ADMA BIOLOGICS, INC. 10-Q

Item 1 . Financial Statements. ADMA BIOLOGICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 34,410,570 $ 55,921,152 Accounts receivable, net 20,392,621 13,237,290 Inventories 114,122,873 81,535,599 Prepaid expenses and other current assets 5,859,046 3,046,466 Total current assets 174,785,110 153,740,507 Property and equipment, net 48,393,723 41,593,090 Intangible assets, net 1,907,607 2,444,121 Goodwill 3,529,509 3,529,509 Right to use assets 6,690,943 4,259,191 Deposits and other assets 3,333,514 2,106,976 TOTAL ASSETS $ 238,640,406 $ 207,673,394 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 17,282,841 $ 11,073,708 Accrued expenses and other current liabilities 14,410,329 8,365,143 Current portion of deferred revenue 142,834 142,834 Current portion of lease obligations 501,239 365,682 Total current liabilities 32,337,243 19,947,367 Senior notes payable, net of discount 94,363,008 92,968,866 Deferred revenue, net of current portion 2,011,573 2,118,698 Lease obligations, net of current portion 6,915,750 4,334,151 Other non-current liabilities 232,665 54,886 TOTAL LIABILITIES 135,860,239 119,423,968 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY Preferred Stock, $ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding - - Common Stock - voting, $ 0.0001 par value, 300,000,000 and 150,000,000 shares authorized, 138,313,817 and 104,902,888 shares issued and outstanding 13,831 10,490 Additional paid-in capital 498,229,637 428,704,039 Accumulated deficit ( 395,463,301 ) ( 340,465,103 ) TOTAL STOCKHOLDERS’ EQUITY 102,780,167 88,249,426 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 238,640,406 $ 207,673,394 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 REVENUES: Product revenue $ 20,644,842 $ 10,240,650 $ 54,452,633 $ 28,156,571 License revenue 35,708 35,708 107,125 107,125 Total revenues 20,680,550 10,276,358 54,559,758 28,263,696 OPERATING EXPENSES: Cost of product revenue (exclusive of amortization expense shown below) 20,295,213 11,855,464 56,897,959 42,180,319 Research and development 770,557 1,708,391 2,917,072 4,893,549 Plasma center operating expenses 3,146,221 1,218,898 8,191,890 2,597,444 Amortization of intangible assets 178,838 178,838 536,514 536,514 Selling, general and administrative 10,726,797 9,115,744 31,198,880 25,750,458 Total operating expenses 35,117,626 24,077,335 99,742,315 75,958,284 LOSS FROM OPERATIONS ( 14,437,076 ) ( 13,800,977 ) ( 45,182,557 ) ( 47,694,588 ) OTHER INCOME (EXPENSE): Interest income 4,256 1,164 32,241 268,643 Interest expense ( 3,298,680 ) ( 3,091,200 ) ( 9,741,110 ) ( 8,875,597 ) Other income (expense) 18,546 ( 26,440 ) ( 106,772 ) ( 39,232 ) Other expense, net ( 3,275,878 ) ( 3,116,476 ) ( 9,815,641 ) ( 8,646,186 ) NET LOSS $ ( 17,712,954 ) $ ( 16,917,453 ) $ ( 54,998,198 ) $ ( 56,340,774 ) BASIC AND DILUTED LOSS PER COMMON SHARE $ ( 0.13 ) $ ( 0.19 ) $ ( 0.44 ) $ ( 0.68 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and Diluted 133,770,147 87,698,258 125,682,400 82,627,753 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) For the Three and Nine Months Ended September 30, 2021 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2020 104,902,888 $ 10,490 $ 428,704,039 $ ( 340,465,103 ) $ 88,249,426 Stock-based compensation - - 781,397 - 781,397 Vesting of Restricted Stock Units, net of shares withheld for taxes and retired 61,385 6 ( 59,317 ) - ( 59,311 ) Issuance of common stock, net of offering expenses 18,080,708 1,808 41,910,707 - 41,912,515 Net loss - - - ( 18,379,941 ) ( 18,379,941 ) Balance at March 31, 2021 123,044,981 12,304 471,336,826 ( 358,845,044 ) 112,504,086 Stock-based compensation - - 805,189 - 805,189 Issuance of common stock, net of offering expenses 8,827,045 883 17,188,677 - 17,189,560 Net loss - - - ( 18,905,303 ) ( 18,905,303 ) Balance at June 30, 2021 131,872,026 13,187 489,330,692 ( 377,750,347 ) 111,593,532 Issuance of common stock, net of offering expenses 6,438,276 644 8,212,958 - 8,213,602 Vesting of Restricted Stock Units, net of shares withheld for taxes and retired 3,515 - ( 2,287 ) - ( 2,287 ) Stock-based compensation - - 688,274 - 688,274 Net loss - - - ( 17,712,954 ) ( 17,712,954 ) Balance at September 30, 2021 138,313,817 $ 13,831 $ 498,229,637 $ ( 395,463,301 ) $ 102,780,167 For the Three and Nine Months Ended September 30, 2020 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2019 59,318,355 $ 5,932 $ 290,903,772 $ ( 264,716,555 ) $ 26,193,149 Stock-based compensation - - 676,548 - 676,548 Issuance of common stock, net of offering expenses 27,025,000 2,703 88,701,336 - 88,704,039 Exercise of stock options 1,958 - 7,177 - 7,177 Net loss - - - ( 19,245,230 ) ( 19,245,230 ) Balance at March 31, 2020 86,345,313 8,635 380,288,833 ( 283,961,785 ) 96,335,683 Stock-based compensation - - 715,608 - 715,608 Exercise of stock options 4,668 - 6,255 - 6,255 Net loss - - - ( 20,178,091 ) ( 20,178,091 ) Balance at June 30, 2020 86,349,981 8,635 381,010,696 ( 304,139,876 ) 76,879,455 Stock-based compensation - - 774,784 - 774,784 Vesting of restricted stock units 15,000 2 ( 2 ) - - Issuance of common stock, net of offering expenses 3,251,195 325 10,638,843 - 10,639,168 Net loss - - - ( 16,917,453 ) ( 16,917,453 ) Balance at September 30, 2020 89,616,176 $ 8,962 $ 392,424,321 $ ( 321,057,329 ) $ 71,375,954 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 54,998,198 ) $ ( 56,340,774 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,977,786 2,709,783 Loss on disposal of fixed assets 80,479 12,478 Stock-based compensation 2,274,860 2,166,940 Amortization of debt discount 1,394,142 1,344,344 Amortization of license revenue ( 107,125 ) ( 107,125 ) Changes in operating assets and liabilities: Accounts receivable ( 7,155,331 ) ( 2,864,617 ) Inventories ( 32,587,272 ) ( 16,687,794 ) Prepaid expenses and other current assets ( 2,812,580 ) ( 1,252,828 ) Deposits and other assets ( 813,415 ) ( 74,335 ) Accounts payable 6,209,132 ( 1,194,820 ) Accrued expenses 5,526,220 2,617,472 Other current and non-current liabilities 107,552 ( 112,246 ) Net cash used in operating activities ( 78,903,750 ) ( 69,783,522 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 9,835,404 ) ( 9,128,359 ) Proceeds from the sale of property and equipment - 2,000 Net cash used in investing activities ( 9,835,404 ) ( 9,126,359 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of offering expenses 67,315,677 99,343,207 Proceeds from the exercise of stock options - 13,432 Taxes paid on vested Restricted Stock Units ( 61,598 ) - Proceeds from issuance of note payable - 12,500,000 Payments on finance lease obligations ( 25,507 ) ( 23,848 ) Net cash provided by financing activities 67,228,572 111,832,791 Net (decrease) increase in cash and cash equivalents ( 21,510,582 ) 32,922,910 Cash and cash equivalents - beginning of period 55,921,152 26,752,135 Cash and cash equivalents - end of period $ 34,410,570 $ 59,675,045 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS ADMA Biologics, Inc. (“ADMA” or the “Company”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. The Company’s targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons. ADMA operates through its wholly-owned subsidiaries ADMA BioManufacturing, LLC (“ADMA BioManufacturing”) and ADMA BioCenters Georgia Inc. (“ADMA BioCenters”). ADMA BioManufacturing was formed in January 2017 to facilitate the acquisition of the Biotest Therapy Business Unit (“BTBU”) from BPC Plasma, Inc. (formerly Biotest Pharmaceuticals Corporation) (“BPC” and, together with Biotest AG, “Biotest”) on June 6, 2017. The acquisition included certain assets (the “Biotest Assets”) of BTBU, which included the FDA-licensed BIVIGAM and Nabi-HB immunoglobulin products, and an FDA-licensed plasma fractionation manufacturing facility located in Boca Raton, FL (the “Boca Facility”) (the “Biotest Transaction”). BTBU had previously been the Company’s third-party contract manufacturer. ADMA BioCenters is the Company’s source plasma collection business with nine plasma collection facilities in various stages of approval and development located throughout the U.S., three of which hold an approved license with the U.S. Food and Drug Administration (the “FDA”). The Company has three FDA-approved products, all of which are currently marketed and commercially available: (i) BIVIGAM (Immune Globulin Intravenous, Human), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”), and for which the Company received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; (ii) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an IVIG product indicated for the treatment of PI, for which the Company received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing Hepatitis B surface antigen (“HBsAg”) and other listed exposures to Hepatitis B. In addition to its commercially available immunoglobulin products, the Company provides contract manufacturing and laboratory services for certain clients and generates revenues from the sale of intermediate by-products that result from the immunoglobulin production process. The Company seeks to develop a pipeline of plasma-derived therapeutics, and its products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases. As of September 30, 2021, the Company had working capital of $ 142.4 million, including $ 34.4 million of cash and cash equivalents. Based upon the Company’s current projected revenue and expenditures, including capital expenditures and continued implementation of the Company’s commercialization and expansion activities, the Company’s management currently believes that its cash, cash equivalents, projected revenue and accounts receivable, including the proceeds received from the underwritten public offering completed by the Company on October 25, 2021 (see Note 14), will be sufficient to fund ADMA’s operations, as currently conducted, through the first half of 2022. In order to have sufficient cash to fund its operations thereafter, the Company anticipates it will need to raise additional capital during the second half of 2022, which includes the Company’s plans to refinance and expand upon its existing debt facility. The Company believes that a debt refinancing and expansion of its current debt facility, combined with the proceeds received from the foregoing public offering further discussed in Note 14, will be sufficient to fund its operations into the first quarter of 2024, at which time the Company believes its operations will be cash flow positive. The Company is also evaluating a variety of strategic and financing alternatives and has engaged Morgan Stanley as a financial advisor in connection with certain of those strategic alternatives. There can be no assurances that the Company will be able to successfully refinance or expand its existing debt to obtain additional non-dilutive financing. These estimates may change based upon several factors, including the success of the Company’s commercial sales of its products, manufacturing ramp-up activities, the acceptability of ADMA’s immune globulin products by physicians, patients or payers and the various financing options that may be available to the Company. In addition, the Company’s end-to-end production cycle from procurement of raw materials to commercial release of finished product can take between seven and 12 months or potentially longer, requiring substantial investments in raw material plasma and other manufacturing materials. The Company currently has no firm commitments for additional financing, including for refinancing or expanding the Company’s debt, and there can be no assurance that the Company will be able to secure additional financing on terms that are acceptable to the Company, or at all. Furthermore, if the Company’s assumptions underlying its estimated expenses and revenues are incorrect, it may have to raise additional capital sooner than currently anticipated. 5 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Due to numerous risks and uncertainties associated with FDA review, inspections and approvals related to the Company’s products or the labeled indications of such products, ongoing compliance requirements and capacity expansion efforts at the Company’s Boca Facility and future commercialization of the Company’s products, including the Company’s ability to obtain adequate quantities of FDA-approved plasma with proper specifications on acceptable terms for use in the Company’s manufacturing process, as well as the additional uncertainties surrounding the COVID-19 pandemic (see Note 10), the Company is unable to estimate with certainty the amounts of increased capital outlays and operating expenditures required to fund its commercial and development activities. The Company’s current estimates may be subject to change as circumstances regarding its business requirements evolve. Failure to secure any necessary financing in a timely manner and on commercially reasonable terms could have a material adverse effect on the Company’s business plan and financial performance and it could be forced to delay or discontinue its commercialization, product development or clinical activities or delay or discontinue the approval efforts for any of the Company’s products or product candidates. The Company has reported cumulative losses since inception in June 2004 through September 30, 2021 of $ 395.5 million. As such, these factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of asset carrying amounts and the classification of liabilities that might be necessary from the outcome of this uncertainty. During the nine months ended September 30, 2021, the Company raised $ 67.3 million from the sale of its common stock (see Note 8). On October 25, 2021, the Company completed an underwritten public offering which raised an additional $ 53.9 million from the sale of its common stock (see Note 14). The sale of additional equity or debt securities, if convertible, could result in dilution to the Company’s existing stockholders and, in such event, the market value of its common stock may decline. The incurrence of additional indebtedness would result in increased fixed obligations and could also result in covenants that would restrict the Company’s operations or other financing alternatives. In addition, the Company is exploring additional contract manufacturing arrangements and other business development opportunities, which may provide additional liquidity to the Company. There can be no assurance that the Company’s approved products will be commercially viable, or that research and development, plant capacity expansion, plasma center build-outs or other capital improvements will be successfully completed or that any product developed in the future will be approved. The Company is subject to risks common to companies in the biotechnology and pharmaceutical manufacturing industries including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with FDA and other governmental regulations and approval requirements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (the “FASB”). 6 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 25, 2021. The accompanying consolidated balance sheet as of December 31, 2020 was derived from the audited financial statements as of and for the year ended December 31, 2020. These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X, and therefore omit or condense certain footnotes and other information normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2021 and its results of operations, changes in equity and cash flows for the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2021 and 2020, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated statements of operations. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the realizable value of accounts receivable, valuation of inventory, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under the Company’s equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for the Company’s deferred tax assets. Fair Value of Financial Instruments The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, are shown at cost which approximates fair value due to the short-term nature of these instruments. The debt outstanding under the Company’s senior secured term loan (see Note 7) approximates fair value due to the variable interest rate on this debt. Accounts Receivable Accounts receivable is reported at realizable value, net of allowances for contractual credits and doubtful accounts in the amount of $ 0.2 million and $ 0.1 million at September 30, 2021 and December 31, 2020, respectively, which are recognized in the period the related revenue is recorded. The Company extends credit to its customers based upon an evaluation of each customer’s financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. Based on these evaluations, the Company has concluded that its credit risk is minimal. At September 30, 2021, six customers accounted for an aggregate of 94 % of the Company’s total accounts receivable, and at December 31, 2020, three customers accounted for approximately 92 % of the Company’s total accounts receivable. Inventories Raw materials inventory consists of various materials purchased from suppliers, including normal source plasma, used in the production of the Company’s products. Work-in-process and finished goods inventories (see Note 3) reflect the cost of raw materials as well as costs for direct and indirect labor, primarily salaries, wages and benefits for applicable employees, as well as an allocation of overhead costs related to the Boca Facility including utilities, property taxes, general repairs and maintenance, consumable supplies and depreciation. The allocation of Boca Facility overhead to inventory is generally based upon the estimated square footage of the Boca Facility that is used in the production of the Company’s products relative to the total square footage of the facility. Inventories, including plasma intended for resale and plasma intended for internal use in the Company’s manufacturing, commercialization or research and development activities, are carried at the lower of cost or net realizable value determined by the first-in, first-out method. Net realizable value is generally determined based upon the consideration the Company expects to receive when the inventory is sold, less costs to deliver the inventory to the recipient. The estimates for net realizable value of inventory are based on contractual terms or upon historical experience and certain other assumptions, and the Company believes that such assumptions are reasonable. Inventory is periodically reviewed to ensure that its carrying value does not exceed its net realizable value, and adjustments are recorded to write down such inventory, with a corresponding charge to cost of product revenue, when the carrying value or historical cost exceeds its estimated net realizable value. In addition, costs associated with the production of conformance or engineering lots that would not qualify as immediately available for commercial sale are charged to cost of product revenue and not capitalized into inventory. 7 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill at September 30, 2021 and December 31, 2020 was $ 3.5 million. All of the Company’s goodwill is attributable to its ADMA BioManufacturing business segment and is related to the 2017 Biotest Transaction. Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, then it must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company performs its annual goodwill impairment test as of October 1 of each year. The Company’s annual goodwill impairment test as of October 1, 2021 did not result in a goodwill impairment charge, and the Company did no t record any impairment charges related to goodwill for the three and nine months ended September 30, 2021 and 2020. Impairment of Long-Lived Assets The Company assesses the recoverability of its long-lived assets, which include property and equipment and finite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the three and nine months ended September 30, 2021 and 2020, the Company determined that there was no impairment of its long-lived assets. Revenue Recognition Revenues for the three and nine months ended September 30, 2021 and 2020 are comprised of (i) revenues from the sale of the Company’s immunoglobulin products, BIVIGAM, ASCENIV and Nabi-HB, (ii) product revenues from the sale of human plasma collected through the Company’s Plasma Collection Centers business segment, (iii) contract manufacturing and laboratory services revenue, (iv) revenues from the sale of intermediate by-products; and (v) license and other revenues primarily attributable to the out-licensing of ASCENIV to Biotest in 2012 to market and sell this product in Europe and selected countries in North Africa and the Middle East. Biotest has provided the Company with certain services and financial payments in accordance with the related Biotest license agreement and is obligated to pay the Company certain amounts in the future if certain milestones are achieved. Deferred revenue is amortized into income over the term of the Biotest license, representing a period of approximately 22 years. Product revenue is recognized when the customer is deemed to have control over the product. Control is determined based on when the product is shipped or delivered and title passes to the customer. Revenue is recorded in an amount that reflects the consideration the Company expects to receive in exchange. Revenue from the sale of the Company’s immunoglobulin products is recognized when the product reaches the customer’s destination, and is recorded net of estimated rebates, price protection arrangements and customer incentives, including prompt pay discounts, wholesaler chargebacks and other wholesaler fees. These estimates are based on historical experience and certain other assumptions, and the Company believes that such estimates are reasonable. For revenues associated with contract manufacturing and the sale of intermediates, control transfers to the customer and the performance obligation is satisfied when the customer takes possession of the product from the Boca Facility or from a third-party warehouse that is utilized by the Company. 8 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Product revenues from the sale of human plasma collected at the Company’s plasma collection centers are recognized at the time control of the product has been transferred to the customer, which generally occurs at the time of shipment. Product revenues are recognized at the time of delivery if the Company retains control of the product during shipment. For the nine months ended September 30, 2021, four customers represented an aggregate of 74 % of the Company’s consolidated revenues. For the nine months ended September 30, 2020, three customers represented an aggregate of 82 % of the Company’s consolidated revenues. Cost of Product Revenue Cost of product revenue includes costs associated with the manufacture of the Company’s FDA approved products, intermediates and the sale of human source plasma, as well as expenses related to conformance batch production, process development and scientific and technical operations when these operations are attributable to marketed products. When the activities of these operations are attributable to new products in development, the expenses are classified as research and development expenses. Loss Per Common Share Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share is calculated by dividing net loss attributable to common stockholders, as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common stock includes the shares of common stock issuable upon the exercise of outstanding stock options and warrants, using the treasury stock method. Potentially dilutive common stock is excluded from the diluted loss per common share computation to the extent that it would be anti-dilutive. As a result, no potentially dilutive securities are included in the computation of any of the accompanying diluted loss per share amounts in the accompanying condensed consolidated financial statements as the Company reported a net loss for all periods presented. For the nine months ended September 30, 2021 and 2020, the following securities were excluded from the calculation of diluted loss per common share because of their anti-dilutive effects: For the Nine Months Ended September 30, 2021 2020 Stock options 7,831,622 6,938,351 Restricted stock units 4,469,133 331,000 Warrants 4,528,160 2,138,160 16,828,915 9,407,511 Stock-Based Compensation The Company follows recognized accounting guidance which requires all equity-based payments, including grants of stock options, to be recognized in the statement of operations as compensation expense based on their fair values at the date of grant. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis over the associated vesting period of the award based on the grant date fair value of the award. Stock options granted under the Company’s equity incentive plans generally have a four-year vesting period and a term of 10 years. Pursuant to ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718) , the Company has elected not to establish a forfeiture rate, as stock-based compensation expense related to forfeitures of unvested stock options is fully reversed at the time of forfeiture. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or its tax returns. Under this method, deferred tax assets and liabilities are recognized for the temporary differences between the tax bases of assets and liabilities and their respective financial reporting amounts at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company records a valuation allowance on its deferred tax assets if it is more likely than not that the Company will not generate sufficient taxable income to utilize its deferred tax assets. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2016 and for previous periods as it relates to the Company’s net operating loss carryforwards. 9 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2021 and December 31, 2020, and during the three and nine months ended September 30, 2021 and 2020, the Company recognized no adjustments for uncertain tax positions. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires financial assets to be presented at the net amount expected to be collected, with an allowance for credit losses to be deducted from the amortized cost basis of the financial asset such that the net carrying value of the asset is presented as the amount expected to be collected. Under ASU 2016-13, the entity’s statement of operations is required to reflect the measurement of credit losses for newly recognized financial assets, as well as expected increases or decreases in expected credit losses that have taken place during the period. For public business entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-13 on January 1, 2020, and the adoption of this update did not have a significant impact on the Company’s consolidated financial statements. 3. INVENTORIES The following table provides the components of inventories: September 30, 2021 December 31, 2020 Raw materials $ 37,926,168 $ 32,044,393 Work-in-process 57,264,112 30,293,288 Finished goods 18,932,593 19,197,918 Total inventories $ 114,122,873 $ 81,535,599 Raw materials includes plasma and other materials expected to be used in the production of BIVIGAM, ASCENIV and Nabi-HB. These materials will be consumed in the production of goods expected to be available for sale or otherwise have alternative uses that provide a probable future benefit. All other activities and materials associated with the production of inventories used in research and development activities are expensed as incurred. Work-in-process inventory primarily consists of bulk drug substance and unlabeled filled vials of the Company’s immunoglobulin products. Finished goods inventory is comprised of immunoglobulin product inventory and related intermediates that are available for commercial sale, as well as plasma collected at the Company’s plasma collection centers which is expected to be sold to third-party customers. 10 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. INTANGIBLE ASSETS Intangible assets at September 30, 2021 and December 31, 2020 consist of the following: September 30, 2021 December 31, 2020 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Trademark and other intangible rights related to Nabi-HB $ 4,100,046 $ 2,538,123 $ 1,561,923 $ 4,100,046 $ 2,098,833 $ 2,001,213 Rights to intermediates 907,421 561,737 345,684 907,421 464,513 442,908 Customer contract 1,076,557 1,076,557 - 1,076,557 1,076,557 - $ 6,084,024 $ 4,176,417 $ 1,907,607 $ 6,084,024 $ 3,639,903 $ 2,444,121 All of the Company’s intangible assets were acquired in the Biotest Transaction. Amortization expense related to these intangible assets was $ 0.2 million for the three months ended September 30, 2021 and 2020, and $ 0.5 million for the nine months ended September 30, 2021 and 2020. Estimated aggregate future aggregate amortization expense is expected to be as follows: Remainder of 2021 $ 178,838 2022 715,352 2023 715,352 2024 298,065 5. PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation are summarized as follows: September 30, 2021 December 31, 2020 Manufacturing and laboratory equipment $ 15,803,495 $ 14,468,874 Office equipment and computer software 4,082,010 3,253,528 Furniture and fixtures 2,952,378 2,039,398 Construction in process 5,332,751 3,336,557 Leasehold improvements 9,116,854 5,272,490 Land 4,339,441 4,339,441 Buildings and building improvements 18,962,987 17,746,744 60,589,916 50,457,032 Less: Accumulated depreciation ( 12,196,193 ) ( 8,863,942 ) Total property and equipment, net $ 48,393,723 $ 41,593,090 Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life. Land is not depreciated. The buildings were assigned a useful life of 30 years. Property and equipment other than land and buildings have useful lives ranging from three to 10 years. Leasehold improvements are amortized over the lesser of the lease term or their estimated useful lives. The Company recorded depreciation expense on property and equipment for the three and nine months ended September 30, 2021 of $ 1.2 million and $ 3.4 million, respectively. Depreciation expense for the three and nine months ended September 30, 2020 was $ 0.9 million and $ 2.2 million, respectively. 11 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities at September 30, 2021 and December 31, 2020 are as follows: September 30, 2021 December 31, 2020 Accrued rebates $ 4,507,995 $ 2,604,245 Accrued distribution fees 1,981,281 828,120 Accrued payroll 1,763,546 734,972 Accrued testing 1,259,871 779,660 Accrued incentives 2,391,630 3,210,884 Accrued severance 624,522 - Other 1,881,484 207,262 Total accrued expenses and other current liabilities $ 14,410,329 $ 8,365,143 7. DEBT A summary of outstanding senior notes payable is as follows: September 30, 2021 December 31, 2020 Notes payable $ 100,000,000 $ 100,000,000 Less: Debt discount ( 5,636,992 ) ( 7,031,134 ) Senior notes payable $ 94,363,008 $ 92,968,866 Under the Credit Agreement and Guaranty, as amended from time to time, (the “Perceptive Credit Agreement”) with Perceptive Credit Holdings II, LP, as the lender and administrative agent (“Perceptive”), the Company has a principal balance outstanding to Perceptive in the form of senior secured notes payable to Perceptive aggregating to $ 100.0 million with a maturity date of March 1, 2024 (the “Maturity Date”), subject to acceleration pursuant to the Perceptive Credit Agreement, including upon an Event of Default (as defined in the Perceptive Credit Agreement). On the Maturity Date, the Company will pay Perceptive the entire outstanding principal amount and any accrued and unpaid interest thereon. Prior to the Maturity Date, there are no scheduled principal payments due under the Perceptive Credit Agreement. Borrowings under the Perceptive Credit Agreement bear interest at a rate per annum equal to 7.5 % plus the greater of (i) one-month LIBOR and (ii) 3.5 %; provided, however, that upon, and during the continuance of, an Event of Default, the interest rate will automatically increase by an additional 400 basis points. Accrued interest is payable to Perceptive on the last day of each month during the term of the Perceptive Credit Facility. The rate of interest in effect as of September 30, 2021 was 11.0 %, and the Company paid interest to Perceptive during the nine months ended September 30, 2021 and 2020 in the amount of $ 8.3 million and $ 6.8 million, respectively. All of the Company’s obligations under the Perceptive Credit Agreement are secured by a first-priority lien and security interest in substantially all of the Company’s tangible and intangible assets, including intellectual property and all of the equity interests in the Company’s subsidiaries. The Perceptive Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants restrict or limit the ability of the Company and its subsidiaries to, among other things and subject to certain exceptions contained in the Perceptive Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to the Company’s or its subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Perceptive Credit Agreement); change its fiscal year; pay dividends; repay other certain indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting the Company’s ability to make loan repayments under the Perceptive Credit Agreement. In addition, the Company must (i) at all times prior to the Maturity Date maintain a minimum cash balance of $ 3.0 million; and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ended June 30, 2019, report revenues for the trailing 12-month period that exceed the amounts set forth in the Perceptive Credit Agreement, which range from $ 7.0 million for the fiscal quarter ended June 30, 2019 to $ 55.0 million for the fiscal quarter ending December 31, 2021. At September 30, 2021, the Company was in compliance with all of the covenants contained in the Perceptive Credit Agreement. 