UNITED STATES

  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

  FORM 10-K

 

(Mark one)  

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2015

 

OR

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-26372

 

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 No.)
 
11682 El Camino Real, Suite 300, San Diego, CA 92130
(Address of Principal Executive Offices) (zip code)
 
Registrant’s telephone number, including area code: (858) 997-2400
Securities registered pursuant to Section 12(b) of the Act:

 

None   None
(Title of each class)   (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

  Common Stock, $0.0001 par value

(Title of class)

 

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES     ☐   NO     ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

YES     ☐   NO     ☒

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of the chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒           

 

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 definition of “accelerated filer and large accelerated filer” 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 Act). 

YES     ☐   NO     ☒

 

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2015, was $46,651,597.

 

At March 23, 2016, the Company had 13,459,061 shares outstanding.

 

Documents Incorporated by Reference: Portions of the proxy statement for the 2016 annual stockholders meeting are incorporated by reference into Part III.

 

 
 

 

ADAMIS PHARMACEUTICALS CORPORATION

 

TABLE OF CONTENTS

  

        PAGE
NO.
PART I
ITEM 1.   BUSINESS   1
         
ITEM 1A.   RISK FACTORS   17
         
ITEM 1B.   UNRESOLVED STAFF COMMENTS   31
         
ITEM 2.   PROPERTIES   31
         
ITEM 3.   LEGAL PROCEEDINGS   31
         
ITEM 4.   MINE SAFETY DISCLOSURES   31
         
PART II
         
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES   32
         
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   33
         
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   38
         
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   38
         
ITEM 9A.   CONTROLS AND PROCEDURES   38
         
ITEM 9B.   OTHER INFORMATION   40
         
PART III
         
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   41
         
ITEM 11.   EXECUTIVE COMPENSATION   41
         
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   41
         
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   41
         
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES   41
         
PART IV
         
ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES   42

 

i  
 

 

Information Relating to Forward-Looking Statements

 

This Annual Report on Form 10-K (this “Report”) 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 Annual Report on Form 10-K 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, our expectations concerning the timing of regulatory approvals, 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 Annual Report on Form 10-K. 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 disclosed in this Annual Report on Form 10-K, including, without limitation, under the headings “Item 1A. Risk Factors,” “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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, many forward-looking statements in this Annual Report on Form 10-K, including statements 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 dates for meetings with regulatory authorities and submissions to obtain required regulatory marketing approvals, anticipated dates for commercial introduction of products, and other statements concerning our future operations and activities, 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. As discussed herein, including under “Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we require additional funding to continue operations, and there are no assurances that such funding will be available. Failure to timely obtain required funding would adversely affect and could delay or prevent our ability to realize the results contemplated by such forward looking statements.

 

The Adamis Pharmaceuticals logo and other trademarks or service marks of Adamis Pharmaceuticals Corporation appearing in this Annual Report on Form 10-K are the property of Adamis Pharmaceuticals Corporation. All other brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective owners. Unless the context otherwise requires, the terms “we,” “our,” and “the Company” refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its subsidiaries.

 

ii  
 

 

EXPLANATORY NOTE REGARDING THE ANNUAL REPORT

 

We changed our fiscal year to the calendar twelve months ending December 31, effective beginning after our previous fiscal year ended March 31, 2014. As a result, our prior fiscal period was shortened from twelve months to a nine-month transition period ended on December 31, 2014.

 

Unless otherwise indicated, comparisons of fiscal year results in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” portion of this Annual Report, and elsewhere herein, compare results for the 12-month period ended December 31, 2015 to the nine-month transition period ended December 31, 2014 (sometimes referred to herein as the "Transition 2014 Period'), and accordingly are not comparing results for a comparable period of time. Included in note 17 to the financial statements appearing elsewhere in this Annual Report is certain unaudited financial information for the 12-month period ended December 31, 2014.

 

iii  
 

 

PART I

 

ITEM 1. BUSINESS

  

Company Overview

 

Adamis Pharmaceuticals Corporation (“we,” “us,” “our,” “Adamis” or the “company”) is a 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 one utilizing a dry powder inhaler technology that we acquired from 3M Company, or 3M. 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.

 

The current status of our development programs is as follows:

 

Product Portfolio

  

Specialty Pharmaceutical Products   Target Indication   Development Status
Epinephrine PFS   Anaphylaxis   Submitted NDA
APC-5000 DPI   Asthma/COPD   Phase 3 ready (1)(2)
APC-1000   Asthma/COPD   Phase 3 ready (1)(2)
APC-2000   Bronchospasm   Phase 3 ready (1)(2)

  

Biotechnology Products   Target Indication   Development Status
TeloB-VAX (vaccine)   Prostate Cancer   Phase 2 ready (1)
APC-100   Prostate Cancer   Phase 1 trial (3)
APC-200   Prostate Cancer   Preclinical
APC-300   Prostate Cancer   Preclinical

 

 

(1) Represents the next anticipated development or regulatory stage for the product candidate that we may pursue, assuming that we have the financial resources to pursue any of these opportunities. There are no assurances that we will pursue these opportunities, for financial or other reasons.
(2) A single Phase 3 trial, without previous Phase 1 or Phase 2 trials, is the anticipated next product development stage. The Company intends to conduct additional trials, such as PK and/or dose escalation studies in connection with the Phase 3 trial.
(3) Phase 1 of a Phase 1/2a clinical trial has commenced. No patients are currently being recruited for this study.

