ADMA BIOLOGICS, INC. 10-Q

Item 1 . Financial Statements. ADMA BIOLOGICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2023 2022 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 74,156,765 $ 86,521,542 Accounts receivable, net 31,318,680 15,505,048 Inventories 163,116,105 163,280,047 Prepaid expenses and other current assets 5,107,455 5,095,146 Total current assets 273,699,005 270,401,783 Property and equipment, net 54,814,607 58,261,481 Intangible assets, net 476,902 1,013,415 Goodwill 3,529,509 3,529,509 Right-to-use assets 9,753,725 10,485,447 Deposits and other assets 6,722,817 4,770,246 TOTAL ASSETS $ 348,996,565 $ 348,461,881 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,851,446 $ 13,229,390 Accrued expenses and other current liabilities 29,863,726 24,989,349 Current portion of deferred revenue 142,834 142,834 Current portion of lease obligations 982,891 905,369 Total current liabilities 41,840,897 39,266,942 Senior notes payable, net of discount 142,025,542 142,833,063 Deferred revenue, net of current portion 1,725,906 1,833,031 End of term fee 1,567,139 1,500,000 Lease obligations, net of current portion 9,965,088 10,704,176 Other non-current liabilities 434,647 350,454 TOTAL LIABILITIES 197,559,219 196,487,666 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY Preferred Stock, $ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding - - Common Stock - voting, $ 0.0001 par value, 300,000,000 shares authorized, 225,958,084 and 221,816,930 shares issued and outstanding 22,596 22,182 Additional paid-in capital 640,025,888 629,968,704 Accumulated deficit ( 488,611,138 ) ( 478,016,671 ) TOTAL STOCKHOLDERS’ EQUITY 151,437,346 151,974,215 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 348,996,565 $ 348,461,881 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, 2023 2022 2023 2022 REVENUES $ 67,274,598 $ 41,090,137 $ 184,311,323 $ 104,098,237 Cost of product revenue 42,622,013 31,433,496 126,455,745 83,010,156 Gross profit 24,652,585 9,656,641 57,855,578 21,088,081 OPERATING EXPENSES: Research and development 595,903 1,041,947 2,854,514 2,539,444 Plasma center operating expenses 466,898 4,859,450 3,580,785 12,755,525 Amortization of intangible assets 178,838 178,838 536,514 536,514 Selling, general and administrative 14,725,787 12,893,139 43,485,001 38,563,136 Total operating expenses 15,967,426 18,973,374 50,456,814 54,394,619 INCOME (LOSS) FROM OPERATIONS 8,685,159 ( 9,316,733 ) 7,398,764 ( 33,306,538 ) OTHER INCOME (EXPENSE): Interest income 423,276 7,236 1,004,551 42,573 Interest expense ( 6,397,553 ) ( 5,580,366 ) ( 18,812,144 ) ( 13,542,419 ) Loss on extinguishment of debt - - - ( 6,669,941 ) Other expense ( 145,827 ) ( 9,641 ) ( 185,638 ) ( 195,942 ) Other expense, net ( 6,120,104 ) ( 5,582,771 ) ( 17,993,231 ) ( 20,365,729 ) NET INCOME (LOSS) $ 2,565,055 $ ( 14,899,504 ) $ ( 10,594,467 ) $ ( 53,672,267 ) BASIC INCOME (LOSS) PER COMMON SHARE $ 0.01 $ ( 0.08 ) $ ( 0.05 ) $ ( 0.27 ) DILUTED INCOME (LOSS) PER COMMON SHARE $ 0.01 $ ( 0.08 ) $ ( 0.05 ) $ ( 0.27 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 225,276,980 196,383,935 223,306,331 196,204,893 Diluted 233,761,262 196,383,935 223,306,331 196,204,893 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, 2023 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2022 221,816,930 $ 22,182 $ 629,968,704 $ ( 478,016,671 ) $ 151,974,215 Stock-based compensation - - 1,110,166 - 1,110,166 Vesting of Restricted Stock Units, net of shares withheld for taxes 443,215 44 ( 640,990 ) - ( 640,946 ) Exercise of stock options 2,443 - - - - Net loss - - - ( 6,788,815 ) ( 6,788,815 ) Balance at March 31, 2023 222,262,588 22,226 630,437,880 ( 484,805,486 ) 145,654,620 Stock-based compensation - - 1,637,038 - 1,637,038 Vesting of Restricted Stock Units, net of shares withheld for taxes 117,484 12 ( 224,978 ) - ( 224,966 ) Warrants issued in connection with note payable - - 5,594,764 - 5,594,764 Cashless exercise of warrants 1,967,847 197 ( 197 ) - - Exercise of stock options 178,829 18 471,528 - 471,546 Net loss - - - ( 6,370,707 ) ( 6,370,707 ) Balance at June 30, 2023 224,526,748 22,453 637,916,035 ( 491,176,193 ) 146,762,295 Vesting of Restricted Stock Units, net of shares withheld for taxes 171,295 17 ( 208,655 ) - ( 208,638 ) Exercise of stock options 1,260,041 126 623,867 - 623,993 Stock-based compensation - - 1,694,641 - 1,694,641 Net income - - - 2,565,055 2,565,055 Balance at September 30, 2023 225,958,084 $ 22,596 $ 640,025,888 $ ( 488,611,138 ) $ 151,437,346 For the Three and Nine Months Ended September 30, 2022 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2021 195,813,817 $ 19,581 $ 553,265,706 $ ( 412,112,721 ) $ 141,172,566 Warrants issued in connection with notes payable - - 9,569,604 - 9,569,604 Stock-based compensation - - 1,641,388 - 1,641,388 Vesting of Restricted Stock Units, net of shares withheld for taxes 533,712 54 ( 442,690 ) - ( 442,636 ) Net loss - - - ( 25,007,857 ) ( 25,007,857 ) Balance at March 31, 2022 196,347,529 19,635 564,034,008 ( 437,120,578 ) 126,933,065 Stock-based compensation - - 1,191,047 - 1,191,047 Vesting of Restricted Stock Units, net of shares withheld for taxes 8,703 1 41,320 - 41,321 Net loss - - - ( 13,764,906 ) ( 13,764,906 ) Balance at June 30, 2022 196,356,232 19,636 565,266,375 ( 450,885,484 ) 114,400,527 Stock-based compensation - - 1,313,494 - 1,313,494 Vesting of Restricted Stock Units, net of shares withheld for taxes 420,639 42 ( 430,023 ) - ( 429,981 ) Net loss - - - ( 14,899,504 ) ( 14,899,504 ) Balance at September 30, 2022 196,776,871 $ 19,678 $ 566,149,846 $ ( 465,784,988 ) $ 100,384,536 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, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 10,594,467 ) $ ( 53,672,267 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,223,050 5,176,492 Loss on disposal of fixed assets 110,947 8,408 Interest paid in kind 2,958,592 2,023,932 Stock-based compensation 4,441,845 4,145,929 Amortization of debt discount 1,895,790 1,908,127 Loss on extinguishment of debt - 6,669,941 Amortization of license revenue ( 107,125 ) ( 107,125 ) Changes in operating assets and liabilities: Accounts receivable ( 15,813,632 ) 7,674,472 Inventories 163,942 ( 38,189,543 ) Prepaid expenses and other current assets ( 12,309 ) ( 1,033,238 ) Deposits and other assets ( 1,220,849 ) 195,756 Accounts payable ( 1,154,769 ) 12,768,396 Accrued expenses 4,874,378 667,193 Other current and non-current liabilities ( 561,345 ) ( 365,415 ) Net cash used in operating activities ( 8,795,952 ) ( 52,128,942 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 3,573,786 ) ( 10,162,650 ) Net cash used in investing activities ( 3,573,786 ) ( 10,162,650 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable - ( 100,000,000 ) Payment of debt refinancing fees - ( 2,000,000 ) Proceeds from issuance of note payable - 151,750,000 Taxes paid on vested Restricted Stock Units ( 1,074,550 ) ( 831,297 ) Payments on finance