Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
| ☐ | 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: 001-36242
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) |
11682 El Camino Real, Suite 300, 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 ☒ No ☐
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 ☒ No ☐
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 | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock, par value $0.0001 per share, as of November 9, 2015, was 13,431,659.
ADAMIS PHARMACEUTICALS, INC.
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
| 2 |
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2015 | ||||||||
| (Unaudited) | December 31, 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 6,310,340 | $ | 3,774,665 | ||||
| Prepaid Expenses and Other Current Assets | 67,335 | 179,545 | ||||||
| 6,377,675 | 3,954,210 | |||||||
| LONG TERM ASSETS | ||||||||
| Security Deposits | 127,500 | 127,500 | ||||||
| Intangible Assets, net | 8,009,677 | 8,737,830 | ||||||
| Equipment, net | 63,115 | 77,680 | ||||||
| Total Assets | $ | 14,577,967 | $ | 12,897,220 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 408,782 | $ | 787,012 | ||||
| Accrued Other Expenses | 374,109 | 129,055 | ||||||
| Accrued Bonuses | 665,253 | 411,500 | ||||||
| Warrants, at fair value | 468,356 | 1,809,949 | ||||||
| Warrant Derivative Liabilities, at fair value | 314,673 | 256,530 | ||||||
| Total Liabilities | 2,231,173 | 3,394,046 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Series A Convertible Preferred Stock - Par Value $.0001; 10,000,000 Shares Authorized; 1,009,021 Issued and Outstanding and 1,418,439 Issued and Outstanding, Respectively | 101 | 142 | ||||||
| Common Stock - Par Value $.0001; 100,000,000 Shares Authorized; 13,739,199 and 10,959,480 Issued, 13,431,659 and 10,651,940 Outstanding, Respectively | 1,374 | 1,096 | ||||||
| Additional Paid-in Capital | 77,734,722 | 64,956,524 | ||||||
| Accumulated Deficit | (65,384,174 | ) | (55,449,359 | ) | ||||
| Treasury Stock - 307,540 Shares, at cost | (5,229 | ) | (5,229 | ) | ||||
| Total Stockholders’ Equity | 12,346,794 | 9,503,174 | ||||||
| $ | 14,577,967 | $ | 12,897,220 | |||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
| 3 |
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2015 |
September 30, 2014 |
September 30, 2015 |
September 30, 2014 |
|||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| REVENUE | $ | — | $ | — | $ | — | $ | — | ||||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 2,125,100 | 1,343,816 | 7,180,478 | 3,689,646 | ||||||||||||
| RESEARCH AND DEVELOPMENT | 1,182,542 | 597,545 | 3,807,455 | 2,716,592 | ||||||||||||
| Loss from Operations | (3,307,642 | ) | (1,941,361 | ) | (10,987,933 | ) | (6,406,238 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest Expense | — | — | — | (371,305 | ) | |||||||||||
| Gain on Extinguishment of Debt | — | — | — | 198,864 | ||||||||||||
| Change in Fair Value of Warrants | 139,822 | (626,167 | ) | 1,139,854 | 92,665 | |||||||||||
| Change in Fair Value of Warrant Derivative Liabilities | 19,613 | 442,982 | (86,736 | ) | (71,759 | ) | ||||||||||
| Total Other Income (Expense) | 159,435 | (183,185 | ) | 1,053,118 | (151,535 | ) | ||||||||||
| Net (Loss) | $ | (3,148,207 | ) | $ | (2,124,546 | ) | $ | (9,934,815 | ) | $ | (6,557,773 | ) | ||||
| Basic and Diluted (Loss) Per Share: | ||||||||||||||||
| Basic (Loss) Per Share | $ | (0.23 | ) | $ | (0.20 | ) | $ | (0.75 | ) | $ | (0.63 | ) | ||||
| Basic Weighted Average Shares Outstanding | 13,420,648 | 10,514,528 | 13,223,735 | 10,467,071 | ||||||||||||
| Diluted (Loss) Per Share | $ | (0.24 | ) | $ | (0.20 | ) | $ | (0.82 | ) | $ | (0.63 | ) | ||||
| Diluted Weighted Average Shares Outstanding | 13,504,254 | 10,514,528 | 13,391,689 | 10,467,071 | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
| 4 |
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30 | ||||||||
| 2015 | 2014 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (Loss) | $ | (9,934,815 | ) | $ | (6,557,773 | ) | ||
| Adjustments to Reconcile Net (Loss) to Net | ||||||||
| Cash (Used in) Operating Activities: | ||||||||
| Stock Based Compensation | 1,881,540 | 699,964 | ||||||
| Stock Issued in Exchanged of Services | 25,002 | — | ||||||
| Change in Gain on Extinguishment of Debt | — | (198,864 | ) | |||||
| Change in Fair Value of Warrants | (1,139,854 | ) | (92,665 | ) | ||||
| Change in Fair Value of Warrant Derivative Liabilities | 86,736 | 71,759 | ||||||
| Amortization of Discount on Notes Payable | — | 245,451 | ||||||
| Amortization of Debt Issuance Costs | — | 66,369 | ||||||
| Depreciation and Amortization Expense | 742,717 | 888,368 | ||||||
| Change in Assets and Liabilities: | ||||||||
| (Increase) Decrease in: | ||||||||
| Prepaid Expenses and Other Current Assets | 112,210 | (26,781 | ) | |||||
| Increase (Decrease) in: | ||||||||
| Accounts Payable | (378,230 | ) | (956,726 | ) | ||||
| Accrued Other Expenses and Bonuses | 498,808 | (383,021 | ) | |||||
| Net Cash (Used in) Operating Activities | (8,105,886 | ) | (6,243,919 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Issuance of Common Stock, net of issuance cost | 10,565,972 | 3,209,369 | ||||||
| Proceeds from Issuance of Preferred Stock, net of issuance cost | — | 4,897,728 | ||||||
| Proceeds from Exercise of Warrants | 75,589 | 170,000 | ||||||