 

We have not received regulatory approval for any drugs or products. Since our fiscal 2010 year, we have not generated commercial revenues from marketing or selling any drugs or other products .

 

Anaphylaxis; Epinephrine Pre-Filled Syringe

 

Our most advanced product candidate, the Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe, or the Epinephrine PFS, is a pre-filled syringe designed to deliver a premeasured 0.3 mg dose of epinephrine for the treatment of anaphylaxis. The American Academy of Allergy Asthma and Immunology, or AAAAI, defines anaphylaxis as a serious life-threatening allergic reaction. The most common anaphylactic reactions are to foods, insect stings, medications and latex. According to information published by AAAAI reporting on findings from a 2009-2010 study, up to 8% of U.S. children under the age of 18 had a food allergy, and approximately 38% of those with a food allergy had a history of severe reactions. Anaphylaxis requires immediate medical treatment, including an injection of epinephrine.

 

1  
 

 

We estimate that sales of prescription epinephrine products in 2015 were approximately $1.0 billion, based on industry data. We cannot provide any assurances concerning any possible future rates of annual growth or whether annual prescriptions will decline or grow.

 

We believe that there is an opportunity for a simple, lower-cost, pre-filled syringe to compete in this market. Our Epinephrine PFS product will allow users to administer a pre-measured epinephrine dose quickly with a syringe that we believe will be familiar to many potential users. Auto-injectors are spring-loaded auto-injector devices. If not administered properly, there is a risk that they could misfire or be misused. We expect to introduce the Epinephrine PFS product at a price point reflecting a discount to the price of the leading products. We believe that a lower-priced option may be attractive to individuals that pay cash for their epinephrine products, professional users such as hospitals and first responders, and military and prison systems.

 

We believe that the Epinephrine PFS product, if introduced, may acquire a share of the market based on the price differential between the expected price of the Epinephrine PFS product and the price at which the market-leading product is currently sold, which may motivate purchasers and reimbursing payors to choose the lower cost alternative. We believe that the Epinephrine PFS product has the potential to compete successfully, although there can be no assurance that this will be the case. If our product is approved and introduced, competitors may reduce or otherwise modify the pricing of their existing products. In addition, if additional competing products are introduced in the future, such as a generic or bioequivalent, or A/B rated, version of one or more existing spring-loaded auto-injector devices, at lower prices than the current market leading products, the competitive success of our product could be adversely affected.

 

With the help of our contract manufacturer, on May 28, 2014, we submitted an NDA to the FDA pursuant to Section 505(b)(2) of the Food, Drug & Cosmetic Act, as amended, or FDCA, for approval of our Epinephrine PFS product. We received a complete response letter, or CRL, from FDA on March 27, 2015. The issues raised in the CRL related primarily to the Chemistry, Manufacturing and Controls section, more specifically, the volume of dose delivered by the syringe, including the ability of the product to deliver volume within the levels contained in the labeling claim and as required by the FDA. We took a number of actions, including making changes to the performance, size and functionality of the product, we submitted the NDA on December 4, 2015. On January 14, 2016, we announced that the FDA had accepted the resubmitted NDA for review, and that the FDA indicated that it considered the resubmission to be a complete, class 2 response to the CRL and provided an agency target new action date of June 4, 2016, for reviewing and acting on to the resubmission.  If the FDA approves the NDA, we hope to receive an approval in time to permit our first commercial sales to commence sometime in the third quarter of 2016, although there are no assurances that this will be the case. Under goals established in connection with the Prescription Drug User Fee Act, or PDUFA, the FDA’s guidance for the review and acting on Class 2 NDA resubmissions is six months from the date of receipt of the resubmission. However, the FDA’s review processes can extend beyond, and in some cases significantly beyond, anticipated completion dates due to the timing of the FDA’s review process, FDA requests for additional data, information, materials or clarification, difficulties scheduling an advisory committee meeting, FDA workload issues, extensions resulting from the submission of additional information or clarification regarding information already in the submission within the last three months of the target PDUFA date, or other reasons. As a result, the dates of regulatory approval, if obtained, and commercial introduction of our product could be delayed beyond our expectations.