lease obligations ( 16,028 ) ( 27,281 ) Net proceeds from the exercise of stock options 1,095,539 - Payment of deferred financing fees - ( 2,782,928 ) Net cash provided by financing activities 4,961 46,108,494 Net decrease in cash and cash equivalents ( 12,364,777 ) ( 16,183,098 ) Cash and cash equivalents - beginning of period 86,521,542 51,089,118 Cash and cash equivalents - end of period $ 74,156,765 $ 34,906,020 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 of BTBU, including the U.S. Food and Drug Administration (“FDA”)-licensed BIVIGAM and Nabi-HB immunoglobulin products, and an FDA-licensed plasma fractionation manufacturing facility located in Boca Raton, FL (the “Boca Facility”) (the “Biotest Transaction”). BTBU had previously been the Company’s third-party contract manufacturer. ADMA BioCenters is the Company’s source plasma collection business with ten plasma collection facilities located throughout the U.S., nine of which hold an approved license with 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”) or Inborn Errors of Immunity, 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 as well as sales of normal source and high-titer plasma. 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, 2023, the Company had working capital of $ 231.9 million, including $ 74.2 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 will be sufficient to fund ADMA’s operations, as currently conducted, through the end of fiscal 2024. The Company estimates that it will continue to generate positive cash flow from operations, however these estimates may change based upon several factors, including the success of the Company’s commercial efforts with respect to the sale of its products, whether or not the assumptions underlying the Company’s projected revenues and expenses are correct and the continued acceptability of ADMA’s immune globulin products by physicians, patients or payers. There can be no assurance that the Company’s approved products will continue to be commercially viable, or that plant capacity expansion or other capital improvements will be successfully completed or that any product developed in the future will be approved. The Company is subject to risks common to companies in the biologics, biotechnology and pharmaceutical manufacturing industries including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, inflationary pressures, supply chain constraints, protection of proprietary technology and compliance with FDA and other governmental regulations and approval requirements. ADMA continues to evaluate a variety of strategic alternatives , and the exploration of value-creating opportunities remains a top corporate priority. 5 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (the “FASB”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2023. The accompanying consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements as of and for the year ended December 31, 2022. 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, 2023, its results of operations and changes in stockholders’ equity for the three and nine months ended September 30, 2023 and its cash flows for the nine months ended September 30, 2023 and 2022. During the three and nine months ended September 30, 2023 and 2022, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated statements of operations. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include rebates and chargebacks deducted from gross revenues, the realizable value of accounts receivable, valuation of inventory, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under the Company’s equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for the Company’s deferred tax assets. Fair Value of Financial Instruments The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, are shown at cost which approximates fair value due to the short-term nature of these instruments. The debt outstanding under the Company’s senior secured term loan (see Note 7) approximates fair value due to the variable interest rate on this debt. Accounts Receivable Accounts receivable is reported at realizable value, net of allowances for contractual credits and doubtful accounts in the amount of $ 0.1 million at September 30 , 2023 and December 31, 2022, 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, payment history 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 , 2023, four customers accounted for an aggregate of approximately 95 % of the Company’s total accounts receivable, and at December 31, 2022, two customers accounted for approximately 92 % of the Company’s total accounts receivable. 6 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Inventories Raw materials inventory consists of various materials purchased from suppliers, including normal source plasma and Respiratory Syncytial Virus (“RSV”) high titer 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 Boca Facility overhead allocation to inventory is generally based upon the estimated square footage of the Boca Facility that is used in the production of the Company’s FDA-approved products relative to the total square footage of the facility. Inventories, including plasma intended for resale and plasma intended for internal use in the Company’s manufacturing, commercialization or research and development activities, are carried at the lower of cost or net realizable value determined by the first-in, first-out method. Net realizable value is generally determined based upon the consideration the Company expects to receive when the inventory is sold, less costs to deliver the inventory to the recipient. The estimates for net realizable value of inventory are based on contractual terms or upon historical experience and certain other assumptions, and the Company believes that such assumptions are reasonable. Inventory is periodically reviewed to ensure that its carrying value does not exceed its net realizable value, and adjustments are recorded to write down such inventory, with a corresponding charge to cost of product revenue, when the carrying value or historical cost exceeds its estimated net realizable value. In addition, costs associated with the production of conformance or engineering lots that would not qualify as immediately available for commercial sale are charged to cost of product revenue and not capitalized into inventory. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill at September 30 , 2023 and December 31, 2022 was $ 3.5 million. All of the Company’s goodwill is attributable to its ADMA BioManufacturing business segment and is related to the Biotest Transaction. Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, then it must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company performs its annual goodwill impairment test as of October 1 of each year. The Company’s annual goodwill impairment test as of October 1, 2023 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 , 2023 and 2022. 