| Payment of Notes Payable | — | (83,233 | ) | |||||
| Payment of Convertible Notes Payable | — | (600,000 | ) | |||||
| Payment of Notes Payable to Related Parties | — | (81,232 | ) | |||||
| Net Cash Provided by Financing Activities | 10,641,561 | 7,512,632 | ||||||
| Increase in Cash | 2,535,675 | 1,268,713 | ||||||
| Cash: | ||||||||
| Beginning | 3,774,665 | 4,674,162 | ||||||
| Ending | $ | 6,310,340 | $ | 5,942,875 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
| 5 |
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30 | ||||||||
| 2015 | 2014 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash Paid for Income Taxes | $ | 4,695 | $ | 9,859 | ||||
| Cash Paid for Interest | $ | — | $ | 103,999 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES |
||||||||
| Release of Warrants Liability Upon Exercise | $ | 230,332 | $ | — | ||||
| Beneficial Conversion Feature of Convertible Debt | $ | — | $ | 28,000 | ||||
The accompanying notes are in an integral part of these Condensed 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’s 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 Transition Report on Form 10-K for the nine-month period ended December 31, 2014.
Liquidity and Capital Resources
Our cash was $6,310,340 and $3,774,665 at September 30, 2015 and December 31, 2014, 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 significant operating 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, as well as to commercially launch any products that may be approved by applicable regulatory authorities for marketing. Management’s plans include attempting to secure additional required 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, in order to satisfy existing obligations, liabilities and future working capital needs, to build working capital reserves and to fund the Company’s research and development projects. There is no assurance that the Company will be successful in obtaining the necessary funding to meet its business objectives.
Basic and Diluted (Loss) per Share
The Company computes basic loss per share by dividing the loss attributable to holders of common stock for the period by the weighted average number of shares of common stock outstanding during the period. The diluted loss per share calculation is based on the treasury stock method and gives effect to dilutive options, warrants, convertible notes, convertible preferred stock and other potential dilutive common stock. Except as noted below, the effect of common stock equivalents was anti-dilutive and was excluded from the calculation of weighted average shares outstanding. Potential dilutive securities, which are not included in dilutive weighted average shares for the nine months ended September 30, 2015 and September 30, 2014 consist of outstanding equity classified warrants (1,730,868 and 2,496,137, respectively), outstanding options (2,146,133 and 1,152,429, respectively), outstanding restricted stock units (5,590 and 11,184, respectively), and convertible preferred stock (1,009,021 and 1,418,439, respectively).
| 7 |
The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of liability classified equity securities and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in the calculation is required to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. Accordingly, the Company considered the impact of the warrants from the June 2013 private placement (see Note 4) on the calculation of the diluted earnings per share.
| For the Three Months Ended September 30, 2015 |
For the Three Months Ended September 30, 2014 |
For the Nine Months Ended September 30, 2015 |
For the Nine Months Ended September 30, 2014 |
|||||||||||||
| Loss per Share - Basic | ||||||||||||||||
| Numerator for basic loss per share | $ | (3,148,207 | ) | $ | (2,124,546 | ) | $ | (9,934,815 | ) | $ | (6,557,773 | ) | ||||
| Denominator for basic loss per share | 13,420,648 | 10,514,528 | 13,223,735 | 10,467,071 | ||||||||||||
| Loss per common share - basic | $ | (0.23 | ) | $ | (0.20 | ) | $ | (0.75 | ) | $ | (0.63 | ) | ||||
| Loss per Share - Diluted | ||||||||||||||||
| Numerator for basic loss per share | $ | (3,148,207 | ) | $ | (2,124,546 | ) | $ | (9,934,815 | ) | $ | (6,557,773 | ) | ||||
| Adjust: Change in Fair Value of Warrant Liability | (139,822 | ) | — | (1,139,854 | ) | — | ||||||||||
| Adjust: Change in Fair Value Warrant Derivative Liability | (19,613 | ) | — | 86,736 | — | |||||||||||
| Numerator for dilutive loss per share | $ | (3,307,642 | ) | $ | (2,124,546 | ) | $ | (10,987,933 | ) | $ | (6,557,773 | ) | ||||
| Denominator for basic loss per share | 13,420,648 | 10,514,528 | 13,223,735 | 10,467,071 | ||||||||||||
| Plus: Incremental shares underlying “in the money” warrants outstanding | 83,606 | — | 167,954 | — | ||||||||||||
| Denominator for dilutive loss per share | 13,504,254 | 10,514,528 | 13,391,689 | 10,467,071 | ||||||||||||
| Loss per common share - diluted | $ | (0.24 | ) | $ | (0.20 | ) | $ | (0.82 | ) | $ | (0.63 | ) | ||||
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from contracts with Customers (Topic 606)." ASU 2014-09 supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods and services. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date." ASU 2015-14 defers the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company is currently assessing the impact of adopting ASU 2014-09 and ASU 2015-14 on its consolidated financial statements.
Note 2: Intangible Assets
Intangible assets at September 30, 2015 consist of patents and intellectual property. Amortization expense was approximately $243,000 and $728,000 for the three months and nine months ended September 30, 2015, respectively.
| 8 |
Note 3: Sale of Preferred Stock
On August 19, 2014, the Company completed a private placement transaction with a small number of accredited investors pursuant to which the Company issued 1,418,439 shares of Series A Convertible Preferred Stock and warrants to purchase up to 1,418,439 shares of common stock. The shares of Series A Preferred and warrants were sold in units, with each unit consisting of one share and one warrant, at a purchase price of $3.525 per unit. The Series A Preferred is convertible into shares of common stock at an initial conversion rate of 1-for-1 (subject to stock splits, reverse stock splits and similar events) at any time at the discretion of the investor. The exercise price of the warrants is $3.40 per share, and the warrants are exercisable for five years. If the Company grants, issues or sells any Common Stock equivalents pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then a holder of Series A Preferred or Warrants will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the holder could have acquired if the holder had held the number of shares of Common Stock acquirable upon conversion of the Series A Preferred or exercise of the Warrants (without regard to any limitations on conversion). If the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, then a holder of Series A Preferred or Warrants is entitled to participate in such distribution to the same extent as if the holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series A Preferred or exercise of the Warrants (without regard to any limitations on conversion).
Gross proceeds to the Company were approximately $5,000,000 excluding transactions costs, fees and expenses. In accordance with the transaction agreements, the Company filed a registration statement with the Securities and Exchange Commission, which registration statement became effective, to register the resale from time to time of shares of common stock underlying the Series A Preferred and the warrants.
As of September 30, 2015, the investors have converted 409,418 shares of Series A Preferred into an equal number of shares of common stock, with 1,009,021 Series A Preferred shares remaining outstanding.
Note 4: Notes Payable
Secured Convertible Promissory Notes
On June 26, 2013, the Company completed the closing of a private placement financing transaction (the “Transaction”) with a small number of accredited institutional investors. Pursuant to a Subscription Agreement (the “Purchase Agreement”) and other transaction documents, we issued Secured Convertible Promissory Notes (“Secured Notes”) and common stock purchase warrants (“Warrants”) to purchase up to 764,960 shares of common stock (“Warrant Shares”), and received gross cash proceeds of $5,300,000, of which $286,349 was used to pay for transaction costs, fees and expenses. The Secured Notes had an aggregate principal amount of $6,502,158. The Secured Notes are no longer outstanding.
The Warrants are exercisable for a period of five years from the date of issuance. The exercise price of the Warrants was initially $12.155 per share, which was 110% of the closing price of the common stock on the day before the closing. The Warrants provide for proportional adjustment of the number and kind of securities purchasable upon exercise of the Warrants and the per share exercise price upon the occurrence of certain specified events. The exercise price of the Warrants is also subject to anti-dilution provisions providing that, with the exception of certain excluded categories of issuances and transactions, if we issue any shares of common stock or securities convertible into or exercisable for common stock, or if common stock equivalents are repriced, at an effective price per share less than the exercise price, without the consent of a majority of the investors, the exercise price will be adjusted downward to equal the per share price of the securities issued or deemed issued in such transaction (and in certain instances, the number of shares issuable upon exercise of the Warrants will also be proportionately adjusted).
Provided (i) there is an effective registration statement that covers resale of all of the Warrant Shares, or (ii) all of the Warrant Shares may be sold pursuant to Rule 144 upon cashless exercise without restrictions including without volume limitations or manner of sale requirements, each such event referred to as a Trigger Condition, the Company has the option to “call” the exercise of any or all of the Warrants, referred to as a Warrant Call, from time to time by giving a Call Notice to the holders, provided that the other conditions on the Company’s option to exercise a Warrant Call have been satisfied. The Company’s right to exercise a Warrant Call commences five trading days after either of the Trigger Conditions has been in effect continuously for 15 trading days and the other applicable conditions have been satisfied. A holder has the right to cancel the Warrant Call up until the date that the called Warrant Shares are actually delivered to the holder, such date referred to as the Warrant Call Delivery Date, if the Trigger Condition relied upon for the Warrant Call ceases to apply. A Call Notice may not be given within 30 days of the expiration of the term of the Warrants. In addition, a Call Notice may be given not sooner than 15 trading days after the Warrant Call Delivery Date of the immediately preceding Call Notice.
The Company may give a Call Notice only within 10 trading days after any 20-consecutive trading day period during which the volume weighted average price (“VWAP”) of the Company’s common stock is not less than 250% of the exercise price for the Warrants in effect for 10 out of such 20-consecutive trading day period. The exercise price of the Warrants at September 30, 2015, is $3.40 per share, and accordingly 250% of such exercise price is $8.50 per share. The maximum amount of Warrant Shares that may be included in a Call Notice will be reduced for the holder to the extent necessary so as to prevent the holder from exceeding the beneficial ownership limitation described in the Warrants. In addition, a Call Notice may not be given after the occurrence of an event of default. Subject to the foregoing, a holder must exercise the Warrant and purchase the called Warrant Shares within 14 trading days after the Call Date, or the Warrant will be cancelled with respect to the unexercised portion of the Warrant that was subject to the Call Notice. Call Notices generally must be given to all Warrant holders.
| 9 |
The Warrants with the embedded call option at issuance were valued using the Binomial Option Pricing Model (“BOPM”). The estimated fair value of a single Warrant, including the call option, was $2.329 per share and the estimated value of the Warrant anti-dilution reset feature was $1.2002 per share. As a result, the Company recorded liabilities for the warrant and warrant down-round protection derivative totaling $2,398,280. The warrant and warrant derivative liabilities were revalued at September 30, 2015, see Note 5.
Note Payable
On May 1, 2011, the Company entered into a non-interest bearing note payable with a drug wholesaler related to sales returns in the amount of $147,866. The note required monthly payments of $10,000 with a final payment of $7,866 due on July 15, 2012. After July 2012, the note was due on demand and incurred interest at 12% per annum. The note was paid in full during the nine month period ended September 30, 2014.
Notes Payable to Related Parties
The Company had notes payable to a related party amounting to $97,122, which was repaid during the nine months ended September 30, 2014. The notes bore interest at a rate of 10% per annum. Accrued interest, included in accrued other expenses in the consolidated balance sheets, related to the notes were paid in full during the nine months ended September 30, 2014.
Note 5: Derivative Liabilities and Fair Value Measurements
Accounting Standards Codification (“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, referred to as anti-dilution or down-round protection. 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. The Company has determined that the warrant liability and related down-round provision related to the Secured Notes should be treated as derivatives. The Company is required to report derivatives at fair value and record the fluctuations in 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 than 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 derivative liabilities at their respective fair values at inception and on each reporting date. The Company utilized the BOPM to develop its assumptions for determining the fair value of the Warrants and related anti-dilution features.
Key assumptions at September 30, 2015 for the Warrants discussed in Note 4 include a volatility factor of 84.0%, a dividend yield of 0%, expected life of 2.75 years and a risk free interest rate of 0.72%.
The Company estimated the fair value of the Warrants, including call options, to be $0.8143 per share and the down-round protection derivative for the same Warrants was estimated at $0.5471 per share. The number of liability classified Warrants outstanding as of September 30, 2015 and December 31, 2014 were 575,164 and 647,312, respectively. As shown in the table below, carrying value of the Warrants with call options at September 30, 2015 was $468,356 and the carrying value of the down-round protection derivative for the same date was $314,673.
| 10 |
During the nine months ended September 30, 2015, a total of 72,150 warrants were exercised, reducing the fair value of warrants and derivative liabilities and increasing Additional Paid in Capital by $230,332.
The table below provides a reconciliation of beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3):
| Warrant | ||||||||||||
| Warrants | Derivative | Total | ||||||||||
| Balance: December 31, 2014 | $ | (1,809,949 | ) | $ | (256,530 | ) | $ | (2,066,479 | ) | |||
| Release of Warrant Liability Upon Exercise | 201,739 | 28,593 | 230,332 | |||||||||
| Net Change in Fair Value | 1,092,058 | (84,895 | ) | 1,007,163 | ||||||||
| Balance: March 31, 2015 | (516,152 | ) | (312,832 | ) | (828,984 | ) | ||||||
| Net Change in Fair Value | (92,026 | ) | (21,454 | ) | (113,480 | ) | ||||||
| Balance: June 30, 2015 | (608,178 | ) | (334,286 | ) | (942,464 | ) | ||||||
| Net Change in Fair Value | 139,822 | 19,613 | 159,435 | |||||||||
| Balance: September 30, 2015 | $ | (468,356 | ) | $ | (314,673 | ) | $ | (783,029 | ) | |||
The derivative 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 inputs.
The following table describes the valuation techniques used to calculate fair values for assets in Level 3. There were no changes in the valuation techniques during the nine months ended September 30, 2015 from December 31, 2014.
| Fair Value at | Fair Value at | Valuation | Unobservable | |||||||
| 9/30/2015 | 12/31/2014 | Technique | Input | Range | ||||||
| Warrant Derivative and Warrant Down-round Protection Derivative (combined) |
$ | 783,029 | $ | 2,066,479 | Binomial Option Pricing Model |
Probability of common stock issuance at prices less than exercise prices stated in agreements |
50% | |||
| Probability of reset provision being waived |
5% |
Significant unobservable inputs for the derivative liabilities include (1) the estimated probability of the occurrence of a down-round financing during the term over which the related warrants are exercisable, (2) the estimated magnitude of the down-round and (3) the probability of the reset provision being waived. These estimates which are unobservable in the market were utilized to value the anti-dilution features of the warrants as of September 30, 2015 and December 31, 2014.
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Note 6: Common Stock
In January 2015, the Company completed the closing of an underwritten public offering of 2,300,000 shares of common stock at a public offering price of $5.00 per share, which included 300,000 shares pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately $10.6 million, after deducting approximately $900,000 in underwriting discounts and commissions and estimated offering expenses payable by the Company. Oppenheimer & Co. Inc. acted as the sole book-running manager of the offering. CRT Capital Group LLC, Maxim Group LLC and Mizuho Securities USA Inc. acted as co-managers for the offering. The securities were issued by the Company pursuant to a “shelf” registration statement on Form S-3 that the Company previously filed with the Securities and Exchange Commission, and a prospectus supplement and an accompanying prospectus relating to the offering filed in January 2015.
Between July 22, 2015 and August 25, 2015, the Company issued 2,677 shares of common stock upon exercise of options granted under the Company’s 2009 Equity Incentive Plan. The option holders utilized a cashless net exercise (based on a common stock price of $3.57, $4.24 and $4.29 per share on the dates of exercise) of a total of 15,000 stock options with an exercise price ranging between $3.06 and $3.57.
Note 7: Stock Option Plans, Shares Reserved and Warrants
In August 2015, options to purchase 12,352 shares of common stock previously granted under the 2009 Equity Incentive Plan expired in accordance with their terms.
The following table summarizes the stock option activity for the nine months ended September 30, 2015:
| 2009 Equity Incentive Plan |
Weighted Average Exercise Price |
Weighted Average Remaining |Contract Life |
||||||||||
| Balance as of December 31, 2014 | 1,239,722 | $ | 5.46 | 8.42 years | ||||||||
| Options Granted | 933,763 | 5.78 | 9.10 years | |||||||||
| Options Exercised | (15,000 | ) | — | — | ||||||||
| Options Canceled/Expired | (12,352 | ) | — | — | ||||||||
| Balance as of September 30, 2015 | 2,146,133 | $ | 5.59 | 8.38 years | ||||||||
| Exercisable at September 30, 2015 | 1,031,751 | $ | 5.52 | 7.56 years | ||||||||
The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) of the 2,146,133 and 1,239,722 stock options outstanding at September 30, 2015 and December 31, 2014 was approximately $57,000 and approximately $1.4 million, respectively. The aggregate intrinsic value of 1,031,751 and 558,117 stock options exercisable at September 30, 2015 and December 31, 2014 was approximately $57,000 and $683,000, respectively.
The following table summarizes warrants outstanding at September 30, 2015:
| Warrant Shares |
Exercise Price Per Share |
Date Issued |
Expiration Date |
|||||||||
| Old Adamis Warrants | 58,824 | $ | 8.50 | November 15, 2007 | November 15, 2015 | |||||||
| 2013 Private Placement | 597,222 | $ | 3.40 - $12.16 | June 26, 2013 | June 25, 2018 | |||||||
| Consultant Warrants | 17,647 | $ | 3.74 | July 11, 2011 | July 11, 2016 | |||||||
| Underwriter Warrants | 186,000 | $ | 7.44 | December 12, 2013 | December 12, 2018 | |||||||
| Underwriter Warrants | 27,900 | $ | 7.44 | January 16, 2014 | January 16, 2019 | |||||||
| Preferred Stock Sale Warrants | 1,418,439 | $ | 3.40 | August 19, 2014 | August 19, 2019 | |||||||
| Total Warrants | 2,306,032 | |||||||||||
At September 30, 2015, the Company has reserved shares of common stock for issuance upon exercise of outstanding options and warrants, convertible preferred stock units, and options and other awards that may be granted in the future under the 2009 Equity Incentive Plan, as follows:
| Warrants | 2,306,032 | |||
| Convertible Preferred Stock | 1,009,021 | |||
| 2009 Equity Incentive Plan | 3,380,217 | |||
| Total Shares Reserved | 6,695,270 |
Note 8: Subsequent Events
In October 2015, the Company extended the expiration date of an outstanding warrant to purchase 58,824 shares of common stock at an exercise price of $8.50 per share, from November 15, 2015 to November 15, 2017.
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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. 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 Report on Form 10-Q. Except as may be required by applicable law, we undertake no obligation to update any 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 discussed in these forward-looking statements are identified in the section entitled “Risk Factors” in the most recent Transition Report on Form 10- K, filed with the Securities and Exchange Commission, and in the other risks and uncertainties described elsewhere in this report as well as in 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 developments 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.
General
Company Overview
We are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicines for patients and physicians. We are currently primarily focused on our specialty pharmaceutical products. We are currently developing several products in the allergy and respiratory markets, including our Epinephrine PFS product, for the emergency treatment of acute allergic reactions, including anaphylaxis, and a dry powder inhaler technology. Our goal is to create low cost therapeutic alternatives to existing treatments. Consistent across all specialty pharmaceuticals product lines, we intend to submit Section 505(b)(2) New Drug Applications, or NDAs, or Section 505(j) Abbreviated New Drug Applications or ANDAs, to the U.S. Food and Drug Administration, or FDA, whenever possible, in order to potentially reduce the time to market and to save on costs, compared to those associated with Section 505(b)(1) NDAs for new drug products. We also have a number of biotechnology product candidates and technologies, including therapeutic vaccine and cancer product candidates and technologies intended to treat patients with unmet medical needs in the global cancer market. To achieve our goals and support our overall strategy, we will need to raise a substantial amount of funding and make significant investments in equipment, new product development and working capital.
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Recent Developments
Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe
On May 28, 2014, we submitted a Section 505(b)(2) NDA application to the FDA for approval for sale of our Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe, or the Epinephrine PFS product. The Epinephrine PFS product delivers a premeasured dose of epinephrine for the emergency treatment of anaphylaxis.
On March 27, 2015, we issued a press release announcing that we received a Complete Response Letter (“CRL”) from the FDA regarding our NDA for the Epinephrine PFS product. A CRL is issued by the FDA’s Center for Drug Evaluation and Research when it has completed its review of a file and questions remain that preclude the approval of the NDA in its current form.
The questions raised by the FDA in the CRL pertained to Chemistry, Manufacturing and Controls (“CMC”) relating to the volume of dose delivered by the syringe, including the ability of the Epinephrine PFS product as designed and manufactured as described in the NDA to deliver volume of epinephrine within the levels contained in the labeling claim and as required by the FDA. No other safety or efficacy issues were raised, and the NDA will remain open until the CMC issues are resolved. The letter indicated that the agency had reserved comment, if any, on the proposed labeling for the product until the application was otherwise adequate.
Following receipt of the CRL, the Company has had communications with the FDA, including a telephonic meeting with the FDA on August 5, 2015, and is continuing its review of the CRL. The Company is taking a number of actions, including changes to the performance, size and functionality of the product, that the Company believes may be responsive to the items raised in the CRL, with the goal of preparing and submitting an amendment of the NDA to the FDA before the end of 2015, assuming successful and timely continued product development efforts. Under the FDA’s procedures concerning target response times, the Company believes that the FDA should respond to an additional submission by the Company within six months after the Company’s responsive submission, though that target deadline may be extended if FDA requests additional data, information, materials or clarification or for other reasons, such as difficulties scheduling an advisory committee meeting, FDA workload issues, or other reasons. The Company remains committed to attempting to obtain FDA approval of the NDA for the Epinephrine PFS product and commercializing the product, and remains hopeful that the issues and questions raised by the FDA in the CRL will be satisfactorily addressed and the product ultimately approved for marketing. However, the Company cannot provide any assurances concerning when it will make any additional submission, whether the FDA will agree that any resubmission of the NDA by the Company satisfactorily addresses the matters noted in the CRL, whether the FDA will raise other issues relating to the NDA, what actions will be required in order to satisfy the FDA’s issues and questions, and whether the Epinephrine PFS product will ultimately be commercialized. In addition, the Company may be required to devote additional cash resources, which could be significant, in order to respond to the issues raised by the FDA in the CRL and any follow-up requests and to design and manufacture the Epinephrine PFS product in a manner that complies with the FDA requirements.
APC-1000
The Company is continuing development of the APC-1000 product candidate, a steroid hydrofluoroalkane, or HFA, metered dose inhaler product for asthma. Following discussions with the FDA and additional consideration of the development pathway for the product, the Company has decided to conduct additional development work for APC-1000 during 2015. As a result, the Company will likely not file an investigational new drug application, or IND, or commence a clinical study regarding APC-1000 during 2015 but intends, depending on the outcome of several factors including results of the additional development work and obtaining additional funding that will be required to commence a trial, to submit an IND for APC-1000 during the first half of 2016, although there can be no assurances concerning the timing of any such filing or the commencement of a clinical trial relating to APC-1000 after submission of such an IND.
Going Concern and Management Plan
Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our consolidated financial statements for the nine-month transition period ended December 31, 2014 and fiscal year ended March 31, 2014 indicating that we have sustained substantial losses from continuing operations and have used, rather than provided, cash in its continuing operations, and 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, 2015, we had cash of approximately $6.3 million, an accumulated deficit of approximately $65.4 million, and liabilities of approximately $2.2 million. We will need significant funding to continue operations, satisfy our obligations and fund the future expenditures that will be required to conduct the clinical and regulatory work to develop and launch our product candidates. Such additional funding may not be available, may not be available on reasonable terms, and could result in significant additional dilution to our stockholders. If we do not obtain required additional equity or debt funding, our cash resources will be depleted and we could 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.
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The above conditions raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements included elsewhere herein for the three months and nine months ended September 30, 2015, 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 condensed consolidated 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 unaudited condensed consolidated 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, after expenditure of our existing cash resources we would exhaust our resources and would be unable to continue operations.