 

Asthma and COPD

 

According to the National Institute of Health, or NIH, asthma is a chronic lung disease that inflames and narrows the airways. Asthma causes recurring periods of wheezing, chest tightness, shortness of breath, and coughing. Asthma affects people of all ages, but it most often starts during childhood. According to information published by Centers for Disease Control & Prevention (CDC) reporting on findings from 2013, the number of people in the U.S. with asthma is approximately 22.6 million and growing.

 

COPD, or chronic obstructive pulmonary disease, is a progressive disease that makes it difficult to breathe. COPD can cause coughing that produces large amounts of mucus, wheezing, shortness of breath, chest tightness, and other symptoms. According to the NIH, cigarette smoking is the leading cause of COPD. However, long-term exposure to other lung irritants such as air pollution, chemical fumes, or dust may also contribute to COPD.

 

We estimate that global sales of asthma and COPD prescription products were in excess of approximately $13.8 billion in 2014, based on industry data. Within the global asthma and COPD market, we estimate that one product in particular, Advair Diskus ® marketed by GlaxoSmithKline, generated more than $3.2 billion in U.S. sales and $7 billion in global sales in 2014, based on GSK’s publicly announced results.

 

APC-5000 DPI . In December 2013, we acquired assets relating to 3M’s patented Taper dry powder inhaler, or DPI, technology under development by 3M for the treatment of asthma and COPD. Pursuant to our agreement with 3M, we made an initial payment of $3.0 million to 3M and acquired an exclusive license to the assets, and on December 27, 2013, we made a final payment to 3M of $7.0 million and the Taper DPI assets were transferred to us. The Taper DPI technology was under development by 3M as a device designed to efficiently deliver dry powder by utilizing a 3M proprietary microstructured carrier tape. We believe that, once developed, the device can be utilized to deliver a variety of different drug compounds. We intend to utilize the Taper DPI assets initially to develop a pre-metered inhaler device, referred to as APC-5000 DPI, for the treatment of asthma and COPD to deliver the same active ingredients as GlaxoSmithKline’s Advair Diskus ® . The Advair Diskus ® is a dry powder inhaler, or DPI, product that combines fluticasone propionate, or fluticasone and salmeterol xinafoate, or salmeterol. Fluticasone belongs to the family of medicines known as corticosteroids or steroids. It works by preventing certain cells in the lungs and breathing passages from releasing substances that cause asthma symptoms. Inhaled salmeterol is a long-acting bronchodilator. Bronchodilators are medicines that are breathed in through the mouth to open up the bronchial tubes (air passages) in the lungs. It relieves cough, wheezing, shortness of breath, and troubled breathing by increasing the flow of air through the bronchial tubes. The combination of the two medicines is used when a patient’s asthma has not been controlled sufficiently on other asthma medicines, or when a patient’s condition is so severe that more than one medicine is needed every day.

 

2  
 

 

Upon completion of product development and clinical trials and if required regulatory approvals are obtained, we intend to commercially market the APC-5000 DPI product to compete for a share of the Advair Diskus market with a branded generic version utilizing the acquired technology. Pursuant to our agreement with 3M, the microstructured carrier tape will be supplied by 3M under a separate supply agreement to be negotiated with 3M.

 

We believe that one advantage of the technology is that it can deliver drug particles without the need for lactose or formulation excipients. The majority of current dry powder products use lactose carrier excipients to enhance flowability; however, they have the disadvantage of increased bulk and require a mechanism for detaching the drug from the surface of the lactose. Lactose carrier formulations require a complicated blending process and delivery that is highly sensitive to excipient powder properties. There are currently no excipient-free dry powder inhalers in the U.S. market.

 

On February 24, 2015, we announced the result of our Phase 1 pharmacokinetic study, or PK study, comparing the bioavailability of our APC-5000 DPI product to GlaxoSmithKline’s Advair® Diskus® DPI. This PK study was designed as an open-label, randomized, single-dose, 4 period (2 sequence, 2 treatment, fully replicated) crossover relative bioavailability study comparing APC-5000 (Fluticasone Propionate, or FP, 186 μg and Salmeterol Xinafoate, or SX, 44.7 μg; 3 inhalations; total dose 558/134.1 μg FP/SX) and Advair® Diskus® 250/50 μg (3 inhalations; total dose 750/150 μg FP/SX). Sixteen healthy male and female subjects who met the study inclusion criteria were enrolled into the study. The study involved a screening period and four treatment periods separated by four days. After completion of screening procedures, subjects were randomized to receive two doses of each Test and Reference product in four treatment periods. All sixteen subjects completed the study. The study results confirmed that systemic exposure to the drugs FP and SX was reduced after treatment with APC-5000 as compared to Advair® Diskus®.