12 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As a result of the fees paid to Perceptive and the value of the warrants issued to Perceptive under the terms of the Perceptive Credit Agreement, the Company recognized an aggregate discount on the senior secured notes in the amount of $ 7.1 million. The Company records debt discount as a reduction to the face amount of the debt, and the debt discount is amortized as interest expense over the life of the debt using the interest method. Based on the fair value of the Perceptive Warrants and the aggregate amount of fees and expenses associated with obtaining the Perceptive Credit Facility, the effective interest rate on senior secured notes payable to Perceptive as of September 30, 2021 was approximately 13.7 %. 8. STOCKHOLDERS’ EQUITY Preferred Stock The Company is currently authorized to issue up to 10 million shares of preferred stock, $ 0.0001 , par value per share. There were no shares of preferred stock outstanding at September 30, 2021 and December 31, 2020. Common Stock As of September 30, 2021 and December 31, 2020, the Company was authorized to issue 300,000,000 and 150,000,000 shares, respectively, of its common stock, $ 0.0001 par value per share, and 138,313,817 and 104,902,888 shares of common stock were outstanding as of September 30, 2021 and December 31, 2020, respectively. On May 27, 2021, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation which increased the number of shares of common stock that the Company is authorized to issue from 150,000,000 to 300,000,000 . After giving effect to the 16,828,915 shares reserved for outstanding warrants and awards issued or reserved for future issuance under the Company’s equity incentive plans, as of September 30, 2021 there were 144,641,489 shares of common stock available for issuance. On August 5, 2020, the Company entered into an open market sale agreement (as amended from time to time, the “Sale Agreement”) with Jefferies LLC (“Jefferies”), pursuant to which the Company could offer and sell, from time to time, at its option, through or to Jefferies, up to an aggregate of $ 50 million of shares of the Company’s common stock. On November 5, 2020 and February 3, 2021, the Company and Jefferies amended the Sale Agreement to provide for increases in the aggregate offering amount under the Sale Agreement such that the Company could sell shares having an aggregate offering price of up to $ 105.4 million under the Sale Agreement, as amended. During the nine months ended September 30, 2021, the Company issued and sold 27,805,198 shares of common stock under the 2020 Sale Agreement and received net proceeds of $ 60.4 million. The Sale Agreement was terminated on August 31, 2021. On September 3, 2021, the Company entered into a distribution agreement with Raymond James & Associates, Inc., as agent (“Agent”), pursuant to which the Company may offer and sell, from time to time, at its option, through or to the Agent, up to an aggregate o f $ 50 million of shares of the Company’s common stock (the “Distribution Agreement”). The Company currently intends to use any net proceeds from the sale of its common stock under the Distribution Agreement for general corporate purposes, including procurement of raw materials, source plasma, supply chain initiatives and production expenditures, funding expansion of plasma centers, working capital, capital expenditures, expansion and resources for commercialization activities, and other potential research and development and business opportunities. During the nine months ended September 30, 2021, the Company issued 5,540,831 shares of its common stock under the Distribution Agreement and received net proceeds of $ 6.9 million. On February 11, 2020, the Company completed an underwritten public offering of 23,500,000 shares of its common stock for gross proceeds of $ 82.3 million. On February 21, 2020, the Company sold an additional 3,525,000 shares pursuant to the underwriters’ exercise of their option to purchase additional shares of the Company’s common stock for additional gross proceeds of $ 12.3 million. The Company received net proceeds, after underwriting discounts and other expenses associated with the offering, of approximately $ 88.7 million. Warrants At September 30, 2021 and December 31, 2020, the Company had outstanding warrants to purchase an aggregate of 4,528,160 shares of common stock, with a weighted average exercise price of $ 2.82 per share and expiration dates ranging between June 2022 and December 2030. 13 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Equity Incentive Plans The fair value of stock options granted under the Company’s 2007 Employee Stock Option Plan (the “2007 Plan”) and the ADMA Biologics, Inc. 2014 Omnibus Incentive Compensation Plan, as amended and restated (the “2014 Plan”), was determined on the date of grant using the Black-Scholes option valuation model. The Black-Scholes model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of certain subjective assumptions including the expected stock price volatility. The stock options granted to employees and directors have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. The following assumptions were used to determine the fair value of options granted during the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Expected term 5.5 - 6.3 years 5.5 - 6.3 years Volatility 69 % 62 - 69 % Dividend yield 0.0 0.0 Risk-free interest rate 0.80 - 1.14 % 0.33 - 1.68 % During the nine months ended September 30, 2021 and 2020, the Company granted options to purchase an aggregate of 1,757,050 and 1,398,412 shares of common stock, respectively, to its directors, employees and certain third-party service providers. The weighted average remaining contractual life of stock options outstanding and expected to vest at September 30, 2021 is 6.3 years. The weighted average remaining contractual life of stock options exercisable at September 30, 2021 is 5.1 years. A summary of the Company’s option activity under the 2007 Plan and 2014 Plan and related information is as follows: Shares Weighted Average Exercise Price Options outstanding, vested and expected to vest at December 31, 2020 6,922,931 $ 4.40 Forfeited ( 433,492 ) $ 2.96 Expired ( 414,867 ) $ 4.96 Granted 1,757,050 $ 2.22 Exercised - $ - Options outstanding, vested and expected to vest at September 30, 2021 7,831,622 $ 3.96 Options exercisable 5,261,720 $ 4.62 As of September 30, 2021, the Company had $ 3.7 million of unrecognized compensation expense related to options granted under the Company’s equity incentive plans, which is expected to be recognized over a weighted-average period of 2.5 years. During the nine months ended September 30, 2021 and 2020, the Company granted Restricted Stock Units (“RSUs”) representing an aggregate of 4,332,244 and 361,000 shares, respectively, to certain management employees of the Company and to members of its Board of Directors . Except for the RSUs granted under the Company’s retention incentive program discussed below, the RSUs generally vest annually over a period of four years for employees and semi-annually over a period of one year for directors. On September 28, 2021, the Company implemented a retention incentive program for the Company’s executive management and certain employees (see Note 10), whereby the Company issued an aggregate of 3,780,000 RSUs, of which 2,632,500 are time-based RSUs and 1,147,500 are milestone-based RSUs. Fifty percent of the time-based RSUs granted under the retention bonus program will vest on December 31, 2022, with the remainder vesting in quarterly installments through December 31, 2024. The milestone-based RSUs will vest upon achievement of the applicable milestone, with each milestone required to be achieved on or prior to December 31, 2022. The Company will periodically assess the probability of vesting for each milestone-based RSU and will adjust compensation expense based on its probability assessment. During the nine months ended September 30, 2021, 92,750 shares vested in connection with grants of RSUs. With respect to these vested RSUs, 27,850 shares valued at approximately $ 62,000 were