Our management intends to attempt to secure additional required 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 required additional funding. If we are unsuccessful in securing funding from any of these sources, we will defer, reduce or eliminate certain planned expenditures and delay development or commercialization of some or all of our products. If we do 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.
Results of Operations
Nine Months Ended September 30, 2015 and 2014
Revenues. Adamis had no revenues during the nine-month periods ended September 30, 2015 and 2014, 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 $3,807,000 and $2,717,000 for the nine months ended September 30, 2015 and 2014, respectively. The increase in research and development expenses was primarily due to the additional expense in product development, consisting mostly of expenditures related to product testing and product validation of approximately $456,000 relating to our Epinephrine PFS, APC-3000 and APC-5000 product candidates. Compensation expense, which includes salaries, stock options, employee benefits and bonus accrual, increased by approximately $596,000 for the nine months ended September 30, 2015 compared to the comparable period of the prior year because of salary increase, new hires, additional stock option grants and monthly accrual of bonus. Travel and other expenses increased by approximately $40,000 in the first nine months of 2015 compared to the comparable period in 2014 as a result of visits to vendors.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of depreciation and amortization, legal fees, accounting and audit fees, professional/consulting fees and employee compensation. Selling, general and administrative expenses for the nine months ended September 30, 2015 and 2014 were approximately $7,180,000 and $3,690,000, respectively. The increase in expense was primarily due to the activities related to the anticipated commercialization of Epinephrine PFS product, including approximately $1,073,000 of expenses relating to market research, training, branding, marketing and distribution strategies and payments to third party consultants and contractors pursuant to agreements relating to the foregoing, and approximately $1,155,000 increase in compensation expense for Sales and Marketing employees, which includes salaries, stock options, employee benefits and bonus accrual. Compensation expense for General and Administrative employees increased by approximately $1,006,000 for the nine months ended September 30, 2015 compared to the comparable period of the prior year, primarily due to salary increases, new hires, additional stock options granted and monthly accrual of bonus. Other increases in expenditures for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 included increases in SEC reporting and other related expenses of approximately $67,000, board of directors’ fees of approximately $169,000, insurance cost of approximately $41,000, accounting and legal expenses of approximately $55,000 and rent of approximately $69,000. These increases were partially offset by a decrease of $146,000 in amortization expense because of an asset that was fully amortized in 2014.
Other Income (Expense). Other income for the nine month period ended September 30, 2015 and 2014 was approximately $1,053,000 and approximately $(152,000), respectively. Other Income (Expense) consists primarily of a change in fair value of warrants, change in fair value of derivative liabilities, gain in extinguishment of debt, and interest expense. The net change in fair value of warrants and derivatives resulted in an income of approximately $1,053,000 for the nine months ended September 30, 2015, compared to income of approximately $21,000 for the nine months ended September 30, 2014. The fluctuation in the valuation of the warrants and warrant derivatives was primarily due to the drop in exercise price from $5.95 to $3.40 in August 2014 and the changes in stock price, term and volatility. Debt related expense (Interest Expense and Gain in Extinguishment of Debt) for the nine month periods ended September 30, 2015 and 2014 were approximately $0 and $172,000, respectively. The decrease in debt related expenses for the nine month period ended September 30, 2015, in comparison to the same period for fiscal 2014 was due to the full payment of the debt balance in 2014.
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Three Months Ended September 30, 2015 and 2014
Revenues. Adamis had no revenues during the three month periods ended September 30, 2015 and 2014, 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 $1,183,000 and $598,000 for the three months ended September 30, 2015 and 2014, respectively. The increase in research and development expenses was primarily due to the additional expense in product development, consisting mostly of expenditures related to product testing and product validation of approximately $372,000 relating to our Epinephrine PFS, APC-3000 and APC-5000 product candidates. Compensation expense, which includes salaries, stock options, employee benefits and bonus accrual, increased by approximately $205,000 for the three month period ended September 30, 2015 compared to the comparable period of the prior year because of salary increases, new hire, additional stock options granted and monthly accrual of bonus. Travel and other expenses increased by approximately $8,000 for the three months ended September 30, 2015 compared to the comparable period of 2014 as a result of visits to vendors.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of depreciation and amortization, legal fees, accounting and audit fees, professional/consulting fees and employee compensation. Selling, general and administrative expenses for the three months ended September 30, 2015 and 2014 were approximately $2,125,000 and $1,344,000, respectively. The increase in expense was primarily due to the activities related to the anticipated commercialization of the Epinephrine PFS product candidate, including approximately $108,000 of expenses relating to market research, training, branding, marketing and distribution strategies and payments to third party consultants and contractors pursuant to agreements relating to the foregoing, and approximately $442,000 increase in compensation expense for Sales and Marketing employees, which includes salaries, stock options, employee benefits and bonus accrual. Compensation expense for General and Administrative employees increased by approximately $449,000 for the three months ended September 30, 2015 compared to the comparable period of the prior year, primarily due to salary increases, new hires, additional stock options granted and monthly accrual of bonus. Other increases in expenditures for the three months ended September 30, 2015 compared to the comparable quarter in 2014 included increases in board of directors’ fees of approximately $56,000. An offset to the increase in expenses was the reduction of approximately $49,000 in amortization of an asset whose value was fully amortized in 2014, a decrease in travel expenses by approximately $19,000 and a decrease in accounting and legal expenses by approximately $207,000 due to the decrease in patent costs and reduced legal activities for the three month period ended September 30, 2015 compared to the comparable period of the prior year.
