Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Merger Agreement

 Merger Agreement

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of DMK (other than dissenting shares, if any) will generally be converted into the right to receive a number of shares of Adamis common stock (“Common Stock”) equal to the exchange ratio as defined in the Merger Agreement and described below; however, if a DMK shareholder’s receipt of such shares would result in the shareholder’s beneficial ownership of Adamis Common Stock exceeding a certain percentage limit specified in the Merger Agreement, then the shareholder will, in lieu of receiving shares of Common Stock in excess of such beneficial ownership limit, receive shares of a new series of Adamis convertible preferred stock (the “Series E Preferred”) that is generally convertible into the number of shares of Adamis Common Stock that the stockholder would have been entitled to receive in excess of such beneficial ownership limit, but that is subject to certain beneficial ownership limitations on conversion and voting rights (the shares of Adamis Common Stock and Series E Preferred that are issuable pursuant to the Merger Agreement, sometimes referred to as the “Merger Consideration Shares”). The number of shares of Adamis Common Stock that will be issuable (including upon conversion of shares of Series E Preferred issuable in the transaction without regard to beneficial ownership conversion limitations) to holders of outstanding shares of DMK common stock (other than holders, if any, of dissenting shares) will be determined by dividing $27,000,000 by the average closing prices of the Adamis Common Stock for the five trading days ending one trading day before the Effective Time (adjusted to give effect to the reverse stock split of the Common Stock); and the exchange ratio will be determined by dividing such number of shares by the number of outstanding DMK shares of common stock immediately before the Effective Time. Notwithstanding the foregoing, the Merger Agreement also provides that if the determination of the exchange ratio based on the foregoing calculation above would result in the holders of Adamis common stock immediately before the Effective Time owning less than 50.1% of the aggregate of (i) the number of shares of Adamis common stock held by such stockholders immediately after the Effective Time, plus (ii) the number of shares of Adamis common stock issuable to the stockholders of DMK pursuant to the exchange ratio as calculated above (determined on an as-converted basis including shares issuable upon conversion of the Merger Consideration shares of Series E Preferred without regard to beneficial ownership limitations), plus (iii) the number of shares of Adamis common stock that are issuable upon exercise of DMK stock options assumed by Adamis pursuant to the Merger Agreement (the “Adamis Percentage Threshold”), then the number of shares constituting the Merger Consideration (determined on an as-converted basis including shares issuable upon conversion of the Merger Consideration shares of Series E Preferred) will be a number such that the stockholders of Adamis holding shares of Adamis common stock immediately before the Effective Time hold a number of shares of Adamis common stock immediately after the Effective Time equal to the Adamis Percentage Threshold.

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

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

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

Going Concern

Going Concern

The Company’s cash and cash equivalents were $3,099,843 and $1,081,364 at March 31, 2023 and December 31, 2022, respectively.  

The condensed consolidated financial statements were prepared under the assumption that the Company will continue its 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’s condensed consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred substantial recurring losses from continuing operations, negative cash flows from operations, and is dependent on additional financing to fund operations. The Company incurred a net loss of approximately $8.9 million for the three months ended March 31, 2023. As of March 31, 2023, the Company had an accumulated deficit of approximately $313.5 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. The Company will need additional funding to sustain operations, satisfy existing and future obligations and liabilities, and otherwise support the Company’s operations and business activities and working capital needs. Management’s plans include attempting to secure additional required funding through equity or debt financing if available, seeking to enter into a partnership or other strategic agreement regarding, or sales or out-licensing of, our commercial products, product candidates or intellectual property assets or other assets including assets held for sale related to our former USC business, revenues relating to supply and sale of SYMJEPI and ZIMHI products and share of net profits received relating to sales in the U.S. of our SYMJEPI and ZIMHI products, seeking partnerships or commercialization agreements with other pharmaceutical companies or third parties to co-develop and fund research and development or commercialization efforts of our products, from a merger or other business combination, or similar transactions.  There can be no assurance that we will be able to obtain required funding in the future.  As of the date of this Report, we have a limited number of authorized shares available for issuance in funding transactions involving issuances of equity securities. Additionally, the Company is currently working to cure non-compliance issues regarding the Company’s minimum stock price and minimum market value of listed securities by their respective cure dates and there can be no assurance that the Company will be successful in these endeavors. (See Notes 9 and 13 for additional information). As disclosed elsewhere in this Report, we have entered into the Merger Agreement with DMK, and a special meeting of our stockholders is scheduled to be held on May 15, 2023, to consider and vote on certain proposals relating to the Merger and the Merger Agreement, including a proposed reverse stock split of our outstanding shares of Common Stock.  If the proposals are approved and the Merger is consummated, the combined company will require additional 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. There is no assurance that the Company will be successful in obtaining the necessary funding to sustain our operations or meet the Company’s business objectives. If the Company does not obtain required funding, the Company’s cash resources will be depleted in the near term and the Company would be required to materially reduce or suspend operations, which would likely have a material adverse effect on the Company’s business, stock price and our relationships with third parties with whom the Company have business relationships. If the Company does not have sufficient funds to continue operations, the Company could be required to seek bankruptcy protection, dissolution or liquidation, or other alternatives that could result in the Company’s stockholders losing some or all of their investment in us. The Company has implemented expense reduction measures including, without limitation, employee headcount reductions and the reduction or discontinuation of certain product development programs. 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 the Company business, including the ability to raise capital when needed on acceptable terms, if at all.

Basic and Diluted per Share

Basic and Diluted per Share 

Under ASC 260, the Company is required to apply the two-class method to compute earnings per share (or, EPS). Under the two-class method both basic and diluted EPS are calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings. The two-class method results in an allocation of all undistributed earnings as if all those earnings were distributed. Considering the Company has generated losses in each reporting period since its inception through March 31, 2023, the Company also considered the guidance related to the allocation of the undistributed losses under the two-class method. The contractual rights and obligations of the preferred stock shares and the March 2023 Warrants (see Footnote 9 for additional information) were evaluated to determine if they have an obligation to share in the losses of the Company. As there is no obligation for the preferred stock shareholders or the holders of the March 2023 Warrants to fund the losses of the Company nor is the contractual principal or redemption amount of the preferred stock shares or March 2023 Warrants reduced as a result of losses incurred by the Company, under the two-class method, the undistributed losses will be allocated entirely to the common stock securities.

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 March 2023 Prefunded Warrants are excluded from basic EPS calculations as they are liability classified. The diluted loss per share calculation is based on the if-converted method for convertible preferred shares and gives effect to dilutive if-converted shares and the treasury stock method and gives effect to dilutive options, warrants and other potentially dilutive common stock. The preferred stock, however, is not considered potentially dilutive due to the contingency on the conversion feature not being tied to stock price or price of the convertible instrument. The March 2023 Warrants are assumed to be settled in shares, and at each reporting period the Company will evaluate the combined effect of the adjustment to the numerator (assumed beginning of the period exercise) and inclusion of the March 2023 Warrants in the denominator, with the March 2023 Warrants included for the purposes of diluted EPS calculation if such effect is dilutive. The March 2023 Warrants were determined to be anti-dilutive. The common stock equivalents were anti-dilutive and were excluded from the calculation of weighted average shares outstanding.

Potentially dilutive securities, which are not included in diluted weighted average shares outstanding for the period ended March 31, 2023 and March 31, 2022, consist of the following:

	March 31, 2023		March 31, 2022
Outstanding Warrants		70,452,824		14,202,824
Outstanding Options		4,148,969		4,916,142
Outstanding Restricted Stock Units		650,000		900,000

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Discontinued Operations

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, noncurrent 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.

Assets classified as held for sale that are not sold after the initial one-year period are assessed to determine if they meet the exception to the one-year requirement to continue being classified as held for sale. The primary asset that is held for sale is the US Compounding, Inc. (USC) property with a carrying value of $2.9 million. At March 31, 2023, the Company determined that the exception criteria to continue held for sale classification were met as the Company initiated actions to respond to changes in circumstances and the USC property is being actively marketed at a reasonable price based on its recent market valuation. The Company has engaged two parties to find a qualified buyer and anticipates receiving an offer possibly in the next few months based on on-going discussions.

Recent Accounting Pronouncements

Recent Accounting Pronouncements  

There were no new accounting pronouncements adopted that had a material impact on the Company’s financial statements.