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 , 2023 and 2022, the Company did not identify any impairment indicators for its long-lived assets, and as a result no impairment charges were recorded. 7 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Revenue Recognition Revenues for the three and nine months ended September 30 , 2023 and 2022 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, customer incentives, including prompt pay discounts, wholesaler chargebacks and other wholesaler fees. These estimates are based on historical experience and certain other assumptions, and while the Company believes that such estimates are reasonable, they are subject to change based on future experience and other factors. For revenues associated with contract manufacturing and the sale of intermediates, control transfers to the customer and the performance obligation is satisfied when the customer takes possession of the product from the Boca Facility or from a third-party warehouse that is utilized by the Company. Product revenues from the sale of human plasma collected at the Company’s plasma collection centers are recognized at the time control of the product has been transferred to the customer, which generally occurs at the time of shipment. Product revenues are recognized at the time of delivery if the Company retains control of the product during shipment. For the nine months ended September 30 , 2023 , two customers represented an aggregate of approximately 71 % of the Company’s consolidated revenues. For the nine months ended September 30 , 2022, two customers represented an aggregate of 72 % 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 or processes in development, the expenses are classified as research and development expenses. Earnings/loss Per Common Share Basic earnings/loss per common share is computed by dividing net earnings/ loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings/ loss per common share is calculated by dividing net earnings/ 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, as well as Restricted Stock Units (“RSUs”) , using the treasury stock method. Potentially dilutive common stock is excluded from the diluted earnings/ loss per common share computation to the extent that it would be anti-dilutive. For the three months ended September 30, 2023, basic and diluted earnings per share is calculated as follows: Net income available to common stockholders (numerator) $ 2,565,055 Weighted-average number of common shares (denominator) 225,276,980 Basic earnings per common shares $ 0.01 Weighted-average number of common shares 225,276,980 Potential shares of common stock arising from outstanding stock options, warrants and unvested RSUs 8,484,282 Total shares - diluted (denominator) 233,761,262 Diluted earnings per common share $ 0.01 For the three months ended September 30, 2023, there were no shares with an anti-dilutive effect that needed to be excluded from the earnings per share computation. For the nine months ended September 30, 2023 and for the three and nine months ended September 30, 2022 no potentially dilutive securities are included in the computation of diluted loss per share amounts in the accompanying condensed consolidated financial statements as the Company reported a net loss for these periods. For the nine months ended September 30 , 2023 and 2022, 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, 2023 2022 Stock options 5,841,241 8,334,313 Restricted Stock Units 4,877,482 4,129,487 Warrants 12,502,906 13,556,898 23,221,629 26,020,698 8 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 generally 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 2018 and for previous periods as it relates to the Company’s net operating loss carryforwards. In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has no t incurred any liability for unrecognized tax benefits as of September 30, 2023 and December 31, 2022, and during the nine months ended September 30, 2023 and 2022 the Company recognized no adjustments for uncertain tax positions. 3. INVENTORIES The following table provides the components of inventories: September 30, 2023 December 31, 2022 Raw materials $ 49,857,909 $ 48,644,527 Work-in-process 58,277,455 56,170,853 Finished goods 54,980,741 58,464,667 Total inventories $ 163,116,105 $ 163,280,047 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. 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 that is expected to be sold to third-party customers. 9 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. INTANGIBLE ASSETS Intangible assets at September 30, 2023 and December 31, 2022 consist of the following: September 30, 2023 December 31, 2022 Accumulated Accumulated Cost Amortization Net Cost Amortization Net Trademark and other intangible rights related to Nabi-HB $ 4,100,046 $ 3,709,565 $ 390,481 $ 4,100,046 $ 3,270,276 $ 829,770 Rights to intermediates 907,421 821,000 86,421 907,421 723,776 183,645 $ 5,007,467 $ 4,530,565 $ 476,902 $ 5,007,467 $ 3,994,052 $ 1,013,415 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, 2023 and 2022, and $ 0.5 million for the nine months ended September 30, 2023 and 2022. Estimated future aggregate amortization expense is expected to be as follows: Remainder of 2023 $ 178,838 2024 298,064 5. PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation are summarized as follows: September 30, 2023 December 31, 2022 Manufacturing and laboratory equipment $ 20,748,582 $ 18,767,807 Office equipment and computer software 6,260,749 5,318,669 Furniture and fixtures 5,704,638 5,109,898 Construction in process 1,870,317 6,726,995 Leasehold improvements 20,808,155 17,930,905 Land 4,339,441 4,339,441 Buildings and building improvements 20,198,724 19,544,307 79,930,606 77,738,022 Less: Accumulated depreciation ( 25,115,999 ) ( 19,476,541 ) Total property, plant and equipment, net $ 54,814,607 $ 58,261,481 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 months ended September 30, 2023 and 2022 of $ 1.9 million and $ 1.7 million , respectively , and for the nine months ended September 30, 2023 and 2022 of $ 5.7 million and $ 4.6 million, respectively . 10 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, 2023 and December 31, 2022 are as follows: September 30, 2023 December 31, 2022 Accrued rebates $ 15,907,590 $ 11,436,484 Accrued distribution fees 5,822,699 3,166,896 Accrued incentives 3,309,387 4,193,919 Accrued testing 394,630 309,867 Accrued payroll and other compensation 1,816,036 4,086,379 Other 2,613,384 1,795,804 Total accrued expenses and other current liabilities $ 29,863,726 $ 24,989,349 7. DEBT A summary of outstanding senior notes payable is as follows: September 30, 2023 December 31, 2022 Notes payable $ 157,706,338 $ 154,747,746 Less: Debt discount ( 15,680,796 ) ( 11,914,683 ) Senior notes payable $ 142,025,542 $ 142,833,063 On March 23, 2022 (the “Hayfin Closing Date”), the Company and all of its subsidiaries entered into a Credit and Guaranty Agreement (the “Hayfin Credit Agreement”) with Hayfin Services LLP (“Hayfin”). The Hayfin Credit Agreement provides for a senior secured term loan facility in a principal amount of up to $ 175.0 million (the “Hayfin Credit Facility”), composed of (i) a term loan made on the Hayfin Closing Date in the principal amount of $ 150.0 million (the “Hayfin Closing Date Loan”), and (ii) a delayed draw term loan in the principal amount of $ 25.0 million (the “Hayfin Delayed Draw Loan” and, together with the Hayfin Closing Date Loan, the “Hayfin Loans”). The obligation of the lenders to make the Hayfin Delayed Draw Loan was to have expired on March 22, 2023 and is subject to the satisfaction of certain conditions, including, but not limited to, the Company’s meeting certain 12-month revenue targets as set forth in the Hayfin Credit Agreement. The Hayfin Credit Facility has a maturity date of March 23, 2027 (the “Hayfin Maturity Date”), subject to acceleration pursuant to the Hayfin Credit Agreement, including upon an Event of Default (as defined in the Hayfin Credit Agreement). On March 22, 2023, the Company and Hayfin entered into an amendment to the Hayfin Credit Agreement whereby the lenders’ obligation to make the Hayfin Delayed Draw Loan was extended to June 30, 2023. On the Hayfin Closing Date, the Company used $ 100.0 million of the Hayfin Closing Date Loan to terminate and pay in full all of the outstanding obligations under the Company’s previously existing credit facility (the “Perceptive Credit Facility”) with Perceptive Credit Holdings II, LP (“Perceptive”). The Company also used $ 2.0 million of the Hayfin Closing Date Loan proceeds to pay a redemption premium to Perceptive and used approximately $ 1.0 million of the Hayfin Closing Date Loan proceeds to pay certain fees and expenses incurred in connection with this transaction. In addition, a $ 1.8 million upfront fee payable to Hayfin was paid “in kind” and was added to the outstanding principal balance in accordance with the terms of the Hayfin Credit Agreement. In connection with the retirement of the Perceptive Credit Facility and all of the obligations thereunder, the Company recorded a loss on extinguishment of debt in the amount of $ 6.7 million, consisting of the write-off of unamortized discount related to the Perceptive indebtedness and the redemption premium paid to Perceptive. From the time of the Hayfin Closing Date through May 1, 2023, borrowings under the Hayfin Credit Agreement bore interest, at the Company’s election, at either (a) a base rate (equal to the highest of (i) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the federal funds rate in effect on such day plus 0.50 % and (iii) adjusted Term Secured Overnight Financing Rate (“SOFR”) for a one-month tenor in effect on such day plus 1.00 %), plus an applicable margin of 8.5 %, or (b) adjusted Term SOFR for either a one-month or three-month tenor, as elected by the Company, and subject to a floor of 1.25 %, plus an applicable margin of 9.5 % (the “Applicable Margin”); provided, however, that upon, and during the continuance of, an Event of Default, the Applicable Margin increases by an additional 3 % per annum. On the last day of each calendar month or quarter during the term of the Hayfin Credit Facility, the Company pays accrued interest to Hayfin. The rate of interest in effect as of September 30,2023 and December 31, 2022 was approximately 13.9 %. The Company is also permitted to pay “in kind” a portion of the interest on the Hayfin Loans for each monthly or quarterly interest period in an amount equal to 2.5 % per annum, which is added to the principal amount of the outstanding debt under the Hayfin Credit Facility. For the nine months ending September 30,2023 and 2022, approximately $ 3.0 million and $ 2.0 million, respectively, of interest was paid in kind and added to the balance of the outstanding Hayfin Loans. 11 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On the Hayfin Maturity Date, the Company is required to pay Hayfin the entire outstanding principal amount underlying the Hayfin Loans and any accrued and unpaid interest thereon, as well as an exit fee of 1.0 % of the outstanding principal amount being paid. This exit fee is recorded separately as a non-current liability on the accompanying consolidated balance sheets as of September 30,2023 and December 31,2022. Prior to the Hayfin Maturity Date, there are no scheduled principal payments on the Hayfin Loans. All of the Company’s obligations under the Hayfin Credit Agreement are secured by a first-priority lien and security interest in substantially all of the Company’s tangible and intangible assets, including intellectual property and all of the equity interests in the Company’s subsidiaries. The Hayfin Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants restrict or limit the ability of the Company and its subsidiaries to, among other things and subject to certain exceptions contained in the Hayfin Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to the Company’s or its subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Hayfin Credit Agreement); change its fiscal year; pay dividends; repay certain other indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting the Company’s ability to make loan repayments under the Hayfin Credit Agreement. In addition, the Company is required (i) at all times prior to the Maturity Date to maintain a minimum cash balance of $ 6.0 million; and (ii) as of the last day of each fiscal quarter, report IVIG product and related revenues for the trailing 12-month period that exceed the amounts set forth in the Hayfin Credit Agreement, which range from $ 75.0 million for the fiscal quarter ended June 30, 2022 to $ 250.0 million for the fiscal quarter ended December 31, 2026. As of September 30, 2023, the Company was in compliance with all of the covenants contained in the Hayfin Credit Agreement. As consideration for the Hayfin Credit Agreement, the Company issued to various entities affiliated with Hayfin, on the Hayfin Closing Date, warrants to purchase an aggregate of 9,103,047 shares of the Company’s common stock (the “Hayfin Warrants”). The Hayfin Warrants have an exercise price equal to $ 1.6478 per share, which is equal to the trailing 30 -day Volume Weighted-average Price of the Company’s common stock on the business day immediately prior to the Hayfin Closing Date. The Hayfin Warrants were valued by the Company at approximately $ 9.6 million as of the Hayfin Closing Date and have an expiration date of March 23, 2029 . On May 1, 2023, the Company entered into a second amendment to the Hayfin Credit Agreement (the “Hayfin Second Amendment”) whereby the Applicable Margin for adjusted Term SOFR Loans was reduced from 9.5 % to 8.5 %. The Hayfin Second Amendment also extended the obligation of the lenders to make the Hayfin Delayed Draw Loan from June 30, 2023 to December 31, 2023. Under the terms of the Hayfin Second Amendment, in the event the