Other Income (Expense). Other expense for the three month period ended September 30, 2015 and 2014 was approximately $159,000 and approximately $(183,000), respectively. Other Income (Expense) consists primarily of a change in fair value of warrants and change in fair value of derivative liabilities. The net change in fair value of warrants and derivatives resulted in an income of approximately $159,000 for the three months ended September 30, 2015, compared to the expense of approximately $183,000 for the three months ended September 30, 2014. The fluctuation in the valuation of warrants and warrant derivatives was primarily due to the drop in exercise price from $5.95 to $3.40 in August 2014 and the changes in stock price, term and volatility.
Liquidity and Capital Resources
We have incurred net losses of approximately $9.9 million and $6.6 million for the nine months ended September 30, 2015 and 2014, respectively. Since inception, and through September 30, 2015, we have an accumulated deficit of approximately $65.4 million. Since inception and through September 30, 2015 we have financed our operations principally through debt financing, through private issuances of common stock and preferred stock, and through underwritten public offerings of common stock. Since inception, we have raised a total of approximately $71.8 million in debt and equity financing transactions, consisting of approximately $15.8 million in debt financing and approximately $56.0 million in equity financing transactions. We expect to finance future cash needs primarily through proceeds from equity or debt financings, loans, sales of assets, out-licensing transactions, and/or collaborative agreements with corporate partners. We have used the net proceeds from debt and equity financings for general corporate purposes, which have included funding for research and development, selling, general and administrative expenses, working capital, reducing indebtedness, pursuing and completing licenses, acquisitions or investments in other businesses, products or technologies, and for capital expenditures.
Total assets were approximately $14.6 million and $12.9 million as of September 30, 2015 and December 31, 2014. All liabilities are classified as current. Current assets exceed current liabilities by approximately $4.1 million and $0.6 million as of September 30, 2015 and December 31, 2014.
Net cash used in operating activities for the nine months ended September 30, 2015 and 2014, was approximately $8.1 million and $6.2 million, respectively. Net cash used in operating activities increased due to additional research and development costs, and increases in Selling, General & Administrative expenses.
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Net cash provided by financing activities was approximately $10.6 million and $7.5 million for the nine months ended September 30, 2015 and 2014, respectively. Net cash flows provided by financing activities increased primarily due to the issuance of common stock in January 2015 that generated net proceeds of approximately $10.6 million.
As noted above under the heading “Going Concern and Management Plan,” through September 30, 2015, Adamis had incurred substantial losses. The availability of any required additional funding cannot be assured. If we do not obtain additional equity or debt funding in the near future, our cash resources will be depleted and we will be required to materially reduce or suspend operations. Even if 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. No assurance can be given as to the timing or ultimate success of obtaining future funding. As noted under the heading Recent Developments, the Company will be required to devote additional cash resources, which could be significant, in order to respond to the issues and questions raised by the FDA in the CRL regarding our Epinephrine PFS product and to continue development of our other product candidates.
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 accounting principles generally accepted in the United States. 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, 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 from these estimates under different assumptions or conditions.
The Company’s critical accounting policies and estimates previously disclosed in our Transition Report on Form 10-K for the nine-month period ended December 31, 2014 have not significantly changed, and no additional policies have been adopted during the nine months ended September 30, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for goods or services. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date." ASU 2015-14 defers the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company is currently assessing the impact of adopting ASU 2014-09 and ASU 2015-14 on its consolidated financial statements.
Off Balance Sheet Arrangements
At September 30, 2015, Adamis did not have any off balance sheet arrangements.
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk
Not required.
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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, 2015. 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, 2015, 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 Transition Report on Form 10-K for the nine-month period ended December 31, 2014, under the heading “Item 9A Controls and Procedures” relating to disclosure controls and procedures and internal controls over financial reporting.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The Company intends to implement additional reviews and internal control procedures in order to improve its internal control over financial reporting.
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PART II OTHER INFORMATION
Information regarding certain legal proceedings to which the Company is or may become a party can be found in the description of legal proceedings contained in the Company’s most recent Transition Report on Form 10-K for the nine-month period ended December 31, 2014, and is incorporated herein by reference. There have not been any material developments with respect to any such proceedings during the quarter to which this Report on Form 10-Q relates.
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, 2015, and uncertainties concerning the need for additional 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 transition 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 quarter ended September 30, 2015, we did not issue securities without registration under the Securities Act of 1933, as amended.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Removed and Reserved.
None.
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The following exhibits are attached hereto or incorporated herein by reference.
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 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 |
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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 9, 2015 | By: | /s/ Dennis J. Carlo |
| Dennis J. Carlo | ||
| Chief Executive Officer | ||
| Date: November 9, 2015 | By: | /s/ Robert O. Hopkins |
| Robert O. Hopkins | ||
| Vice President, Finance and Chief Financial Officer | ||
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