Company received total proceeds of approximately $5,852,000 and the warrant holders received 8,356,000 shares of common stock.

On February 2, 2021, the Company completed the closing of an underwritten public offering of 46,621,621 shares of common stock at a public offering price of $1.11 per share, which included 6,081,081 shares pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately $48.4 million, after deducting approximately $3.3 million in underwriting discounts and commissions and estimated offering expenses payable by the Company.  

Note 11: Stock-based Compensation, Warrants and Shares Reserved  

The Company accounts for stock-based compensation transactions in which the Company receives employee services in exchange for restricted stock units (“RSUs”) or options to purchase common stock and the Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period. Stock-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur and will reduce compensation cost at the time of forfeiture.  Cash-settled Stock Appreciation Rights ("SARs")provide for the cash payment of the excess of the fair market value of the Company’s common stock price on the date of exercise over the grant price.  The fair value of the SARs is calculated during each reporting period and estimated using the Black-Scholes option pricing model. The SARs will vest over a period of three years and are accounted for as liability awards since they will be settled in cash.  Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock over the grant price is paid in cash and not in common stock.  The Company accounts for forfeiture as they occur and reduces the compensation cost at the time of forfeiture.

At the Company’s 2020 annual meeting of stockholders, the stockholders approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, and other forms of equity compensation (collectively “stock awards”). In addition, the 2020 Plan provides for the grant of cash awards. The initial aggregate number of shares of common stock that may be issued pursuant to stock awards under the 2020 Plan is 2,000,000 shares. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year during the term of the 2020 Plan, commencing January 1, 2021, by 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares of common stock determined by the Company’s board of directors before the start of a calendar year for which an increase applies. One of the provisions of the 2020 Plan is that no award may be granted, issued or made under the 2020 Plan until such time as the fair market value of the common stock, which is generally the closing sales price of the common stock on the principal stock market on which the common stock is traded, has been equal to or greater than $3.00 per share (subject to proportionate adjustment for stock splits, reverse stock splits, and similar events) for at least ten consecutive trading days, after which time awards may be made under the 2020 Plan without regard to any subsequent increase or decrease in the fair market value of the common stock. No awards were made pursuant to the 2020 Plan as of June 30, 2022.

On January 1, 2022, pursuant to the 2020 Equity Incentive Plan the number of shares reserved for the issuance of stock awards increased by 7,479,713 shares. 

In June 2022, the Company issued 250,000 shares of common stock to Dennis J. Carlo, former chief executive officer of the Company, pursuant to a separation agreement  between the Company and Dr. Carlo. The separation agreement resulted to the modification of his RSU awards, accelerating the RSU vesting upon his separation. As a result of this Type III modification, the Company determined the cumulative compensation cost that should have been recognized at that date as if the fair value of the modified award had been recognized from the original grant date over his requisite service period, which resulted in the reversal of approximately $540,000 in expense.  

Stock Options 

The following table summarizes the outstanding stock option activity for the six months ended June 30, 2022:

Non-Plan Awards: