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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to _______________________

Commission File Number: 0-26372

ADAMIS PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
82-0429727
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification Number)

11455 El Camino Real, Suite 310, San Diego, CA 92130
(Address of principal executive offices, including zip code)

(858) 997-2400
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o

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

 
Large accelerated filer
o
Accelerated filer
o
 
Non-accelerated filer
o
Smaller reporting company
x

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

The number of shares outstanding of the issuer’s common stock, par value $0.0001 per share, as of November 9, 2012, was 98,945,348.
 
 


 

ADAMIS PHARMACEUTICALS, INC.
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

     
Page
PART I FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements:
   
       
   
3
       
   
4
       
   
5
       
   
7
       
 
11
       
 
17
       
 
17
       
   
       
 
17
       
 
18
       
 
18
       
 
18
       
 
18
       
 
18
       
 
19
       
   
 
 
2

 
 
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

   
September 30, 2012
       
ASSETS
 
(Unaudited)
   
March 31, 2012
 
CURRENT ASSETS
           
Cash
  $ 10,089     $ 7,519  
Prepaid Consulting Fees and Other Current Assets
    61,424       31,520  
Debt Issuance Cost
    562,494        
                 
Total Current Assets
    634,007       39,039  
                 
ASSETS FROM DISCONTINUED OPERATIONS
    130,000       130,000  
                 
Total Assets
  $ 764,007     $ 169,039  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Accounts Payable
  $ 1,844,003     $ 2,020,713  
Accrued Other Expenses
    332,243       469,279  
Accrued Bonuses
    101,436       101,436  
Conversion Feature Liability
    1,513,728        
Derivative Liability
    159,745        
Notes Payable
    155,608       195,608  
Convertible Notes Payable, net
    1,646,651        
Notes Payable to Related Parties
    81,232       105,632  
                 
Total Liabilities
    5,834,646       2,892,668  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Preferred Stock – Par Value $.0001; 10,000,000 Shares Authorized; Issued and Outstanding-None
           
Common Stock – Par Value $.0001; 175,000,000 Shares Authorized; 103,573,426 and 101,161,953 Issued, 98,345,238 and 95,933,765 Outstanding, Respectively
    10,357       10,116  
Additional Paid-in Capital
    29,290,437       28,053,816  
Accumulated Deficit
    (34,366,204 )     (30,782,332 )
Treasury Stock - 5,228,188 Shares, at cost
    (5,229 )     (5,229 )
                 
Total Stockholders' (Deficit)
    (5,070,639 )     (2,723,629 )
                 
    $ 764,007     $ 169,039  

The accompanying notes are an integral part of these Consolidated Financial Statements
 
 
3

 
 
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

   
Three Months Ended
   
Six Months Ended
 
   
September 30, 2012
   
September 30, 2011
   
September 30, 2012
   
September 30, 2011
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
REVENUE
  $     $     $     $  
                                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    429,742       906,631       1,047,108       1,488,815  
RESEARCH AND DEVELOPMENT
    421,403       573,808       528,760       1,204,469  
                                 
Loss from Operations
    (851,145 )     (1,480,439 )     (1,575,868 )     (2,693,284 )
                                 
OTHER INCOME (EXPENSE)
                               
Interest Expense
    (579,330 )     (2,552 )     (874,295 )     (30,059 )
Gain on Sale of Asset
          5,297             5,297  
Change in Fair Value Derivative Liability
    (105,636 )           (77,036 )      
Change in Fair Value of Conversion Feature Liability
    678,636             (1,056,673 )      
Total Other Income (Expense)
    (6,330     2,745       (2,008,004 )     (24,762 )
                                 
Net (Loss)
  $ (857,475 )   $ (1,477,694 )   $ (3,583,872 )   $ (2,718,046 )
                                 
Basic and Diluted (Loss) Per Share
  $ (0.01 )   $ (0.02 )   $ (0.04 )   $ (0.03 )
                                 
Basic and Diluted Weighted Average Shares Outstanding
    98,293,417       89,698,638       97,743,066       85,906,903  

The accompanying notes are an integral part of these Consolidated Financial Statements
 
 
4

 
 
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

   
Six Months Ended September 30,
 
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net (Loss)
  $ (3,583,872 )   $ (2,718,046 )
Adjustments to Reconcile Net Loss to Net
               
Cash (Used in) Operating Activities:
               
Stock Issued for Interest
          621  
Vesting of Options for Compensation
    74,134       97,483  
Change in Derivative Liability Fair Value
    77,036        
Change in Conversion Feature Liability Fair Value
    1,056,673        
Amortization of Discount on Notes Payable
    359,142        
Amortization of Debt Issuance Cost
    427,506        
Amortization of Stock Issued for Services
          177,292  
Sales Returns Reserve Adjustment
          (48,149 )
Write-down of Discontinued Operations Receivable
          70,000  
Change in Assets and Liabilities:
               
(Increase) Decrease in:
               
Prepaid Expenses and Other Current Assets
    (29,904 )     (58,828 )
Increase (Decrease) in:
               
Accounts Payable
    (176,709 )     366,497  
Accrued Other Expenses
    (137,036 )     122,258  
                 
Net Cash (Used in) Operating Activities
    (1,933,030 )     (1,990,872 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Cash Received from Sale of Common Stock and Common Stock to be issued
          1,100,000  
Issuance of Note Payable
    2,000,000        
Payment of Notes Payable
    (40,000 )     (345,000 )
Payment of Notes Payable to Related Parties
    (24,400 )      
                 