withheld by the Company to cover employees’ tax liabilities. These shares have been retired by the Company and were no longer outstanding as of September 30, 2021. A summary of the Company’s unvested RSU activity and related information is as follows: 14 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Shares Weighted Average Grant Date Fair Value Balance at December 31, 2020 326,000 $ 2.81 Granted 4,332,244 $ 1.30 Vested ( 92,750 ) $ 2.82 Forfeited ( 96,361 ) $ 2.53 Balance at September 30, 2021 4,469,133 $ 1.35 As of September 30, 2021, the Company had $ 5.8 million of unrecognized compensation expense related to unvested RSUs granted under the Company’s equity incentive plans, which is expected to be recognized over a weighted-average period of 2.8 years. Total stock-based compensation expense for all awards granted under the Company’s equity incentive plans for the three months and nine months ended September 30, 2021 and 2020 is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Research and development $ 1,526 $ 166,610 $ 149,232 $ 365,213 Plasma center operating expenses 14,150 8,579 38,605 24,333 Selling, general and administrative 596,084 535,949 1,850,411 1,599,094 Cost of product revenue 76,514 63,646 236,612 178,300 Total stock-based compensation expense $ 688,274 $ 774,784 $ 2,274,860 $ 2,166,940 9. RELATED PARTY TRANSACTIONS The Company leases an office building and equipment from Areth, LLC (“Areth”) pursuant to an agreement for services effective as of January 1, 2016, as amended from time to time. Rent expense for the nine months ended September 30, 2021 and 2020 amounted to $ 90,000 . Areth is a company controlled by Dr. Jerrold B. Grossman, the Vice Chairman of the Company’s Board of Directors, and Adam S. Grossman, the Company’s President and Chief Executive Officer. The Company also reimburses Areth for office and building-related (common area) expenses, equipment and certain other operational expenses, which were not material to the consolidated financial statements for the nine months ended September 30, 2021 and 2020. In addition, during the nine months ended September 30, 2021 and 2020, the Company purchased certain specialized medical equipment and services related to the Company’s plasma collection centers, as well as personal protective equipment, from GenesisBPS and its affiliates (“Genesis”), in the amount of $ 0.1 million. Dr. Grossman and Adam Grossman each own shares of Genesis. See Note 7 for a discussion of the Company’s credit facility and related transactions with Perceptive, a holder of approximately 9.6 % of the Company’s common stock. During the nine months ended September 30, 2021, in connection with the resignation of Dr. James Mond, the Company’s former Chief Scientific and Medical Officer, the Company recognized an expense and corresponding liability in the amount of $ 0.8 million for estimated payments to be made under a separation and transition agreement with Dr. Mond. Such payments are to be made in scheduled installments over a period of 10 months. In connection with the February 2020 public offering of the Company’s common stock (see Note 8) on February 11, 2020: (i) Perceptive Advisors, a principal stockholder of ADMA, purchased 4,563,700 shares of common stock through one of its affiliates, (ii) Dr. Grossman purchased 22,857 shares of common stock directly and 22,857 shares indirectly through an entity he controls, (iii) Lawrence P. Guiheen, a director of the Company, purchased 20,000 shares of common stock, (iv) Mr. Grossman purchased 28,571 shares of common stock directly and 57,143 shares indirectly through an entity he controls, (v) Brian Lenz, the Company’s Executive Vice President and Chief Financial Officer, purchased 7,142 shares of common stock, and (vi) Dr. Mond purchased 4,285 shares of common stock, all at the public offering price of $ 3.50 per share. 15 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 10. COMMITMENTS AND CONTINGENCIES General Legal Matters From time to time, the Company is or may become subject to certain legal proceedings and claims arising in connection with the normal course of its business. Management does not expect that the outcome of any such claims or actions will have a material effect on the Company’s liquidity, results of operations or financial condition. COVID-19 Pandemic The Company continues to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta variant and other resistant strains of the coronavirus, and its impacts to the Company’s commercial and manufacturing operations and plasma collection facilities, including collections of source plasma, procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. A substantial portion of such testing has historically been performed by contract laboratories outside the United States. Due to a combination of previous state and local “shelter-in-place” orders, as well as government stimulus packages, persisting social distancing measures and varying roll-outs of vaccinations by state, the Company has experienced lower than normal donor collections at its FDA approved plasma collection centers. The Company was also subject to delays in shipments of source plasma from its contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of its products. The Company is also subject to supply chain delays as a result of certain of its suppliers diverting significant resources towards the rapid development and distribution of COVID-19 vaccines and, as a result, the Company may elect to carry more raw materials inventory than it has in the past. The COVID-19 pandemic has also impacted, to a certain degree, the Company’s customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel have faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting the Company’s ability to communicate with potential customers. The Company has implemented a comprehensive suite of virtual engagement initiatives, however, clinician engagement has been reduced due to rapidly evolving COVID-19 priorities at U.S. medical centers. The pandemic could also impact the Company’s ability to interact with the FDA or other regulatory authorities and may result in delays in the conduct of inspections or review of pending applications or submissions. Although the Company received several FDA approvals and an FDA inspection of the Boca Facility was completed during the first nine months of 2021, no assurances can be provided as to the timing for completion of any other regulatory submissions or applications that may be impacted by restrictions related to COVID-19. Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on the Company’s financial condition or results of operations, and the Company does not believe that its production operations at the Boca Facility, the Company’s contract fill/finishers or its plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, the Company does not anticipate and has not experienced any material impairments with respect to any of its long-lived assets, including the Company’s property and equipment, goodwill or intangible assets. 16 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Although the COVID-19 pandemic has not, to date, materially adversely impacted the Company’s capital and financial resources, because the Company is unable to determine the ultimate severity or duration of the pandemic or its long-term effects on, among other things, the global, national or local economies, the capital and credit markets or the Company’s workforce, customers or our suppliers, at this time the Company is unable to predict whether COVID-19 will have a material adverse impact on the Company’s business, financial condition, liquidity and results of operations. Vendor Commitments Pursuant to the terms of a plasma purchase agreement with BPC dated as of November 17, 2011 (the “2011 Plasma Purchase Agreement”), the Company agreed to purchase from BPC an annual minimum volume of source plasma containing antibodies to RSV to be used in the manufacture of ASCENIV. The Company must purchase a to-be-determined and agreed upon annual minimum volume from BPC, but may also collect high-titer RSV plasma from up to five wholly-owned ADMA plasma collection facilities. During 2015, the Company and BPC amended the 2011 Plasma Purchase Agreement to allow the Company the ability to collect its raw material RSV high-titer plasma from other third-party collection organizations, thus allowing the Company to expand its reach for raw