 

We are currently preparing an investigational new drug application, or IND, to be submitted to the FDA to begin human testing of APC-5000 DPI. Assuming receipt of sufficient funding and if clinical trials are initiated and successfully completed, we intend to pursue an NDA under Section 505(b)(2) to seek approval for sale in the U.S. market. We also intend to seek to identify opportunities to market APC-5000 DPI based products outside of the U.S. We currently have no in-house manufacturing capabilities, so we intend to rely on third-party contract manufacturers to manufacture the materials needed to produce APC-5000 DPI.

 

Additional Allergy Products; APC-1000 and APC-2000 . We have two additional product candidates in our allergy and respiratory product pipeline. Our APC-1000 product candidate is a steroid hydrofluoroalkane, or HFA, metered dose inhaler product, for asthma and COPD. Our product candidates, if developed and approved for marketing, will target a small niche within the larger market for respiratory products. To date, we have not made any regulatory filings with the FDA for these products. 

In the fourth quarter of 2015, we decided to terminate the development of our APC-3000 product candidate, for the treatment of seasonal and perennial allergic rhinitis, because the current leading product in its category became available over-the-counter in the United States, and we concluded that it would be difficult for our prescription APC-3000 product candidate to compete with an over-the-counter product targeting the same ailment and patient population. 

 

On February 24, 2015, we announced the result of our pharmacokinetic study, or PK study, comparing our beclomethasone dipropionate HFA, 80 mcg Inhalation Aerosol, product, APC-1000, with Teva Respiratory, LLC’s Qvar® (Beclomethasone Dipropionate HFA, 80 mcg Inhalation Aerosol) product. The study was a Phase I open label, randomized, single-dose, four-way crossover PK study comparing APC-1000 to Qvar. Twenty-two healthy male and female subjects who met the study inclusion criteria were enrolled. The study involved a screening period before randomization and four treatment periods each separated by a minimum of three days. Both inhalation aerosols were administered to each subject for a total dose of 320 mcg BDP (4 inhalations). Twenty-one subjects completed the study. One subject was withdrawn due to non-compliance. The purpose of this PK study was to compare the bioavailability of APC-1000 to Qvar. The results showed the extent of absorption of APC-1000 to be equivalent to Qvar. Following discussions with the FDA and additional consideration of the development pathway for the product, we decided to conduct additional development work for APC-1000 during 2015.  We intend, depending on the outcome of several factors including results of additional development work and obtaining additional funding that will be required to commence a trial, to file an investigational new drug application, or IND, and initiate a dose escalation and subsequent Phase 3 efficacy study during the second half of 2016.

  

Our second product candidate that is in development in our allergy and respiratory pipeline, APC-2000, is a HFA bronchodilator for the treatment or prevention of bronchospasm. We have had previous discussions with the FDA regarding regulatory approval requirements and intend to have further discussions concerning, among other things, the appropriate regulatory pathway for the product under Section 505(j) relating to ANDAs, Section 505(b)(2) or otherwise.

 

3  
 

 

Our development plans concerning our allergy and respiratory products, including APC-1000 and 2000, are affected by developments in the marketplace, including the introduction of potentially competing new products by our competitors. For example, certain products that previously have been available by prescription only have been approved by the FDA and introduced for sale over-the-counter without a prescription at a lower price than competing prescription products, and other new allergy or respiratory products have been or could in the future also be approved as “branded generic” products or as over-the-counter products. Such products could be sold at lower prices than prescription products, could adversely affect the willingness of health insurers or other third party payors to reimburse patients for the cost of prescription products, and could adversely affect our ability to successfully develop and market product candidates in our pipeline. As a result, our product development plans could be affected by such considerations. The anticipated dates for development and introduction of products in our allergy and respiratory product pipeline will depend on a number of factors, including the availability of adequate funding to support product development efforts. We believe that should we decide to pursue such applications, we would be required to submit data for an application for approval to market APC-1000 pursuant to Section 505(b)(2), and APC-2000 pursuant to Section 505(j) or 505(b)(2) of the FDCA, although there are no assurances that this will be the case. We believe that the next trial for APC-1000 and APC-2000 would be a Phase 3 pivotal trial, potentially preceded by dose escalation studies and do not believe that Phase 1 or Phase 2 trials would be required. Total time to develop the APC-1000 or APC-2000 product, including manufacture of the product, clinical trials and FDA review, is expected to be approximately 24-30 months from inception of full product development efforts, assuming that we are able to obtain adequate funding and that there are no unforeseen regulatory issues or other delays. Factors that could affect the actual launch date for our allergy and respiratory product candidates, as well as our other product candidates, include general market conditions, the outcome of discussions with the FDA concerning the number and kind of clinical trials that the FDA will require before the FDA will consider regulatory approval of the applicable product, the outcome of discussions with the FDA concerning the regulatory approval pathway of the applicable product, any unexpected difficulties in licensing or sublicensing intellectual property rights for other components of the product such as the inhaler, patent infringement lawsuits relating to Paragraph IV certifications as part of any Section 505(b)(2) or ANDA filings, see “Government Regulation—Regulation in the United States—Section 505(b)(2) New Drug Applications,” any unexpected difficulties in the ability of our suppliers to timely supply quantities for commercial launch of the product, any unexpected delays or difficulties in assembling and deploying an adequate sales force to market the product, and receipt of adequate funding to support product development and sales and marketing efforts.