Net Cash Provided by Financing Activities
    1,935,600       755,000  
                 
Increase (Decrease) in Cash
    2,570       (1,235,872 )
                 
Cash:
               
Beginning
    7,519       1,238,898  
                 
Ending
  $ 10,089     $ 3,026  

The accompanying notes are an integral part of these Consolidated Financial Statements
 
 
 
5

 
 
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Six Months Ended September 30,
 
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           
Cash Paid for Interest
 
$
13,056
   
$
33,859
 
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
               
Common Stock issued for Warrant Conversions
 
$
41
   
$
 
Common Stock issued for Debt Issuance Cost
 
$
990,000
   
$
 
Note Payable Discounts from Deriviative and Convertible Feature Liabilities
 
$
539,764
   
$
 
Additional Paid-Capital from Notes Payable Discount
 
$
172,727
   
$
 
Note Payable Converted to Common Stock
 
$
   
$
818,000
 
Common Stock Issued for Interest
 
$
   
$
621
 
Stock Based Compensation Expense
 
$
74,134
   
$
97,483
 
Warrants Issued for Prepaid Services
 
$
   
$
21,000
 
Common Stock Issued for Prepaid Services
 
$
   
$
60,000
 
 
The accompanying notes are an integral part of these Consolidated Financial Statements
 
 
 
6

 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments and the elimination of intercompany accounts) considered necessary for a fair statement of all periods presented. The results of Adamis Pharmaceuticals Corporation operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012.

Liquidity and Capital Resources

Our cash and cash equivalents were $10,089 and $7,519 at September 30, 2012 and March 31, 2012, respectively.

We prepared the condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. In preparing these condensed consolidated financial statements, consideration was given to the Company’s future business as described below, which may preclude the Company from realizing the value of certain assets.

The Company has negative working capital, liabilities that exceed its assets and significant cash flow deficiencies. Additionally, the Company will need significant funding for future operations and the expenditures that will be required to conduct the clinical and regulatory work to develop the Company’s product candidates. Management’s plans include seeking additional funding to satisfy existing obligations, liabilities and future working capital needs, to build working capital reserves and to fund its research and development projects. There is no assurance that the Company will be successful in obtaining the necessary funding to meet its business objectives.

Private Placement Financing Transaction

On November 10, 2010, Adamis completed a private placement transaction (the “Financing”) pursuant to a Common Stock Purchase Agreement (the “Purchase Agreement”). The Purchase Agreement provides for the sale of up to 40,000,000 shares of common stock of Adamis to Eses Holdings (FZE), a foreign institutional investor (the “Investor”), at a price of $0.25 per share, for up to $10 million of gross proceeds. An initial closing was held on November 10, 2010, pursuant to which the Company received $5,000,000 in gross proceeds and issued 20,000,000 shares of common stock.

As we have previously reported and as is described in greater detail in our Annual Report on Form 10-K for the year ended March 31, 2012, pursuant to three separate amendments to the Purchase Agreement, between June 27, 2011 and February 13, 2012, the Investor invested an additional $2.5 million and the Company issued a total of 10 million additional shares to the Investor; and on May 1, 2012, pursuant to provisions in the Purchase Agreement permitting either party to terminate the agreement upon the occurrence of certain events, we terminated the Purchase Agreement. We do not expect to receive additional funds from the Investor pursuant to the Purchase Agreement.

Recent Accounting Pronouncements

None.
 
 
7

 
 
Note 2: Notes Payable

G-Max Trust Note

On June 11, 2012, the Company issued a convertible promissory note in the aggregate principal amount of $500,000 and 500,000 shares of common stock to The G-Max Trust, and received gross proceeds of $500,000, excluding transaction costs and expenses. Interest on the outstanding principal balance of the note accrues at a rate of 10% per annum compounded monthly and is payable monthly commencing July 1, 2012. All unpaid principal and interest on the note is due and payable on April 1, 2013. At any time on or before the maturity date, the investor has the right to convert part or all of the principal and interest owed under the note into common stock at a conversion price equal to $0.55 per share (subject to adjustment for stock dividends, stock splits, reverse stock splits, reclassifications or other similar events affecting the number of outstanding shares of common stock). The market value of the common stock on the date issued was $0.74 per share, for a total value of $370,000. Debt issuance cost of $370,000 was recorded as a result, and is being amortized over the term of the G-Max Note. The stock is restricted for six months from the date issued. Amortization of the debt issuance cost, which is included in interest expense, was $93,261 and $112,521, respectively, for the three and six months ended September 30, 2012.

The conversion feature of the G-Max Note is considered beneficial to the investor due to the conversion price for the convertible note being lower than the market value of the common stock on the date the note was issued. The estimated value of the beneficial conversion feature was $172,727. The beneficial conversion feature is being amortized over the term of the G-Max Note. This resulted in a charge to interest expense of approximately $44,000 and $53,000, respectively, for the three and six months ended September 30, 2012. At September 30, 2012, the net carrying value of the note was $379,881.

The effective annual interest rate of the G-Max Note is 111.50% after considering the debt issuance cost and the beneficial conversion feature

Gemini Master Fund, Ltd. Notes

On April 2, 2012, the Company completed the closing of a private placement financing transaction with Gemini Master Fund, Ltd. pursuant to a securities purchase agreement. The Company issued a 10% Senior Convertible Note (the “Gemini Note”) in the aggregate principal amount of $1.0 million and 1,000,000 shares of our common stock, and received gross proceeds of $1.0 million, excluding transaction costs and expenses. Interest on the Gemini Note is payable at a rate of 10% per annum and is payable on the maturity date of the Gemini Note. Principal and accrued and unpaid interest is due and payable nine months after the date of the Gemini Note. The Gemini Note is convertible into shares of common stock at any time at the discretion of the investor at an initial conversion price per share of $0.25, subject to adjustment for stock splits, stock dividends and other similar transactions and subject to the terms of the Gemini Note. The conversion price is also subject to price anti-dilution adjustments providing that with the exception of certain excluded categories of issuances and transactions, if we issue equity securities or securities convertible into equity securities at an effective price per share less than the conversion price of the Gemini Note, the conversion price of the Gemini Note will be adjusted downward to equal the per share price of the new securities. The Company bifurcated the conversion option derivative from the debt. See Note 3. Our obligations under the Gemini Note and the other transaction agreements are guaranteed by our principal subsidiaries, including Adamis Corporation, Adamis Laboratories, Inc. and Adamis Viral, Inc. The market value of the common stock issued on April 2, 2012 was $0.25 per share, aggregated $250,000. Debt issuance cost of $250,000 was recorded as a result, and is being amortized over the term of the Gemini Note. The stock is restricted for six months from the date issued. Amortization of the debt issuance cost, which is included in interest expense, was $83,636 and $164,545, respectively, for the three and six months ended September 30,2012. At September 30, 2012 the net carrying value of the Gemini Note was $881,594. For further details on the conversion feature see Note 3.

The effective annual interest of the Gemini Note is 46.1% after considering the debt issuance cost and the conversion feature.
 
 
8

 

On June 11, 2012, the Company completed the closing of a private placement financing transaction with Gemini. The Company issued a 10% Senior Convertible Note in the aggregate principal amount of $500,000 (“Gemini Note Two”) and 500,000 shares of common stock, and received gross proceeds of $500,000, excluding transaction costs and expenses. The maturity date is nine months after the date of the note. The other materials terms and conditions are similar to the Gemini Note described above, except that the initial conversion price per share is $0.55. The market value of the common stock on the date issued was $0.74 per share, for a total value of $370,000. Debt issuance cost of $370,000 was recorded as a result, and is being amortized over the term of the Gemini Note Two. The stock is restricted for six months from the date issued. Amortization of the debt issuance cost, which is included in interest expense, was $124,689 and $150,440, respectively, for the three and six months ended September 30,2012. At September 30, 2012, the net carrying value of Gemini Note Two was $385,176. For further details on the conversion feature see Note 3.

The effective annual interest rate of the Gemini Note Two is 22.5% after considering the debt issuance cost and the beneficial conversion feature.

Notes Payable to Related Party

The Company had notes payable to a related party amounting to $81,232 at September 30, 2012, which bear interest at 10%. Accrued interest related to the notes was $68,341 at September 30, 2012.

Note 3: Derivative Liability and Fair Value Measurements

ASC 815 - Derivatives and Hedging provides guidance to determine what types of instruments, or embedded features in an instrument, are considered derivatives. This guidance can affect the accounting for convertible instruments that contain provisions to protect holders from a decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments, or issues new convertible instruments that have a lower exercise price. We have determined that the conversion feature with the down-round provision on the Gemini notes should be treated as a derivative liability. The Company is required to report the conversion feature liability and the derivative liability resulting from the down-round provision at fair value and record the fluctuation of the fair value in current operations.

The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company values its financial assets and liabilities on a recurring basis and certain nonfinancial assets and nonfinancial liabilities on a nonrecurring basis based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels, which are described below:

 
Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
     
 
Level 2:
Observable inputs other that Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.
     
 
Level 3:
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company utilized a binomial option pricing model (BOPM) to develop its assumptions for determining the fair value of the conversion and anti-dilution features of both Gemini notes. Key assumptions at September 30, 2012 for the April 2, 2012 note include a volatility factor of 83.0%, a discount rate of 1, a dividend yield of 0%, expected life of .26 years and a risk free interest rate of .10%. The June 11, 2012 note assumptions at September 30, 2012 include a volatility factor of 101.3%, a discount rate of 1, a dividend yield of 0%, expected life of .45 years and a risk free interest rate of .12%.

The Company estimated the original fair value of the embedded conversion feature of the April 2, 2012 Note to be $287,600 and the anti-dilution feature for the same Note is estimated at $58,800. The gain on the convertible feature liability is $560,000 and the loss on the derivative liability is $90,000 for the quarter ended September 30, 2012. For the six months ended September 30, 2012, loss on conversion feature liability was $1,072,400 and the loss on the derivative liability was $66,400. The number of convertible shares at September 30, 2012 for this note is 4,000,000. The carrying value of the conversion feature at September 30, 2012 is $1,360,000 and the carrying value of the anti-dilution feature for the same date is $125,200.
 
 
9

 
 
The Company estimated the original fair value of the embedded conversion feature of the June 11, 2012 Note to be $169,455 and the anti-dilution feature for the same Note is estimated at $23,909. The gain on the convertible feature liability is $118,636 and the loss on the derivative liability is $15,636 for the quarter ended September 30, 2012. For the six months ended September 30, 2012, the gain on the conversion feature liability was $15,727 and the loss on the derivative liability was $10,636. The number of convertible shares at September 30, 2012 for this note is 909,091. The carrying value of the conversion feature at September 30, 2012 is $153,727 and the carrying value of the anti-dilution feature for the same date is $34,545.

