Annual report pursuant to section 13 and 15(d)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2013
Accounting Policies [Abstract]  
Basis of presentation

Basis of presentation

 

The accompanying consolidated financial statements include the accounts of ADMA Biologics, Inc. and its wholly-owned subsidiaries.  All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents

 

The Company considers all highly-liquid instruments purchased with a maturity of three months or less to be cash equivalents.  The Company purchases certificates of deposits with maturity schedules of three, six, nine and twelve months.  Instruments with maturity greater than three months but less than twelve months are included in short term investments.  As of December 31, 2012, the Company had $0.5 million in restricted cash associated with a letter of credit related to our landlord agreement for our Georgia ADMA BioCenters facility.  As of December 31, 2013, none of our cash was restricted and the letter of credit expired.

 

The Company regularly maintains cash and short term investments at third-party financial institutions in excess of the Federal Deposit Insurance Corporation, or FDIC, insurance limit. While the Company monitors the daily cash balances in the operating accounts and adjusts the balances as appropriate, these balances could be impacted, and there could be a material adverse effect on our business, if one or more of the financial institutions with which the Company has deposits fails or is subject to other adverse conditions in the financial or credit markets. To date, the Company has not experienced a loss or lack of access to its invested cash or cash equivalents; however, the Company cannot provide assurance that access to its invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

Inventories

Inventories

 

Plasma inventories (both plasma intended for resale and plasma intended for internal use in our research and development activities) are carried at the lower of cost or market value determined on the first-in, first-out method.    Once the research and development plasma is processed to a finished good for ongoing trials it is then expensed to research and development.  Inventory at December 31, 2013 and 2012 consists of raw materials.  Inventory also includes plasma collected at the Company’s FDA licensed plasma collection center.

Revenue recognition

Revenue recognition

 

Revenue from the sale of human plasma collected at the Company’s FDA licensed plasma collection center and plasma-derived medicinal products is recognized at the time of transfer of title and risk of loss to the customer, which occurs at the time of shipment.  Revenue is recognized at the time of delivery if the Company retains the risk of loss during shipment.  The Company’s revenues are substantially attributed to one customer.  Revenue from license fees and research and development services rendered are recognized as revenue when the performance obligations under the terms of the license agreement have been completed.  Deferred revenue of $1.7 million was recorded in 2013 as a result of certain research and development services to be provided in accordance with a license agreement and is recognized over the term of the license.  Deferred revenue is amortized into income for a period of approximately 20 years, the term of the license agreement.

 

Concentration of Significant Customers and Accounts Receivable

Concentration of Significant Customers and Accounts Receivable

 

As of December 31, 2013 and 2012, the Company’s customers, revenues and trade receivable balances were substantially attributed to one customer.

Research and development costs

Research and development costs

 

The Company expenses all research and development costs as incurred including plasma and equipment for which there is no alternative future use.  Such expenses include licensing fees and costs associated with planning and conducting clinical trials.

Use of estimates

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 valuation of inventory, assumptions used in the fair value of stock-based compensation, and the allowance for the valuation of future tax benefits.

Concentration of credit risk

Concentration of credit risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and short-term investments.

Property and equipment

Property and equipment

 

Fixed assets are stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is five to ten years.  Leasehold improvements are amortized over the lesser of the lease term or their estimated useful lives.

Income taxes

Income taxes

 

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) 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 income tax assets if it is more likely than not that these deferred income tax assets will not be realized.

 

The Company has no unrecognized tax benefits at December 31, 2013 and 2012.  The Company’s U.S. Federal and state income tax returns prior to fiscal year 2010 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.

 

The Company will recognize interest and penalties associated with tax matters as income tax expense.

Earnings (loss) per common share

Earnings (Loss) Per Share

 

Basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted net loss per share is calculated by dividing net loss applicable to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of common stock and dilutive common stock outstanding during the period.  No potentially dilutive securities are included in the computation of any diluted per share amounts as the Company reported a net loss for all periods presented.  Potentially dilutive securities that would be issued upon the exercise of outstanding warrants and stock options were 1.0 million at December 31, 2013 and 0.7 million at December 31, 2012.

Stock-based compensation

Stock-based compensation

 

The Company follows recognized accounting guidance which requires all stock-based payments, including grants of stock options, to be recognized in the statement of operations as compensation expense, based on their fair  values on the grant date.  The estimated fair value of options granted under the Company’s 2007 Employee Stock Option Plan (the “Plan”) are recognized as compensation expense over the option-service period.

 

During the years ended December 31, 2013 and 2012, the Company recorded stock-based compensation expense to employees of $888,295 and $626,787, respectively.  There were 84,134 and 506,559 options granted to employees and members of the Board of Directors for the years ended December 31, 2013 and 2012, respectively. For the year ended December 31, 2013, 6,350 options were forfeited due to an employee termination.

 

The fair value of employee options granted was determined on the date of grant using the Black-Scholes model.  The Black-Scholes option valuation 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 highly subjective assumptions including the expected stock price volatility.  The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.  Because there is no public market for the Company’s stock and very little historical experience with the Company’s stock options, small similar publicly traded companies were used for comparison and expectations as to assumptions required for fair value computation using the Black-Scholes methodology.  Guidance for stock-based compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The Company currently estimates there will be no forfeitures of options.  Due to the Company’s limited history, the Company uses the simplified method, to determine the expected life of the option grants, which is the average between vesting terms and contractual terms.

 

The Company records compensation expense associated with stock options and other forms of equity compensation using the Black-Scholes option-pricing model and the following assumptions:

 

    Year Ended  
    December 31, 2013  
Expected term   6.3 years  
Volatility     63%  
Dividend yield     0.0  
Risk-free interest rate     1.24-2.25%  
Fair value of financial instruments

Fair value of financial instruments

 

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts payable, and notes payable are shown at cost which approximates fair value due to the short-term nature of these instruments.  The carrying value of the long-term note payable bears interest at a rate per annum equal to the greater of (i) 8.75% and (ii) the sum of (a) 8.75% plus (b) the Prime Rate (as reported in The Wall Street Journal) minus (c) 5.75%, which approximates its fair value as of December 31, 2013 and also approximates the February 2014 terms of the amended loan agreement.