 

Subject to several factors including the availability of sufficient funding, the success of future clinical trials, obtaining required regulatory approvals and the absence of unexpected delays, we believe that up to four products, including Epinephrine PFS, could be ready for launch or launched before the end of 2018, although there can be no assurances that this will be the case.

 

Cancer

 

Although we are currently primarily focused on our specialty pharmaceutical products, we believe that there is a significant need for new products and therapies for the treatment of prostate cancer and other forms of cancer.

 

TeloB-VAX . In April 2011, we acquired exclusive rights to patented telomerase-based cancer vaccine technology from the Regents of the University of California, or UCSD, and the Dana-Farber/Harvard Cancer Center. The technology relates to what we believe may be a novel cell-based vaccine product candidate for cancer, tentatively named TeloB-VAX. The technology is intended to activate the body’s natural defense mechanism to stimulate an immune response against one of nature’s most common tumor markers, telomerase reverse transcriptase, or telomerase. We believe that a vaccine product, if developed, will utilize the patient’s own B cells to induce an immune response against telomerase. Telomerase is a marker found in approximately 85% of all cancers including prostate cancer. In a Phase 1 clinical trial completed at UCSD in castrate resistant prostate cancer patients, the vaccine product candidate was shown to be safe and well tolerated. We believe that this technology may represent an opportunity to program the immune system to mobilize killer lymphocytes to combat cancer cells.

 

Prostate Cancer . According to the American Cancer Society, or ACS, and the National Cancer Institute, or NCI, prostate cancer is the second-most common cancer in American men and the second leading cause of cancer death in American men. The ACS estimated that for 2015 in the United States, approximately 220,800 new cases of prostate cancer will be diagnosed and about 27,450 men will die of prostate cancer in 2015. In 2010, we licensed patents and related intellectual property relating to three cancer drug candidates developed at the University of Wisconsin. We believe these drug candidates, named APC-100, -200 and -300, may offer new treatment opportunities for prostate cancer.

 

APC-100 is the most advanced of the three drug candidates. In animal studies conducted to date, APC-100 demonstrated anti-androgenic and anti-inflammatory activities against prostate tumors growing in animal models and showed a strong safety profile in preclinical safety studies. In 2006, APC-100 was awarded the NCI Rapid Award. The award is given by the National Cancer Institutes for promising new drugs for the treatment of cancer and resulted in significant funding for research and development of APC-100. APC-100 has demonstrated desirable pharmacological characteristics as an oral or injectable anti-inflammatory and anti-androgenic drug candidate with multiple mechanisms of action. In animal studies conducted to date, APC-100 decreased secretion of human PSA by human prostate cancer cells growing in mice and also increased the time-to-tumor progression and survival of mice with prostate sensitive and castrate resistant tumors. In August 2011, we announced the enrollment of the first patient in a Phase 1/2a prostate cancer clinical trial relating to the use of the APC-100 product to treat men with castrate-resistant prostate cancer. The trial began at the University of Wisconsin Carbone Cancer Center and was extended to the Wayne State University Karmanos Cancer Institute. In the trial, each patient has been assessed for toxicity, biochemical responses (PSA), radiographic and clinical responses. No patients are currently being recruited.

 

4  
 

 

APC-200 is a drug candidate for both castrate-sensitive and castrate resistant prostate cancer. In 2007, APC-200 was awarded the NCI Rapid Award. APC-200 blocks androgen-induced hydrogen peroxide production and inflammation and inhibits mouse prostate cancer. In animal studies conducted to date, APC-200 was an excellent inhibitor of chronic inflammation. It also completely inhibited oxidase mediated high rates of hydrogen peroxide production in vivo and delayed prostate cancer progression and death in the standard mouse prostate cancer model. If we conclude preclinical development activities, such as GMP manufacturing of drug substance and drug product, as well as conclusion of the preclinical safety, pharmacology and toxicology studies, we anticipate that the next development stage would be to submit an Adamis-sponsored IND relating to the clinical investigation of oral APC-200 in prostate cancer patients with castrate resistant prostate cancer, assuming adequate funding and no unexpected delays, although there are no assurances that we will file or open such an IND.

 

APC-300 is a multi-targeted small molecule therapeutic drug that we believe has the potential to demonstrate anti-inflammatory, pro-apoptotic anti-cancer activities for prostate cancer patients, including men with advanced metastatic castrate resistance prostate cancer. In preclinical in vitro studies conducted to date, APC-300 repeatedly demonstrated inhibition of human tumor cell growth and killed both castrate-sensitive and castrate-resistant human prostate cancer tumors. It also materially decreased tumor volumes and suppressed local metastasis in human to mouse xenograft models, where malignant human prostate, pancreas, or melanoma tumor tissue was grafted onto athymic immunosuppressed experimental mice. For several reasons including funding limitations, we have not yet developed a clinical protocol and other materials for submission of an IND.

 

We are currently primarily focused on our specialty pharmaceutical products and do not currently intend to devote a material portion of our financial resources for research and development of our cancer and biotechnology product candidates and technologies. We may explore other alternatives for development of one or more of these product candidates and technologies including seeking strategic development arrangements or out-licensing or sale transactions.

 

Other Technologies

 

STI Technology

 

In addition, we have licensed patented vaccine technology that we believe has the potential to provide protection against a number of different viral infectious agents. This novel vaccination strategy, which employs DNA plasmids, appears, based on preclinical studies conducted to date, to have the ability to “train” a person’s immune system to recognize and mount a defense against particular aspects of a virus’s structure. If successfully developed, we believe this technology could give physicians a new tool in generating immunity against a number of viral infections that have been difficult to target in the past.

 

The licensed technology was developed by Dr. Maurizio Zanetti, M.D., a professor at the Department of Medicine at UCSD. Dr. Zanetti has developed and patented a method of DNA vaccination by somatic transgene immunization, or STI. STI, also sometimes called TLI, has already been tested in Phase I studies in humans for other vaccine applications. An immune response was elicited in the study, and the results suggested that the procedure was safe and well tolerated. We have previously conducted certain experiments in mice utilizing the STI technology, but our testing is at the preclinical stage.

 

As among our cancer and vaccine technologies, our development efforts would focus initially on the development of one or more of the other licensed prostate cancer product candidates and technologies, and as a result the timing of development of this viral vaccine technology is subject to uncertainty.

 

Savvy/C31G

 

We also have a microbicide product candidate, named Savvy (C31G). On December 7, 2010, we announced the successful completion of a Phase 3 contraceptive trial of C31G. 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 clinical investigators found that C31G was not inferior in contraceptive efficacy to the comparator drug Conceptrol. Moreover, the gel was well-tolerated and had a high degree of acceptability in women who completed the study. No drug-related serious adverse events were observed with C31G. Currently, to our knowledge all spermicides commercially available in the U.S., including Conceptrol, contain the active ingredient nonoxynol-9, or N-9, in a carrier such as a gel, film, cream, foam, suppository, or tablet. N-9 has been reported in some studies to cause irritant and allergic reactions in some users. C31G does not contain N-9 and, if commercialized, may offer an alternative for women who seek a non-hormonal method of contraception. In addition, on September 9, 2013, we announced that a recently published study conducted by university researchers at Louisiana State University Health Science Center found that C31G was effective in treating Herpes Simplex Virus, or HSV, in an eye infection, ocular keratitis, and animal model using live rabbits. The rabbit eye model utilized for the study mimics the disease in humans. In the same study the researchers also reported that ocular administration of C31G was safe and well tolerated, confirming earlier clinical studies that established C31G safety and tolerability in other applications. HSV-1 is the same virus that causes cold sores and is common in humans. In the eye, it usually causes an infection of the cornea, and that infection is the most common cause of cornea-derived blindness. In previous animal studies, C31G was also active against HSV-2, the cause of genital herpes.

 

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Before considering any actions to further develop or seek regulatory approval for a C31G product, further meetings with the FDA would likely be required to discuss the regulatory pathways for submitting an NDA for marketing approval, including whether any additional trials will be required before an NDA is submitted. In considering commercialization alternatives, we would likely seek to enter into an out-licensing or similar transaction with organizations that have a focus or business unit in the area of antimicrobials or contraception, or in other fields where C31G may have potential as a product candidate. The C31G product candidate is held by our Biosyn, Inc. subsidiary, which we acquired in 2004. Provisions in the agreement pursuant to which we acquired Biosyn, and/or in certain of the funding agreements and other agreements relating to the C31G product, provide for payments to the former Biosyn shareholders upon marketing approval by the FDA (or, in certain circumstances, certain foreign regulatory authorities) of C31G for one or more indications, for payments to certain other third parties in the event of sales or other revenues relating to C31G or certain other events, and include limitations on certain activities of Biosyn including payment of dividends. In addition, sale or out-licensing of the C31G product candidate may require the consent of one or more such third parties. As a result, commercialization of the product could require, among other things, renegotiation of the provisions relating to the former Biosyn shareholders and such third parties. Accordingly, there can be no assurances that we will pursue or be able to successfully conclude a transaction involving C31G or concerning the amounts that we might receive from any such transaction, or that any C31G product will be submitted for regulatory approval or will be approved or marketed.