The derivative liabilities and conversion feature liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair values includes various assumptions about future activities and stock price and historical volatility as inputs.

The table below provides a reconciliation of beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).

           Convertible Feature        
   
Derivative Liability
   
 Liability
   
Total
 
Balance, April 1, 2012
  $ 0     0     $ 0  
Fair Value at Issuance     82,709       457,055       539,764  
Net Change in Fair Value     (28,600     1,735,309       1,706,709  
Balance, June 30, 2012
  $ 54,109     $ 2,192,364     $ 2,246,473  
Net Change in Fair Value
    105,636       (678,636 )     (573,000 )
Balance September 30, 2012
  $ 159,745     $ 1,513,728     $ 1,673,473  

Note 4: Common Stock

During April, May, June and July of 2012 the Company issued 411,474 shares of common stock to warrant holders for various strike prices ranging from $0.20 to $0.30. The exercised options were cashless conversions.

On April 2, 2012 the Company issued 1,000,000 shares of common stock to Gemini as part of the $1,000,000 note payable as described in Note 2 above.

On June 11, 2012 the Company issued 500,000 shares of common stock to G-Max as part of the $500,000 note payable as described in Note 2 above.

On June 11, 2012 the Company issued 500,000 shares of common stock to Gemini as part of the $500,000 note payable as described in Note 2 above.

Note 5: Stock Option Plans, Shares Reserved and Warrants

On July 11, 2011, the Company entered into a consulting agreement with a consultant to assist the Company in researching its markets and analyzing its opportunities. As part of the compensation, the consultant received a warrant to purchase 300,000 shares of common stock, with an exercise price of $0.22 and a term of five years. The value of the warrants was $21,000.

On September 12, 2011, the Company issued options to purchase 1,575,000 shares of common stock to directors, officers and employees of the Company under the 2009 Equity Incentive Plan with an exercise price of $0.19 per share. One third of the options vest immediately, and the options become exercisable with respect to the remaining shares over a period of two years. These options were valued using the Black-Scholes option pricing model during the quarter ended September 30, 2011, the expected volatility was approximately 31%, the risk-free interest rate was approximately 2% which resulted in a calculated fair value of $118,000.

On September 13, 2011, the Company issued options to purchase 105,000 shares of common stock to the independent directors of the Company under the 2009 Equity Incentive Plan with an exercise price of $0.18 per share. The options become exercisable with respect to 1/36 of the shares monthly over a period of three years. These options were valued using the Black-Scholes option pricing model during the quarter ended September 30, 2011, the expected volatility was approximately 31%, the risk-free interest rate was approximately 2% which resulted in a calculated fair value of $8,400.

No options or warrants expired or were cancelled during the six months ended September 30, 2012.
 
 
10

 
 
The Company recorded $37,059 and $74,134, respectively, of share based compensation expense during the three and six months ended September 30, 2012. The following summarizes outstanding stock options at September 30, 2012:

   
Number of Stock Options
 
Weighted Average Remaining Contractual Life
 
Weighted Average Exercise Price
 
Number of Stock Options Vested
Non-Plan Stock Options
   
100,714
 
1.10 Years
 
$
41.27
 
100,714
                     
2009 Equity Incentive Plan
   
5,230,398
 
8.19 Years
 
$
0.24
 
3,875,574

The following summarizes warrants outstanding at September 30, 2012:

 
Warrant Shares
 
Exercise Price Per Share
 
Date Issued
Expiration Date
Biosyn Warrants
8,245
 
$
57.97 - $173.92
 
October 22, 2004
2013 - 2014
Old Adamis Warrants
1,000,000
 
$
0.50
 
November 15, 2007
November 15, 2012
Consultant Warrants
221,400
 
$
0.20
 
January 29, 2010
January 29, 2015
           
June 14, 2010 -
June 14, 2015 -
Various Investors
275,000
 
$
0.30
 
September 15, 2010
September 15, 2015
Consultant Warrants
300,000
 
$
0.22
 
July 11, 2011
July 11, 2016
               
Total Warrants
1,804,645
           

At September 30, 2012, the Company has reserved shares of common stock for issuance upon exercise as follows:

         
Warrants
   
1,804,645
 
Non-Plan Stock Options
   
100,714
 
2009 Equity Incentive Plan
   
18,063,613
 
Total Shares Reserved
   
19,968,972
 

Note 6: Legal Matters

Information regarding certain legal proceedings to which the Company is a party can be found in the description of legal proceedings contained in the Company’s most recent Annual Report on Form 10-K for the year ended March 31, 2012, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 previously filed with the Securities and Exchange Commission, and is incorporated herein by reference. There have not been any material developments with respect to such proceedings during the quarter to which this Report on Form 10-Q relates.

Note 7: Subsequent Events

 
On October 25, 2012, we issued a zero coupon secured promissory note to the G-Max Trust for $499,800 in proceeds with a principal amount of $588,000. The note is payable in six months, or earlier if we complete a financing transaction of at least $2,000,000 of proceeds to the Company. We issued 176,000 shares as part of the consideration for the loaned proceeds.
 
On November 8, 2012 Gemini exercised its conversion feature to convert a portion of its April 2012 note into shares of the Company's common stock.  A total of 424,110 shares were issued in the conversion of a portion of its note worth a total of $100,000 and interest of $6,027.

 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information Relating to Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for these types of statements. These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. These forward-looking statements include statements about our strategies, objectives and our future achievement. To the extent statements in this Quarterly Report involve, without limitation, our expectations for growth, estimates of future revenue, our sources and uses of cash, our liquidity needs, our current or planned clinical trials or research and development activities, product development timelines, our future products, regulatory matters, expense, profits, cash flow balance sheet items or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made through the use of word or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would. “ These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements. Actual events or results may differ materially from those discussed in this Quarterly
 
 
11

 
 
Report on Form 10-Q. Except as may be required by applicable law, we undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date of this Report. Important factors that could cause actual results to differ materially from those in these forward-looking statements are in the section entitled “Risk Factors” in the most recent Annual Report on Form 10- K, as amended, filed with the Securities and Exchange Commission, and the other risks and uncertainties described elsewhere in this report as well as other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications. In addition, the statements contained throughout this Quarterly Report concerning future events or developments or our future activities, including concerning, among other matters, current or planned clinical trials, anticipated research and development activities, anticipated dates for commencement of clinical trials, anticipated completion dates of clinical trials, anticipated meetings with the FDA or other regulatory authorities concerning our product candidates, anticipated dates for submissions to obtain required regulatory marketing approvals, anticipated dates for commercial introduction of products, and other statements concerning our future operations and activities, are forward-looking statements that in each instance assume that we are able to obtain sufficient funding in the near term and thereafter to support such activities and continue our operations and planned activities in a timely manner. There can be no assurance that this will be the case. Also, such statements assume that there are no significant unexpected developments or events that delay or prevent such activities from occurring. Failure to timely obtain sufficient funding, or unexpected development or events, could delay the occurrence of such events or prevent the events described in any such statements from occurring.

Unless the context otherwise requires, the terms “we,” “our,” and “the Company” refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its subsidiaries. Savvy and C31G® are our trademarks, among others. We also refer to trademarks of other corporations and organizations in this document.

General

Company Overview

Adamis Pharmaceuticals Corporation is an emerging pharmaceutical company engaged in the development and commercialization of a variety of specialty pharmaceutical products. Our products are concentrated in major therapeutic areas including oncology (cancer), immunology and infectious diseases (viruses) and allergy and respiratory.

We are focused on the development of preventive and therapeutic vaccine products and cancer drugs for patients with unmet medical needs. During 2010, we acquired rights under three exclusive license agreements covering three small molecule compounds, named APC-100, APC-200 and APC-300, that we believe are promising drug candidates for the potential treatment of human prostate cancer (PCa). The intellectual property covered by the agreements was licensed from the Wisconsin Alumni Research Foundation, or WARF. In 2006 and 2007, APC-100 and APC-200, respectively, received the National Cancer Institute’s multi-year, multi­million dollar RAPID (Rapid Access to Preventative Intervention Development) Award. The NCI Division of Cancer Prevention gives this award each year under the RAPID Program to promising new preventative/ therapeutic anti-cancer drugs.

We previously submitted an Investigational New Drug application, or IND, to the U.S. Food and Drug Administration, or FDA, seeking approval to permit us to commence human clinical trials for the APC-100 compound in men with castrate-resistant prostate cancer. On August 30, 2011, we announced that we had enrolled the first patient in a Phase 1/2a prostate cancer clinical study relating to the use of the APC-100 product to treat men with castrate-resistant prostate cancer. The study began at the University of Wisconsin Carbone Cancer Center and has been extended to the Wayne State University Karmanos Cancer Institute.

In April 2011, we acquired exclusive rights to patented telomerase-based cancer vaccine technology from the Regents of the University of California. At the same time, we acquired exclusive rights to a related patent from the Dana-Farber/Harvard Cancer Center. We intend to pursue development of the technology initially for what we believe may be a novel cell-based vaccine product for prostate cancer, tentatively named TeloB-VAX. The technology is intended to activate the body’s natural defense machinery to stimulate an immune response against one of nature’s most prevalent tumor markers, telomerase. We believe that the technology may have applicability to a variety of other kinds of cancer.

We have also acquired exclusive license rights to other patented preventive and therapeutic vaccine technology. The vaccine technology may be applicable to certain viral-induced diseases such as influenza and hepatitis B and C. However, we currently intend to focus initially on the development of one or more of the other recently licensed prostate cancer product candidates and technologies, and as a result the timing of development of this viral vaccine technology is subject to uncertainty.

We are also focused on developing and commercializing products in the anti-inflammatory, allergy and respiratory field. We have developed an Epinephrine Injection USP 1:1000 (0.3mg Pre-Filled Single Dose Syringe) product, or the single dose PFS Syringe product, a pre-filled epinephrine syringe product for use in the emergency treatment of extreme acute allergic reactions, or anaphylactic shock. If launched, the product will compete in a well-established U.S. market estimated to be over $600 million in annual sales, based on industry data. Following discussions with the FDA during fiscal 2011, we completed a regulatory dossier relating to the product, and once we obtain sufficient funding to support the costs of proceeding with the FDA filing for regulatory approval and the costs of a commercial launch of the product, we intend to submit an application to the FDA for marketing approval of the product and to commercially market the product as soon as reasonably practicable after the FDA allows for marketing of the product.
 