Company elects to prepay all or any portion of the outstanding principal on the Hayfin Loans, the Company will be subject to an early prepayment fee in the amount equal to (i) 7.0 % of the prepaid principal amount, if prepaid on or prior to the first anniversary of the Hayfin Second Amendment, (ii) 3.0 % of the prepaid principal amount, if prepaid after the first anniversary of the Hayfin Second Amendment and on or prior to the second anniversary of the Hayfin Second Amendment, or (iii) 1.0 % of the prepaid principal amount, if prepaid after the second anniversary of the Hayfin Second Amendment and on or prior to the third anniversary of the Hayfin Second Amendment. For any prepayments of principal or payment of principal on the Hayfin Maturity Date, the Company is also required to pay the exit fee. In addition, the Hayfin Second Amendment provides for a 50 % reduction to the foregoing early prepayment fees if the Hayfin Loans are prepaid in connection with a change in control of the Company or other strategic transactions as further described in the Hayfin Second Amendment. In connection with the Hayfin Second Amendment, the Company issued additional warrants to the lenders to purchase 2,391,244 shares of the Company’s common stock at an exercise price of $ 3.2619 per share (the “ Hayfin Second Amendment Warrants”). The Hayfin Second Amendment Warrants were valued at approximately $ 5.6 million and have an expiration date of May 1, 2030. As a result of the upfront fee and exit fee paid or payable to Hayfin, the expenses incurred by the Company in connection with this transaction and the value of the Hayfin Warrants and Hayfin Second Amendment Warrants, the Company recognized an aggregate discount on the Hayfin Loans in the amount of $ 19.5 million. The Company records debt discount as a reduction to the face amount of the debt, and the debt discount is amortized as interest expense over the life of the debt using the interest method. Based on the fair value of the Hayfin Warrants and the aggregate amount of fees and expenses associated with obtaining the Hayfin Credit Facility, the effective interest rate on the Hayfin Loans as of September 30,2023 and December 31, 2022 was approximately 17.6 % and 16.1 %, respectively. 12 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8. STOCKHOLDERS’ EQUITY Preferred Stock The Company is currently authorized to issue up to 10 million shares of preferred stock, $ 0.0001 , par value per share. There were no shares of preferred stock outstanding at September 30, 2023 and December 31, 2022. Common Stock As of September 30, 2023 and December 31, 2022, the Company was authorized to issue 300,000,000 shares of its common stock, $ 0.0001 par value per share, and 225,958,084 and 221,816,930 shares of common stock were outstanding as of September 30, 2023 and December 31, 2022, respectively. After giving effect to the 43,089,619 shares reserved for outstanding warrants and awards issued or reserved for future issuance under the Company’s equity incentive plans, as of September 30, 2023 there were 30,952,297 shares of common stock available for issuance. Warrants In connection with the Hayfin Credit Agreement that the Company entered into on March 23, 2022 (see Note 7), the Company issued the Hayfin Warrants to purchase 9,103,047 shares of the Company’s common stock. The Hayfin Warrants were valued at $ 9.6 million using the Black-Scholes option-pricing model assuming an expected term of seven years , a volatility of 68.1 %, a dividend yield of 0 % and a risk-free rate of interest of 2.36 %. On May 1, 2023 the Company issued the Hayfin Second Amendment Warrants, which were valued at $ 5.6 million using the Black-Scholes option-pricing model assuming an expected term of seven years , a volatility of 67.8 %, a dividend yield of 0 % and a risk-free rate of interest of 3.62 %. On May 13, 2023, warrants to purchase 24,800 shares of the Company’s common stock held by a former noteholder of the Company expired in accordance with their terms. On June 16, 2023, various entities affiliated with Hayfin exercised 3,388,686 Hayfin Warrants in a cashless exercise transaction resulting in the Company issuing 1,967,847 shares of its common stock to such entities. At September 30, 2023 and December 31, 2022, the Company had outstanding warrants to purchase an aggregate of 12,502,906 and 13,525,148 shares, respectively, of common stock, with weighted-average exercise prices of $ 2.32 and $ 1.99 per share, respectively, with expiration dates ranging between December 2024 and December 2030. Equity Incentive Plans The fair value of stock options granted under t he Company’s equity incentive plans w as 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, 2023 and 2022: 13 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 2023 2022 Expected term 5.5 - 6.3 years 5.5 - 6.3 years Volatility 68% 68% Dividend yield 0.0 0.0 Risk-free interest rate 4.20-4.24% 1.72-1.73% On June 21, 2022, the Company’s stockholders approved the ADMA Biologics, Inc. 2022 Compensation Plan (the “2022 Equity Plan”), which replaced the ADMA Biologics, Inc. 2014 Omnibus Incentive Compensation Plan. Approval of the 2022 Equity Plan resulted in approximately 18 million additional shares of the Company’s common stock being reserved for future awards. During the nine months ended September 30, 2023 and 2022, the Company granted options to purchase an aggregate of 1,727,510 and 1,194,032 shares of common stock, respectively, to its directors and employees. The weighted average remaining contractual life of stock options outstanding and expected to vest at September 30, 2023 is 6.8 years. The weighted average remaining contractual life of stock options exercisable at September 30, 2023 is 5.2 years. During the nine months ended September 30, 2023, options to purchase 3,809,210 shares of common stock were exercised, for which 2,108,030 shares were withheld to cover the aggregate exercise prices and 259,867 shares were withheld to cover payroll taxes, and the Company received aggregate net exercise proceeds of $ 1.1 million. A summary of the Company’s option activity under the Company’s equity incentive plans and related information is as follows: Shares Weighted Average Exercise Price Options outstanding, vested and expected to vest at December 31, 2022 8,256,211 $ 3.37 Forfeited ( 96,392 ) $ 2.71 Expired ( 236,878 ) $ 6.53 Granted 1,727,510 $ 3.35 Exercised ( 3,809,210 ) $ 3.15 Options outstanding, vested and expected to vest at September 30, 2023 5,841,241 $ 3.39 Options exercisable 3,163,516 $ 3.91 As of September 30, 2023, the Company had $ 4.3 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 2.7 years. During the nine months ended September 30, 2023 and 2022, the Company granted RSUs representing an aggregate of 3,345,760 and 1,119,266 shares, respectively, to certain employees of the Company and to members of its Board of Directors. These RSUs generally vest annually over a period of four years for employees and semi-annually over a period of one year for directors. During the nine months ended September 30, 2023, an aggregate of 1,032,698 shares of common stock vested in connection with grants of RSUs. With respect to these vested RSUs, 300,704 shares valued at approximately $ 1.0 million were withheld by the Company to cover employees’ tax liabilities. These shares were no longer outstanding as of September 30, 2023. 