 

For the year ended December 31, 2015 and the nine-month transition period ended December 31, 2014, we estimate that we spent approximately $4.8 million and $3.5 million, respectively, on all research and development activities.

 

Clinical Supplies and Manufacturing

 

We have no in-house manufacturing or distribution capabilities and have no current plans to establish manufacturing facilities for significant clinical or commercial production. We rely on third-party contract manufacturers to make the material used to support the development of our product candidates. Our third-party manufacturers are subject to extensive governmental regulation. The FDA mandates that drugs be manufactured, packaged and labeled in conformity with current good manufacturing practices, or cGMP, regulations. In complying with cGMP regulations, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to ensure that their services and products meet applicable specifications and other requirements. We intend to continue to outsource the manufacture and distribution of our products for the foreseeable future, and we believe this manufacturing strategy will enable us to direct our financial resources to commercialization without devoting the resources and capital required to build cGMP compliant manufacturing facilities. If the FDA approves our NDA relating to our Epinephrine PFS product, the Epinephrine PFS product will be manufactured by Catalent Pharma Solutions, a third party manufacturer, utilizing materials to complete the manufacturing process obtained from various companies and suppliers, and assembly and final packaging of the product will also be implemented by a third party entity. Although there are potential sources of supply other than our existing suppliers, any new supplier would be required to qualify under applicable regulatory requirements.

 

Sales and Marketing

 

We are currently developing our sales and marketing infrastructure, including retaining employees and entering into arrangements with third parties for additional sales and marketing support, and undertaking other related activities in anticipation of obtaining FDA approval of our NDA relating to our Epinephrine PFS product for treating anaphylaxis.

 

Customers and Distribution

  

We do not currently sell or distribute pharmaceutical products. Since our fiscal 2010 year, we have not generated commercial revenues from marketing or selling any drugs or other products . If our Epinephrine PFS product is approved, we anticipate that marketing and distribution of the product could commence to initial customers including wholesalers, who in turn seek to distribute the products to retail pharmacies or other customers, specialty wholesalers or distributors, professional users such as hospitals and first responders, and the military and prison systems, as well as other potential customers. We have retained third-party service providers to perform a variety of functions related to the distribution of our products that may be approved, including logistics management and other distribution management and data reporting services in exchange for a fee.

 

Competition

 

The biotechnology and pharmaceutical industries are extremely competitive. Our potential competitors in the field are many in number and include major pharmaceutical and specialized biotechnology companies. Many of our potential competitors have significantly more financial, technical and other resources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience in effecting strategic combinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing products. We cannot give any assurances that we can compete effectively with these other biotechnology and pharmaceutical companies. Our potential competitors in these markets may succeed in developing products that could render our products and those of our collaborators obsolete or non-competitive. In addition, many of our competitors have significantly greater experience than we do in the fields in which we compete.

 

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Our allergy and respiratory products, if developed and launched, will compete with numerous prescription and non-prescription over-the-counter products targeting similar conditions, as well as prescription generic products. In addition, a number of large pharmaceuticals companies produce pharmaceutical products, such as antihistamines, corticosteroids and anti-leukotriene agents, which manage allergy and respiratory symptoms. Moreover, certain products that previously have been available by prescription only have been or could in the future be approved by the FDA for sale over-the-counter without a prescription at a lower price than competing prescription products, which could adversely affect our ability to successfully develop and market a competing prescription product. The Epinephrine PFS product, if commercialized, will compete against other self-administered epinephrine products, including EpiPen, EpiPen Jr., Auvi-Q and Adrenaclick. In addition, additional competing products could be introduced in the future, such as a generic or bioequivalent, or A/B, version of existing spring-loaded auto-injector devices, at prices that could adversely affect competitive success of our Epinephrine PFS product. Our APC-5000 DPI product, if developed and commercialized, is expected to compete with allergy inhaler products offered by several companies, including GlaxoSmithKline. The development and commercialization of new drugs for cancer, and of vaccine products for viral infections, is highly competitive. Most of the larger pharmaceutical companies, and many smaller public and private companies, have products or are engaged in research and development activities in these fields.

 

Intellectual Property

 

Our success will depend in large part on our ability to:

 

  obtain and maintain international and domestic patent and other legal protections for the proprietary technology, inventions and improvements we consider important to our business;
prosecute and defend our patents;
preserve our trade secrets; and
operate without infringing the patents and proprietary rights of other parties.