material supply as it executes its commercialization plans for ASCENIV. As part of the closing of the Biotest Transaction, the parties amended the 2011 Plasma Purchase Agreement to extend the initial term through the ten-year anniversary of the closing date of the Biotest Transaction. Unless terminated earlier, the 2011 Plasma Purchase Agreement expires in June 2027, after which it may be renewed for two additional five-year periods if agreed to by the parties. On December 10, 2018, BPC assigned its rights and obligations under the 2011 Plasma Purchase Agreement to Grifols Worldwide Operations Limited (“Grifols”) as its successor-in-interest, effective January 1, 2019. On January 1, 2019, Grifols and the Company entered into an additional amendment to the 2011 Plasma Purchase Agreement for the purchase of source plasma containing antibodies to RSV from Grifols. Pursuant to this amendment, until January 1, 2022, the Company may purchase RSV plasma from Grifols from the two plasma collection centers that were transferred to BPC on January 1, 2019 at a price equal to cost plus five percent ( 5 %) (without any additional increase due to inflation). On June 6, 2017, the Company and BPC entered into a Plasma Supply Agreement pursuant to which BPC supplies, on an exclusive basis subject to certain exceptions, to ADMA BioManufacturing an annual minimum volume of hyperimmune plasma that contain antibodies to the Hepatitis B virus for the manufacture of Nabi-HB. The Plasma Supply Agreement has a 10 -year term. On July 19, 2018, the Company and BPC entered into an amendment to the Plasma Supply Agreement to provide, among other things, that in the event BPC elects not to supply in excess of ADMA BioManufacturing’s specified amount of Hepatitis B plasma and ADMA BioManufacturing is unable to secure Hepatitis B plasma from a third party at a price that is within a low double- digit percentage of the price that ADMA BioManufacturing pays to BPC, then BPC shall reimburse ADMA BioManufacturing for the difference in price ADMA BioManufacturing incurs. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Supply Agreement to Grifols, effective January 1, 2019. On June 6, 2017, the Company and BPC entered into a Plasma Purchase Agreement (the “2017 Plasma Purchase Agreement”), pursuant to which ADMA BioManufacturing purchases normal source plasma (“NSP”) from BPC at agreed upon annual quantities and prices. The 2017 Plasma Purchase Agreement has an initial term of five years after which the 2017 Plasma Purchase Agreement may be renewed for additional two terms of two years each upon the mutual written consent of the parties. On July 19, 2018, the Company and BPC entered into an amendment to the 2017 Plasma Purchase Agreement to, among other things, provide agreed upon amounts of normal source plasma to be supplied by BPC to ADMA BioManufacturing in calendar year 2019 at a specified price per liter, provided that ADMA BioManufacturing delivers a valid purchase order to BPC. Additionally, pursuant to the amendment to the 2017 Plasma Purchase Agreement, BPC agreed that, for calendar years 2020 and 2021, it shall supply no less than a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, provided that such requested NSP amounts are within an agreed range, at a price per liter to be mutually determined. Furthermore, pursuant to the amendment to the 2017 Plasma Purchase Agreement, in the event BPC fails to supply ADMA BioManufacturing with at least a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, BPC shall promptly reimburse ADMA BioManufacturing the difference in price ADMA BioManufacturing incurs due to BPC’s election not to supply NSP to ADMA BioManufacturing in such amounts as requested. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Purchase Agreement to Grifols, effective January 1, 2019. 17 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Effective as of May 12, 2021, the Company and Grifols amended the foregoing 2017 Plasma Purchase Agreement whereby, among other things, the term of the agreement was extended through December 31, 2022, while certain historical provisions were deleted. In order to maintain a reliable supply of raw material plasma thereafter, the Company has executed additional agreements with multiple third-party suppliers of NSP to supplement the 2017 Plasma Purchase Agreement, and the Company has also increased its number of planned plasma collection center buildouts and is continuing to increase its plasma collection capabilities at its ADMA BioCenters plasma collection centers business segment. The Company purchases substantially all of its raw material plasma from Grifols. For the nine months ended September 30, 2021, plasma purchases from Grifols totaled $ 31.2 million, or approximately 69 % of the Company’s total inventory purchases. For the nine months ended September 30, 2020, plasma purchases from Grifols totaled approximately $ 13.8 million, representing approximately 66 % of the Company’s total inventory purchases. Post-Marketing Commitments In connection with the approval of the BLA for BIVIGAM, on December 19, 2012 Biotest committed to perform two additional post-marketing studies, a pediatric study to evaluate the efficacy and safety of BIVIGAM in children and adolescents, and a post-authorization safety study to further assess the potential risk of hypotension and hepatic and renal impairment in BIVIGAM-treated patients with primary humoral immunodeficiency. These studies are still pending completion. ADMA has assumed the remaining obligations, and the costs of the studies will be expensed as incurred as research and development expenses. The Company currently expects both studies to be completed by June of 2023. In connection with the FDA’s approval of ASCENIV on April 1, 2019, the Company is required to perform a pediatric study to evaluate the safety and efficacy of ASCENIV in children and adolescents. This study is required to be completed by June of 2023. Employment Contracts The Company has entered into employment agreements with its executive management team consisting of its President and Chief Executive Officer, its Executive Vice President and Chief Financial Officer and its former Executive Vice President, Chief Medical Officer and Chief Scientific Officer (see Note 9). Other Commitments On September 28, 2021, following the approval of the Company’s Board of Directors upon recommendation of the Compensation Committee of the Board of Directors, and in consultation with an independent compensation consultant, the Company implemented a retention incentive program, consisting of cash payments and awards of RSUs (see Note 8), to the Company’s management, including Mr. Grossman and Mr. Lenz, and to certain other employees. The purpose of the retention program is to promote and ensure business continuity and provide an incentive to the Company’s executive management and certain other employees considering the operational challenges presented by the ongoing COVID -19 pandemic and the competitive work environment in which the Company operates as an FDA regulated manufacturer of specialized biologic therapies. The retention awards were granted considering the nationwide labor shortages and the increased employee turnover rates that the Company, its pharmaceutical peers and other companies outside of the Company’s industry have reported experiencing. The cash portion of the retention program consists of two tranches. The first tranche was paid to employees on September 30, 2021 in the amount of $ 1.3 million, and the second tranche aggregating to approximately $ 1.3 million will be paid on June 15, 2022. Based on the terms of the retention agreements the Company entered into with each applicable executive and employee, $ 0.8 million of the first tranche is being recognized over the retention service period, which ends on December 31, 2022, with the remainder having been recognized as expense on September 30, 2021. The second tranche will be recognized as compensation expense over a 15-month period from October 1, 2021 through December 31, 2022. In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of September 30, 2021. The Company does not anticipate recognizing any significant losses relating to these arrangements. 