 
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Additional product candidates in our allergy and respiratory product pipeline include a steroid HFA (hydrofluoroalkane) metered dose inhaler product, referred to as APC-1000, for asthma and chronic obstructive pulmonary disease, or COPD, and an HFA pressurized metered dose inhaled nasal steroid for the treatment of seasonal and perennial allergic rhinitis, referred to as APC-3000. Our goal is to commence initial commercial sales of the APC-1000 and APC-3000 products in calendar year 2015. During the fiscal year ended March 31, 2011, we entered into a strategic manufacturing, supply, and product development agreement with Beximco Pharmaceuticals Ltd. Beximco is a leading manufacturer of pharmaceutical formulations and active pharmaceutical ingredients in Bangladesh. Beximco has a large number of products covering broad therapeutic categories, including asthma and allergy inhalers, antibiotics, anti-hypertensives, anti-diabetics, and antiretrovirals. Adamis and Beximco intend to introduce a number of separate drugs into the U.S. over the next years in the allergy and respiratory areas and may co-develop certain drugs.

We also have a contraceptive gel product candidate named Savvy (C31G®). In December 2010, we announced the successful completion of a Phase 3 contraceptive trial of Savvy. The study met its primary endpoint and was conducted by the Eunice Kennedy Shriver National Institute of Child Health and Human Development (NICHD), National Institutes of Health (NIH), in the Contraceptive Clinical Trials Network at 14 sites in the United States. The Phase 3 trial was a randomized, double-masked, controlled comparator study to assess whether a gel containing the spermicide C31G was non-inferior to Conceptrol®, a commercially available product containing nonoxynol-9 (N-9). The clinical investigators found that C31G was not inferior in contraceptive efficacy to the comparator drug. Moreover, the gel was well-tolerated and had a high degree of acceptability in women who completed the study. Currently, to our knowledge all spermicides commercially available in the U.S. contain the active ingredient N-9 in a carrier such as a gel, film, cream, foam, suppository, or tablet. C31G does not contain nonoxynol-9 and, if commercialized, may offer an alternative for women who seek a non-hormonal method of contraception. In considering whether there are commercialization alternatives, we will likely focus on seeking to enter into an out-licensing or similar transaction with organizations that have a focus or business unit in the area of contraception. There are no assurances that any third party will have an interest in pursuing discussions concerning a transaction regarding C31G.

Our general business strategy is to generate revenue through launch of allergy and respiratory products in development, in order to generate cash flow to help fund expansion of our allergy and respiratory business as well as support our future cancer and vaccine product development efforts. To achieve our goals and support our overall strategy, we will need to raise a substantial amount of funding and make substantial investments in equipment, new product development and working capital.

Going Concern and Management Plan

Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our financial statements for the years ended March 31, 2012 and 2011 indicating that we have incurred recurring losses from operations and have limited working capital to pursue our business alternatives, and that these factors raise substantial doubt about our ability to continue as a going concern. As of September 30, 2012, we had approximately $10,000 in cash and equivalents, an accumulated deficit of approximately $34.3 million and substantial liabilities and obligations. We terminated our November 2010 purchase agreement with an investor that had previously provided funding during fiscal 2011 and fiscal 2012, and we do not expect to receive additional funds from that investor pursuant to the purchase agreement. Even though we obtained additional debt funding on October 25, 2012, we have limited cash reserves, liabilities that exceed our assets and significant cash flow deficiencies. Additionally, we will need significant funding in the short term to continue operations and for the future operations and the expenditures that will be required to conduct the clinical and regulatory work to develop our product candidates.

Continued operations are dependent on our ability to complete other equity or debt funding transactions. Such capital formation activities may not be available or may not be available on reasonable terms. If we do not obtain additional equity or debt funding in the near future, our cash resources will rapidly be depleted and we will be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.
 
 
13

 
 
The above conditions raise substantial doubt about our ability to continue as a going concern. The financial statements included elsewhere herein were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. In preparing these financial statements, consideration was given to our future business as described elsewhere herein, which may preclude us from realizing the value of certain assets. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. Without additional funds from debt or equity financing, sales of assets, sales or out-licenses of intellectual property or technologies, or from a business combination or a similar transaction, we will soon exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

Our management intends to address any shortfall of working capital by attempting to secure additional funding through equity or debt financings, sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions. However, there can be no assurance that we will be able to obtain any sources of funding. If we are unsuccessful in securing funding from any of these sources, we will defer, reduce or eliminate certain planned expenditures. There is no assurance that any of the above options will be implemented on a timely basis or that we will be able to obtain additional financing on acceptable terms, if at all. If adequate funds are not available on acceptable terms, we could be required to delay development or commercialization of some or all of our products, to license to third parties the rights to commercialize certain products that we would otherwise seek to develop or commercialize internally, or to reduce resources devoted to product development. In addition, one or more licensors of patents and intellectual property rights that we have in-licensed could seek to terminate our license agreements, if our lack of funding made us unable to comply with the provisions of those agreements. If we did not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us. Any failure to dispel any continuing doubts about our ability to continue as a going concern could adversely affect our ability to enter into collaborative relationships with business partners, make it more difficult to obtain required financing on favorable terms or at all, negatively affect the market price of our common stock and could otherwise have a material adverse effect on our business, financial condition and results of operations.

Results of Operations

Six Months Ended September 30, 2012 and 2011

Revenues. Adamis had no revenues during the six month periods ending September 30, 2012 and 2011, respectively.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $529,000 and $1,204,000 for the six months ending September 30, 2012 and 2011, respectively. The decrease in research and development expenses for the first two quarters of fiscal 2013 was primarily due to a lack of capital during the current period.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ending September 30, 2012 and 2011 were approximately $1,047,000 and $1,489,000, respectively. Selling, general and administrative expenses consist primarily of legal fees, accounting and audit fees, professional/consulting fees and employee salaries. Decreases in each of those expense categories were partially offset by an increase in insurance costs.