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, 2022 2,866,987 $ 1.59 Granted 3,345,760 $ 3.42 Vested ( 1,032,698 ) $ 1.69 Forfeited ( 302,567 ) $ 2.64 Balance at September 30, 2023 4,877,482 $ 2.94 As of September 30, 2023, the Company had $ 11.6 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 3.1 years. Total stock-based compensation expense for all awards granted under the Company’s equity incentive plans for the three and nine months ended September 30, 2023 and 2022 is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Research and development $ 12,328 $ 4,952 $ 27,131 $ 14,521 Plasma center operating expenses 41,346 21,588 104,108 62,255 Selling, general and administrative 1,450,454 1,187,043 3,838,651 3,772,860 Cost of product revenue 190,513 99,911 471,955 296,293 Total stock-based compensation expense $ 1,694,641 $ 1,313,494 $ 4,441,845 $ 4,145,929 9. RELATED PARTY TRANSACTIONS The Company leases an office building and equipment from Areth, LLC (“Areth”) pursuan t to an agreement for services effective as of January 1, 2016, as amended from time to time , and pays monthly rent on this facility in the amount of $ 10,000 through December 31, 2026 . Rent expense for the three and nine months ended September 30, 2023 and 2022 amounted to $ 30,000 and $ 90,000 , respectively . Areth is a company controlled by Dr. Jerrold B. Grossman, the Vice Chairman of the Company’s Board of Directors, and Adam S. Grossman, the Company’s President and Chief Executive Officer. The Company also reimburses Areth for office and building-related (common area) expenses, equipment and certain other operational expenses, which were not material to the condensed consolidated financial statements for the nine months ended September 30, 2023 and 2022. During the nine months ended September 30, 2023 and 2022, the Company purchased certain specialized medical equipment and services primarily related to the Company’s plasma collection centers, as well as personal protective equipment, from GenesisBPS and its affiliates (“Genesis”), aggregating to $ 0.4 million and $ 0.1 million, respectively. Genesis is owned by Dr. Grossman and Adam Grossman. On August 15, 2023, two of the Company’s executive officers exercised options to purchase 2,909,721 shares of the Company’s common stock on a cashless basis, and 688,657 shares of common stock were issued to these executive officers, net of 257,867 shares of common stock to cover a portion of their tax liabilities (see Note 8). See Note 7 for a discussion of the Company’s former credit facility and related transactions with Perceptive, a holder of more than 5 % of the Company’s common stock during the nine months ended September 30, 2022. There were no transactions with Perceptive during the nine months ended September 30, 2023. 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. 15 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IT Systems Disruption On June 19, 2023, the Company experienced an IT systems disruption, which rendered certain of the Company’s IT technology systems inaccessible for less than one week. The Company’s investigation of the disruption has essentially been completed with the assistance of third-party consultants. While no definitive root cause has been identified, as previously disclosed the Company believes that this IT systems disruption may have been caused by a third-party who may have gained access to the system. There was no original financial systems or other data loss or any evidence of files exfiltrated due to this disruption. Normal course operations have resumed across the Company’s business units. At the time of the disruption, the Company was in production of two batches of BIVIGAM, and after a prolonged hold time, it was deemed to be a prudent GMP quality decision to discard these two in-process production batches as these batches were no longer viable for further production or had any alternative use. As a result, the Company recorded a one-time, non-recurring charge of $ 2.1 million in the second quarter of 2023 for this inventory, which is reflected in Cost of product revenue in the accompanying consolidated statements of operations for the nine months ending September 30, 2023. In addition, during the second quarter of 2023, the Company’s Plasma center operating expenses were adversely impacted by approximately $ 0.7 million due to the temporary closing of the Company’s plasma collection centers while their IT systems were restored. The Company carries appropriate insurance for these types of instances, and while there can be no assurances ADMA will be reimbursed for the insurance claims made pertaining to these charges, the Company is actively working with its insurance broker and carriers. COVID-19 Pandemic The Company continues to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta, Omicron and BA.2 variants and other resistant strains of the coronavirus, and its impacts to 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 had historically been performed by contract laboratories outside the United States. Due to a combination of previously mandated 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 at times experienced lower than normal donor collections at its FDA approved plasma collection centers during 2021 and part of 2022. From time to time during 2021 and 2022, t he Company was also subject to delays in shipments of source plasma from its contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of its products. In addition, the Company has been 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 elected to carry more raw materials inventory than it had in the past. The COVID-19 pandemic previously impacted, to a certain degree, the Company’s customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting the Company’s ability to communicate with potential customers. The pandemic could also impact the Company’s ability to interact with the FDA or other regulatory authorities and could result in delays in the conduct of inspections or review of pending applications or submissions. Although the Company has received FDA approvals for six of its plasma collection centers since January 1, 2022 and previously received several other FDA approvals while two FDA inspections of the Boca Facility were completed during the year ended December 31, 2021, no assurances can be provided as to the timing for completion of any future regulatory submissions or applications that may be impacted by restrictions related to COVID-19. During the nine months ended September 30, 2023 and 2022, the Company’s total revenues attributable to international customers was approximately 6 % and 7 %, respectively. As the Company seeks to grow this aspect of its business, it may also be subject to the impacts of the COVID-19 pandemic in locations outside the United States. Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on the Company’s financial condition or results of operations, and the Company does not believe that its production operations at the Boca Facility, the Company’s contract fill/finishers or its plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, the Company does not anticipate and has not experienced any material impairments with respect to any of its long-lived assets, including the Company’s property and equipment, goodwill or intangible assets. 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 COVID-19 pandemic or other pandemics or their long-term effects on, among other things, the global, national or local economies, the capital and credit markets or the Company’s workforce, customers or suppliers, at this time the Company is unable to predict whether COVID-19 or other pandemics will have a material adverse impact on the Company’s business, financial condition, liquidity or 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, and under the original 2011 Plasma Purchase Agreement, the Company was permitted to 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 (i) allow the Company to collect its raw material RSV high-titer plasma from any number of wholly-owned ADMA plasma collection facilities and (ii) to allow the Company to purchase its raw material RSV high-titer plasma from other third-party collection organizations, in each case, provided that the annual minimum volumes from BPC were met, 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 10 -year anniversary of the closing date of the Biotest Transaction. Unless terminated earlier, the 2011 Plasma Purchase Agreement expires in June 2027, after which it may be renewed for two additional five-year periods if agreed to by the parties. On December 10, 2018, BPC assigned its rights and obligations under the 2011 Plasma Purchase Agreement to Grifols Worldwide Operations Limited (“Grifols”) as its successor-in-interest, effective January 1, 2019. On January 1, 2019, Grifols and the Company entered into an additional amendment to the 2011 Plasma Purchase Agreement for the purchase of source plasma containing antibodies to RSV from Grifols. Pursuant to this amendment, until January 1, 2022, the Company could purchase RSV plasma from Grifols from the two plasma collection centers that were transferred to BPC on January 1, 2019 at a price equal to cost plus five percent ( 5 %) (without any additional increase due to inflation). Effective January 1, 2022, RSV plasma purchased from these two plasma collection centers are subject to the pricing terms in effect for RSV plasma purchased from other plasma collection centers owned by Grifols. On June 6, 2017, the Company and BPC entered into a Plasma Supply Agreement pursuant to which BPC supplies, on an exclusive basis subject to certain exceptions, to ADMA BioManufacturing an annual minimum volume of hyperimmune plasma that contain antibodies to the Hepatitis B virus for the manufacture of Nabi-HB. The Plasma Supply Agreement has a 10 -year term. On July 19, 2018, the Company and BPC entered into an amendment to the Plasma Supply Agreement to provide, among other things, that in the event BPC elects not to supply in excess of ADMA BioManufacturing’s specified amount of Hepatitis B plasma and ADMA BioManufacturing is unable to secure Hepatitis B plasma from a third party at a price that is within a low double- digit percentage of the price that ADMA BioManufacturing pays to BPC, then BPC shall reimburse ADMA BioManufacturing for the difference in price ADMA BioManufacturing incurs. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Supply Agreement to Grifols, effective January 1, 2019. On June 6, 2017, the Company and BPC entered into a Plasma Purchase Agreement (the “2017 Plasma Purchase Agreement”), pursuant to which ADMA BioManufacturing purchases normal source plasma (“NSP”) from BPC at agreed upon annual quantities and prices. The 2017 Plasma Purchase Agreement has an initial term of five years after which the 2017 Plasma Purchase Agreement may be renewed for additional two terms of two years each upon the mutual written consent of the parties. On July 19, 2018, the Company and BPC entered into an amendment to the 2017 Plasma Purchase Agreement to, among other things, provide agreed upon amounts of normal source plasma to be supplied by BPC to ADMA BioManufacturing in calendar year 2019 at a specified price per liter, provided that ADMA BioManufacturing delivers a valid purchase order to BPC. Additionally, pursuant to the amendment to the 2017 Plasma Purchase Agreement, BPC agreed that, for calendar years 2020 and 2021, it shall supply no less than a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, provided that such requested NSP amounts are within an agreed range, at a price per liter to be mutually determined. Furthermore, pursuant to the amendment to the 2017 Plasma Purchase Agreement, in the event BPC fails to supply ADMA BioManufacturing with at least a high double-digit percentage of ADMA BioManufacturing’s requested NSP amounts, BPC shall promptly reimburse ADMA BioManufacturing the difference in price ADMA BioManufacturing incurs due to BPC’s election not to supply NSP to ADMA BioManufacturing in such amounts as requested. On December 10, 2018, BPC assigned its rights and obligations under the Plasma Purchase Agreement to Grifols, effective January 1, 2019. 17 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, however Grifols’ commitment to supply the Company with NSP under this agreement was not satisfied until March of 2023. 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. The Company has also increased its number of plasma collection center buildouts such that the Company expects to have ten FDA-approved plasma collection centers in operation by the end of 2023, while also continuing to increase its plasma collection capabilities at its ADMA BioCenters plasma collection centers business segment. Through December 31, 2022, the Company purchased substantially all of its raw material plasma from Grifols. For the nine months ended September 30, 2023, plasma purchases from Grifols totaled $ 6.5 million, or approximately 23 % of the Company’s total inventory purchases. For the nine months ended September 30, 2022, plasma purchases from Grifols totaled $ 40.3 million, representing approximately 68 % 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 were required to be completed by June of 2023. Both studies have been completed and the study reports have been submitted to the FDA. ADMA had assumed the remaining obligations, and the costs of the studies have been