11. SEGMENTS The Company is engaged in the manufacture, marketing and development of specialty plasma-derived biologics. The Company’s ADMA BioManufacturing segment reflects the Company’s immunoglobulin manufacturing, commercial and development operations in Boca Raton, FL, acquired on June 6, 2017 (see Note 1). The Plasma Collection Centers segment as of September 30, 2021 consists of nine plasma collection facilities in various stages of approval and development located throughout the U.S., three of which hold an approved license with the FDA . The Corporate segment includes general and administrative overhead expenses. The Company defines its segments as those business units whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to analyze performance and allocate resources. The Company’s CODM is its President and Chief Executive Officer. Summarized financial information concerning reportable segments is shown in the following tables: 18 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended September 30, 2021 ADMA BioManufacturing Plasma Collection Centers Corporate Consolidated Revenues $ 19,063,077 $ 1,581,765 $ 35,708 $ 20,680,550 Cost of product revenue 18,695,783 1,599,430 - 20,295,213 Loss from operations ( 7,456,129 ) ( 3,163,886 ) ( 3,817,061 ) ( 14,437,076 ) Interest and other income (expense), net 22,822 ( 1,597 ) ( 3,297,103 ) ( 3,275,878 ) Net loss ( 7,433,307 ) ( 3,165,483 ) ( 7,114,164 ) ( 17,712,954 ) Depreciation and amortization expense 1,064,757 356,233 1,174 1,422,164 Total assets 189,019,883 22,273,264 27,347,259 238,640,406 Three Months Ended September 30, 2020 ADMA BioManufacturing Plasma Collection Centers Corporate Consolidated Revenues $ 9,026,323 $ 1,214,327 $ 35,708 $ 10,276,358 Cost of product revenue 10,625,837 1,229,627 - 11,855,464 Loss from operations ( 9,277,702 ) ( 1,320,461 ) ( 3,202,814 ) ( 13,800,977 ) Interest and other expense, net ( 268,023 ) ( 411 ) ( 2,848,042 ) ( 3,116,476 ) Net loss ( 9,545,725 ) ( 1,320,872 ) ( 6,050,856 ) ( 16,917,453 ) Depreciation and amortization expense 863,366 169,691 2,236 1,035,293 Total assets 125,004,813 9,358,823 55,612,407 189,976,043 19 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 2021 ADMA BioManufacturing Plasma Collection Centers Corporate Consolidated Revenues $ 48,832,000 $ 5,620,633 $ 107,125 $ 54,559,758 Cost of product revenue 51,527,832 5,370,127 - 56,897,959 Loss from operations ( 25,299,223 ) ( 7,928,946 ) ( 11,954,388 ) ( 45,182,557 ) Interest and other expense, net ( 77,484 ) ( 2,349 ) ( 9,735,808 ) ( 9,815,641 ) Net loss ( 25,376,707 ) ( 7,931,295 ) ( 21,690,196 ) ( 54,998,198 ) Capital expenditures 3,805,472 6,029,932 - 9,835,404 Depreciation and amortization expense 3,130,064 843,151 4,571 3,977,786 Nine Months Ended September 30, 2020 ADMA BioManufacturing Plasma Collection Centers Corporate Consolidated Revenues $ 23,272,463 $ 4,884,108 $ 107,125 $ 28,263,696 Cost of product revenue 37,314,930 4,865,389 - 42,180,319 Loss from operations ( 34,606,679 ) ( 2,696,927 ) ( 10,390,982 ) ( 47,694,588 ) Interest and other expense, net ( 742,336 ) ( 444 ) ( 7,903,406 ) ( 8,646,186 ) Net loss ( 35,349,015 ) ( 2,697,371 ) ( 18,294,388 ) ( 56,340,774 ) Capital expenditures 6,619,399 2,508,960 - 9,128,359 Depreciation and amortization expense 2,310,580 392,086 7,117 2,709,783 Net revenues according to geographic area, based on the location of where the product is shipped, is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 United States $ 18,265,945 $ 8,809,667 $ 47,368,793 $ 24,263,110 International 2,414,605 1,466,691 7,190,965 4,000,586 Total revenues $ 20,680,550 $ 10,276,358 $ 54,559,758 $ 28,263,696 20 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 12. LEASE OBLIGATIONS The Company leases certain properties and equipment for its ADMA BioCenters subsidiary and certain equipment for its ADMA BioManufacturing subsidiary, which leases provide the right to use the underlying assets and require lease payments through the respective lease terms which expire at various dates through 2032. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. Right-to-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of the lease payments is determined using the Company’s incremental borrowing rate of 13 %. The Company’s lease expense is recognized on a straight-line basis over the lease term and is reflected in Plasma center operating expenses and Selling, general and administrative expenses. Aggregate lease expense for the Company’s leases for the three months ended September 30, 2021 and 2020 was approximately $ 0.4 million and $ 0.2 million, respectively. Aggregate lease expense for the nine months ended September 30, 2021 and 2020 was approximately $ 1.0 million and $ 0.4 million, respectively. Cash paid for the Company’s leases for the three months ended September 30, 2021 and 2020 was approximately $ 0.3 million and $ 0.1 million, respectively. Cash paid for the Company’s leases for the nine months ended September 30, 2021 and 2020 was approximately $ 0.7 million and $ 0.3 million, respectively. During the nine months ended September 30, 2021, the Company recognized additional right to use assets and corresponding lease liabilities of $ 2.8 million in connection with three new property leases where the Company has opened or intends to open additional plasma collection facilities. Including a finance lease the Company entered into in June 2018, the Company has aggregate lease liabilities of $ 7.4 million and $ 4.7 million as of September 30, 2021 and December 31, 2020, respectively, which are comprised primarily of the leases for the Company’s plasma collection centers and an administrative office lease related to the Company’s ADMA BioCenters subsidiary. The Company’s operating leases have a weighted average remaining term of 9.1 years. Scheduled payments under the Company’s lease obligations are as follows: Remainder of 2021 $ 312,470 Year ended December 31, 2022 1,512,443 2023 1,526,406 2024 1,399,474 2025 1,405,411 2026 1,137,321 Thereafter 5,486,814 Total payments 12,780,339 Less: imputed interest ( 5,363,350 ) Current portion ( 501,239 ) Balance at September 30, 2021 $ 6,915,750 On June 11, 2021, t he Company entered into an additional property lease that the Company intends to use to store certain inventory for its ADMA BioManufacturing business segment. The Company has not taken possession of this leased property and its lease commencement date has not been determined. With the exception of a security deposit and six months’ rent totaling $ 0.3 million, no payments have been made under this lease. The initial term of the lease is for 90 months with monthly rental payments varying between approximately $ 14,000 and $ 24,000 , including common area maintenance charges. On October 8, 2021, the Company entered into an additional property lease for its eight h plasma collection facility. The Company has not taken possession of this leased property and its lease commencement date has not been determined. With the exception of a security deposit and an initial months’ rent totaling approximately $ 18,000 , no payments have been made under this lease. The initial term of the lease is for 137 months with monthly rental payments varying between approximately $ 9,000 and $ 12,000 , including common area maintenance charges. 21 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Supplemental cash flow information for the nine months ended September 30, 2021 and 2020 is as follows: 2021 2020 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 8,346,968 $ 7,303,753 Non-cash Financing and Investing Activities: Equipment acquired reflected in accounts payable and accrued liabilities $ 1,382,818 $ 1,468,147 Right-to-use assets in exchange for lease obligations $ 2,844,875 $ 1,738,156 14. SUBSEQUENT EVENTS On October 25, 2021, the Company completed an underwritten public offering whereby the Company issued 57.5 million shares of common stock and received gross proceeds of $ 57.5 million. Net proceeds after underwriting discounts and expenses associated with the offering, were approximately $ 53.9 million. The Company intends to use the net proceeds from this offering (i) to advance the commercial sales of its FDA approved products through the procurement of raw materials for the manufacturing of BIVIGAM and ASCENIV; (ii) to expand its plasma collection facility network; (iii) to scale up the manufacturing capacity of the Boca Facility and make continuous improvements in order to adhere to cGMP compliance; (iv) to explore business development opportunities; and (v) for general corporate purposes and other capital expenditures. 22 Index