Other Income (Expense). Interest expense for the six month period ending September 30, 2012 and 2011 was approximately $(874,000) and approximately $(30,000), respectively. Interest consists primarily of interest expense paid in connection with various notes payable at September 30, 2012, and the amortization of debt issuance cost as well as the amortization of the discounts on the notes payable for the six months ended September 30, 2012. The increase in interest expense for the six month period ended September 30, 2012, in comparison to the same period for fiscal 2012 was due to the new notes payable with Gemini and G-Max entered into during the first quarter of fiscal 2013. The change in fair value of the derivative liability for the period is approximately $(77,000) and the change in the fair value of the conversion feature is approximately $(1,057,000). The Gemini notes contained full ratchet anti-dilution provisions and the corresponding changes in fair value are recorded in Other Income (Expense).
 
 
14

 
 
Three Months Ended September 30, 2012 and 2011

Revenues. Adamis had no revenues during the three month periods ending September 30, 2012 and 2011, respectively.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $421,000 and $573,000 for the three months ending September 30, 2012 and 2011, respectively. The decrease in research and development expenses for the second quarter of fiscal 2013 was primarily due to a lack of capital during the current period.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ending September 30, 2012 and 2011 were approximately $430,000 and $906,000, respectively. Selling, general and administrative expenses consist primarily of legal fees, accounting and audit fees, professional/consulting fees and employee salaries. The decrease in expenses for the second quarter of fiscal 2013 compared to the second quarter of the previous year was primarily due to a lack of capital during the current period.

Other Income (Expense). Interest expense for the three month period ending September 30, 2012 and 2011 was approximately $(579,000) and approximately $(3,000), respectively. Interest consists primarily of interest expense in connection with various notes payable at September 30, 2012, and the amortization of debt issuance cost as well as the amortization of the discounts on the notes payable for the three months ended September 30, 2012. The increase in interest expense for the three month period ended September 30, 2012, in comparison to the same period for fiscal 2012 was due to the new notes payable with Gemini and G-Max entered into during the first quarter of fiscal 2013. The change in fair value of the derivative liability for the period is approximately $(106,000) and the change in the fair value of the conversion feature is approximately $679,000. The Gemini notes contained full ratchet anti-dilution provisions and the corresponding changes in fair value are recorded in Other Income (Expense).

Liquidity and Capital Resources

We have incurred net losses of $3.6 million and $2.7 million for the six months ended September 30, 2012 and 2011, respectively. Since inception, and through September 30, 2012, we have an accumulated deficit of approximately $34.3 million. We have financed our operations principally through debt financing and through private issuances of common stock. We expect to finance future cash needs primarily through proceeds from equity or debt financings, loans, out-licensing transactions, and/or collaborative agreements with corporate partners.

Our cash balance was approximately $10,000 and $7,500 as of September 30, 2012, and March 31, 2012, respectively.

Net cash used in operating activities for the six months ended September 30, 2012 and 2011, were approximately $(1,933,000) and $(1,991,000), respectively. We expect net cash used in operating activities to increase going forward as we engage in additional product research and development and other business activities, assuming that we are able to obtain sufficient funding.

Net cash provided by financing activities was approximately $1,936,000 and $755,000 for the six months ended September 30, 2012 and 2011. Results for the six months ended September 30, 2012, were affected by $2,000,000 of proceeds received from the issuance of three notes payable and the reduction of three notes payable, one from a related party.

On April 2, 2012, we completed the closing of a private placement financing transaction with Gemini pursuant to a securities purchase agreement. We issued a 10% Senior Convertible Note (the “Gemini Note”) in the aggregate principal amount of $1.0 million and 1,000,000 shares of our common stock, and received gross proceeds of $1.0 million, excluding transaction costs and expenses. Interest on the Gemini Note is payable at a rate of 10% per annum and is payable on the maturity date of the Gemini Note. Principal and accrued and unpaid interest is due and payable nine months after the date of the Gemini Note. The Gemini Note is convertible into shares of common stock at any time at the discretion of the investor at an initial conversion price per share of $0.25, subject to adjustment for stock splits, stock dividends and other similar transactions and subject to the terms of the Gemini Note. The conversion price is also subject to price anti-dilution adjustments providing that with the exception of certain excluded categories of issuances and transactions, if we issue equity securities or securities convertible into equity securities at an effective price per share less than the conversion price of the Gemini Note, the conversion price of the Gemini Note will be adjusted downward to equal the per share price of the new securities. Our obligations under the Gemini Note and the other transaction agreements are guaranteed by our principal subsidiaries, including Adamis Corporation, Adamis Laboratories, Inc. and Adamis Viral, Inc.

 
15

 
 
The transaction agreements include restrictions on our ability to engage in certain kinds of transactions while the Gemini Note is outstanding without the consent of the investor, including incurring or paying certain kinds of indebtedness, entering into certain kinds of financing transactions, or encumbering our assets (subject to certain exceptions). The transaction documents include a variety of liquidated damages, penalties and default provisions upon events of default by Adamis, including without limitation an increase in the principal amount and interest rate and a potential decrease in the conversion price of the Gemini Note, and in connection with certain other breaches of covenants of Adamis. If the shares underlying the Gemini Note are not freely tradable under SEC Rule 144 after six months from the closing of the Gemini Note transaction, we intend to file a registration statement covering the resale of such shares.