expensed as incurred as research and development expenses. For the nine months ended September 30, 2023 and 2022, the Company incurred expenses related to these studies of $ 1.7 million and $ 1.5 million, respectively. In connection with the FDA’s approval of ASCENIV on April 1, 2019, the Company is required to perform a pediatric study to evaluate the safety and efficacy of ASCENIV in children and adolescents. For the nine months ended September 30, 2023 and 2022, the Company incurred expenses related to this study in the amount of $ 0.6 million and $ 0.3 million, respectively. The Company expects to incur expenses of approximately $ 1.3 million to complete this study, which is required to be completed by June of 2026. Employment Contracts The Company has entered into employment agreements with Mr. Grossman and with Brian Lenz, the Company’s Executive Vice President, Chief Financial Officer and General Manager, ADMA BioCenters. Other Commitments 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, 2023. The Company does not anticipate recognizing any significant losses relating to these arrangements. 18 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. The Plasma Collection Centers segment consists of ten operational plasma collection facilities located throughout the U.S., nine of which currently hold FDA licenses . The Corporate segment includes general and administrative overhead expenses. The Company defines its segments as those business units whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to analyze performance and allocate resources. The Company’s CODM is its President and Chief Executive Officer. Summarized financial information concerning reportable segments is shown in the following tables: Three Months Ended September 30, 2023 ADMA BioManufacturing Plasma Collection Centers Corporate Consolidated Revenues $ 66,566,884 $ 672,006 $ 35,708 $ 67,274,598 Cost of product revenue 41,733,958 888,055 - 42,622,013 Income (loss) from operations 15,016,875 ( 682,947 ) ( 5,648,769 ) 8,685,159 Interest and other expense, net ( 140,669 ) ( 400 ) ( 5,979,035 ) ( 6,120,104 ) Net income (loss) 14,876,206 ( 683,347 ) ( 11,627,804 ) 2,565,055 Total assets 262,553,540 35,621,536 50,821,489 348,996,565 Depreciation and amortization expense 1,282,076 810,432 - 2,092,508 Three Months Ended September 30, 2022 ADMA Plasma Collection BioManufacturing Centers Corporate Consolidated Revenues $ 37,280,798 $ 3,773,631 $ 35,708 $ 41,090,137 Cost of product revenue 27,883,046 3,550,450 - 31,433,496 Income (loss) from operations 297,310 ( 4,636,269 ) ( 4,977,774 ) ( 9,316,733 ) Interest and other expense, net ( 3,023 ) ( 154 ) ( 5,579,594 ) ( 5,582,771 ) Net income (loss) 294,287 ( 4,636,423 ) ( 10,557,368 ) ( 14,899,504 ) Total assets 242,983,498 39,125,933 18,448,139 300,557,570 Depreciation and amortization expense 1,214,529 647,463 - 1,861,992 19 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 2023 ADMA Plasma Collection BioManufacturing Centers Corporate Consolidated Revenues $ 175,904,955 $ 8,299,243 $ 107,125 $ 184,311,323 Cost of product revenue 118,708,495 7,747,250 - 126,455,745 Income (loss) from operations 26,576,977 ( 3,028,792 ) ( 16,149,421 ) 7,398,764 Interest and other expense, net ( 170,069 ) ( 605 ) ( 17,822,557 ) ( 17,993,231 ) Net income (loss) 26,406,908 ( 3,029,397 ) ( 33,971,978 ) ( 10,594,467 ) Capital expenditures 1,767,825 1,805,961 - 3,573,786 Depreciation and amortization expense 3,857,085 2,365,965 - 6,223,050 Nine Months Ended September 30, 2022 ADMA Plasma Collection BioManufacturing Centers Corporate Consolidated Revenues $ 95,129,542 $ 8,861,570 $ 107,125 $ 104,098,237 Cost of product revenue 74,383,948 8,626,208 - 83,010,156 Loss from operations ( 4,423,228 ) ( 12,520,163 ) ( 16,363,147 ) ( 33,306,538 ) Interest and other expense, net ( 70,084 ) ( 1,221 ) ( 13,624,483 ) ( 13,695,788 ) Loss on extinguishment of debt - - ( 6,669,941 ) ( 6,669,941 ) Net loss ( 4,493,312 ) ( 12,521,384 ) ( 36,657,571 ) ( 53,672,267 ) Capital expenditures 4,292,246 5,870,404 - 10,162,650 Depreciation and amortization expense 3,486,212 1,689,362 918 5,176,492 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, 2023 2022 2023 2022 United States $ 64,617,747 $ 37,854,167 $ 173,920,284 $ 96,445,162 International 2,656,851 3,235,970 10,391,039 7,653,075 Total revenues $ 67,274,598 $ 41,090,137 $ 184,311,323 $ 104,098,237 12. LEASE OBLIGATIONS The Company leases certain properties and equipment for its ADMA BioCenters and ADMA BioManufacturing subsidiaries, which leases provide the right to use the underlying assets and require lease payments through the respective lease terms which expire at various dates through 2033. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. 20 Index ADMA BIOLOGICS, INC. AND SUBSIDIARIES NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. For all of its leases, the Company has elected and applies the practical expedient available to lessees to combine non-lease components with their related lease components and account for them as a single combined lease component. 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. 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, 2023 and 2022 was approximately $ 0.6 million, and aggregate lease expense for the nine months ended September 30, 2023 and 2022 was $ 1.8 million and $ 1.5 million, respectively. Cash paid for the Company’s leases for the three months ended September 30, 2023 and 2022 was approximately $ 0.6 million and $ 0.5 million, respectively, and cash paid for the nine months ended September 30, 2023 and 2022 was approximately $ 1.8 million and $ 1.3 million, respectively. The Company has aggregate lease liabilities of $ 10.9 million and $ 11.6 million as of September 30, 2023 and December 31, 2022, respectively, which are comprised primarily of the leases for the Company’s plasma collection centers and a warehouse lease for raw material storage related to the Company’s immunoglobulin manufacturing operations. The Company’s operating leases have a weighted average remaining term of 7.9 years. Scheduled payments under the Company’s lease obligations are as follows: Remainder of 2023 $ 597,659 Year ended December 31, 2024 2,343,314 2025 2,366,432 2026 2,116,036 2027 2,040,690 2028 2,087,825 Thereafter 6,150,745 Total payments 17,702,701 Less: imputed interest ( 6,754,722 ) Current portion ( 982,891 ) Balance at September 30, 2023 $ 9,965,088 13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Supplemental cash flow information for the nine months ended September 30, 2023 and 2022 is as follows: 2023 2022 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 13,895,692 $ 9,610,361 Noncash Financing and Investing Activities: Equipment acquired reflected in accounts payable and accrued liabilities $ 270,328 $ 1,749,746 Right-to-use assets in exchange for lease obligations $ - $ 3,660,890 Warrants issued in connection with notes payable $ 5,594,764 $ 9,569,604 21 Index