On June 11, 2012, we completed the closing of a private placement financing transaction with Gemini. We issued a 10% Senior Convertible Note in the aggregate principal amount of $500,000 and 500,000 shares of common stock, and received gross proceeds of $500,000, excluding transaction costs and expenses. The maturity date is nine months after the date of the note. The other material terms and conditions are similar to the Gemini Note described above, except that the initial conversion price per share is $0.55.

ASC 815 - Derivatives and Hedging provides guidance to determine what types of instruments, or embedded features in an instrument, are considered derivatives. This guidance can affect the accounting for convertible instruments that contain provisions to protect holders from a decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a convertible instrument if a company either issues equity share for a price that is lower than the exercise price of those instruments, or issues new convertible instruments that have a lower exercise price. We have determined that the conversion feature with the down-round provision on the Gemini notes should be treated as derivative liabilities. For detailed disclosure of the treatment of the two Gemini Notes see Note 3.

On June 11, 2012, we issued a convertible promissory note in the aggregate principal amount of $500,000 and 500,000 shares of common stock to The G-Max Trust, and received gross proceeds of $500,000, excluding transaction costs and expenses. Interest on the outstanding principal balance of the note accrues at a rate of 10% per annum compounded monthly and is payable monthly commencing July 1, 2012. All unpaid principal and interest on the note is due and payable on April 1, 2013. At any time on or before the maturity date, the investor has the right to convert part or all of the principal and interest owed under the note into common stock at a conversion price equal to $0.55 per share (subject to adjustment for stock dividends, stock splits, reverse stock splits, reclassifications or other similar events affecting the number of outstanding shares of common stock).

On October 25, 2012, we issued a zero coupon secured promissory note to the G-Max Trust for $499,800 in proceeds with a principal amount of $588,000. The note is payable in six months, or earlier if we complete a financing transaction of at least $2,000,000 of proceeds to the Company. We issued 176,000 shares as part of the consideration for the loaned proceeds.

At September 30, 2012, Adamis had substantial liabilities and obligations. The availability of any required additional funding cannot be assured. If do not obtain additional equity or debt funding in the near future, our cash resources will rapidly be depleted and we will be required to materially reduce or suspend operations. Even if we are successful in obtaining additional funding to permit us to continue operations at the levels that we desire, substantial time will pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales, and during this period Adamis will require additional funds. Consequently, even if we successfully obtain additional funding in the near future, Adamis is subject to the risks associated with early stage companies, including the need for additional financings; the uncertainty of research and development efforts resulting in successful commercial products, as well as the marketing and customer acceptance of such products; unexpected issues with the FDA or other federal or state regulatory authorities; competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; and dependence on corporate partners and collaborators. No assurance can be given as to the timing or ultimate success of obtaining future funding.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
 
 
16

 
 
The Company’s critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2012 have not significantly changed, and no additional policies have been adopted during the six months ended September 30, 2012.

Recent Accounting Pronouncements

None.

Off Balance Sheet Arrangements

At September 30, 2012, Adamis did not have any off balance sheet arrangements.

ITEM 3. Quantitative and Qualitative Disclosure of Market Risk

Not required.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2012, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level, for the reasons set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012, under the heading “Item 9A Controls and Procedures” relating to disclosure controls and procedures and internal controls over financial reporting.

Changes in Internal Controls

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

ITEM 1. Legal Proceedings

The litigation described in our previous filings and above could divert management time and attention from the Company, could involve significant amounts of legal fees and other fees and expenses. An adverse outcome in any such litigation could have a material adverse effect on Adamis. In addition to the matters described in our previous filings and above, we may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business, which in our opinion will not have a material adverse effect on our financial condition, cash flows or results of operations.
 
 
17

 
 
Item 1A. Risk Factors

As a smaller reporting company, Adamis is not required under the rules of the Securities and Exchange Commission, or SEC, to provide information under this Item. Risks and uncertainties relating to the amount of cash and cash equivalents at September 30, 2012, and uncertainties concerning the amount and timing of receipt of such funding, are discussed above under the headings, “Going Concern and Management Plan” and “Liquidity and Capital Resources” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q, and are incorporated herein by this reference. Other material risks and uncertainties associated with Adamis’ business have been previously disclosed in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, included under the heading “Risk Factors,” and those disclosures are incorporated herein by reference.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the second quarter of fiscal 2013, the Company issued approximately 198,649 shares of common stock to one warrant holder upon exercise of warrants previously issued that had an exercise price of $0.25 per share. The warrants were exercised by means of cashless exercise/conversion provisions in the warrants.

All issuances were issued in private placement transactions to a limited number of shareholders in reliance on Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated under the Securities Act. Each person or entity to whom securities were issued represented that the securities were being acquired for investment purposes, for the person’s or entity’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act.”

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None
 
 
18

 

ITEM 6. Exhibits

31.1
 
     
31.2
 
     
32.1
 
     
32.2
 
     
101.INS
 
XBRL Instance Document
     
101.SCH
 
XBRL Taxonomy Extension Schema Document
     
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PR
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
19

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
ADAMIS PHARMACEUTICALS, INC.
     
Date: November 13, 2012
By:
/s/ Dennis J. Carlo
   
Dennis J. Carlo
   
Chief Executive Officer
     
Date: November 13, 2012
By:
/s/ Robert O. Hopkins
   
Robert O. Hopkins
   
Vice President, Finance and Chief
Financial Officer