 

We intend to continue to seek appropriate patent protection for product candidates in our research and development programs where applicable and their uses by filing patent applications in the United States and other selected countries. We intend for these patent applications to cover, where possible, claims for composition of matter, medical uses, processes for preparation and formulations. As of February 5, 2016, the Company had: (i) 10 issued patents in the United States and 10 pending applications, one of which has been allowed; (ii) eight issued and 19 pending foreign patent applications relating to Epinephrine Injection, APC 5000 DPI and C31G. The issued patents and allowed patents applications expire between 2017 and 2035, not taking into account any potential patent-term extensions that may be available in the future. We are the licensees of other patents under our various licensing agreements relating to APC 100, APC 200, APC 300, Telomerase and STI.

 

Although we believe that our rights under patents and patent applications provide a competitive advantage, the patent positions of pharmaceutical and biotechnology companies are highly uncertain and involve complex legal and factual questions. We may not be able to develop patentable products or processes, and may not be able to obtain patents from pending applications. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. Any patents or patent rights that we obtain may be circumvented, challenged or invalidated by our competitors.

 

We also rely on trade secrets, proprietary know-how and continuing innovation to develop and maintain our competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. We seek protection of these trade secrets, proprietary know-how and any continuing innovation, in part, through confidentiality and proprietary information agreements. However, these agreements may not provide meaningful protection for, or adequate remedies to protect, our technology in the event of unauthorized use or disclosure of information. Furthermore, our trade secrets may otherwise become known to, or be independently developed by, our competitors.

 

Government Regulation

 

Pharmaceutical Regulation

 

If and when we market any pharmaceutical products in the United States, they will be subject to extensive government regulation. Likewise, if we seek to market and distribute any such products abroad, they would also be subject to extensive foreign government regulation.

 

In the United States, the FDA regulates pharmaceutical products. FDA regulations govern the testing, manufacturing, advertising, promotion, labeling, sale and distribution of pharmaceutical products, and generally require a rigorous process for the approval of new drugs. We also may be subject to foreign regulatory requirements governing clinical trials and drug product sales if products are tested or marketed abroad. The approval process outside the United States varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval.

 

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Regulation in the United States

 

The FDA testing and approval process requires substantial time, effort and money. We cannot assure you that any of our products will ever obtain approval. Our potential products will be regulated either as biological products or as drugs. In the United States, drugs are subject to regulation under the FDCA. Biological products, in addition to being subject to provisions of the FDCA, are regulated under the Public Health Service Act, or PHSA. Both statutes and related regulations govern, among other things, testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising, and other promotional practices. The FDA approval process for new drugs and biologics includes, without limitation:

 

  preclinical studies;
  submission of an Investigational New Drug application, or IND, for clinical trials;
  adequate and well-controlled human clinical trials to establish safety and efficacy of the product;
  review of a New Drug Application, or NDA, or review of a Biologics License Application, or BLA; and
  inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s current Good Manufacturing Practices, or cGMP, regulations.

 

Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and effectiveness of the product. Most of these studies must be performed according to good laboratory practices, a system of management controls for laboratories and research organizations to ensure the consistency and reliability of results. The results of the preclinical studies, existing clinical and/or human use data (if applicable), together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which we are required to file before we can commence any clinical trials for our product candidates in the United States. Clinical trials may begin 30 days after an IND is received, unless the FDA raises concerns or questions about the conduct of the clinical trials. If concerns or questions are raised, an IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot assure you that submission of any additional IND for any of our preclinical product candidates will result in authorization to commence clinical trials.

 

Clinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under the supervision of a qualified principal investigator. Each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at each institution at which the study will be conducted. The IRB will consider, among other things, ethical factors, safety of human subjects and the possible liability of the institution arising from the conduct of the proposed clinical trial. Also, clinical trials must be performed according to good clinical practices, which are enumerated in FDA regulations and guidance documents.

 

Clinical trials typically are conducted in sequential phases: Phases 1, 2 and 3. The phases may overlap. The FDA may require that we suspend clinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are being exposed to an unacceptable health risk.

 

In Phase 1 clinical trials, a drug is usually tested on patients to determine safety, any adverse effects, proper dosage, absorption, metabolism, distribution, excretion and other drug effects.

 

In Phase 2 clinical trials, a drug is usually tested on a limited number of subjects to preliminarily evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks.

 

In Phase 3 clinical trials, a drug is usually tested on a larger number of subjects in an expanded patient population and at multiple clinical sites.

 

We cannot assure you that any of our current or future clinical trials will result in approval to market our products.

 

A NDA or BLA must include comprehensive and complete descriptions of the preclinical testing, clinical trials and the chemical, manufacturing and control requirements of a drug that enable the FDA to determine the drug’s or biologic’s safety and efficacy. A NDA or BLA must be submitted, filed and approved by the FDA before any product that we may successfully develop can be marketed commercially in the United States.

 

The facilities, procedures and operations for any of our contract manufacturers must be determined to be adequate by the FDA before product approval. Manufacturing facilities are subject to inspections by the FDA for compliance with cGMP, licensing specifications and other FDA regulations before and after an NDA or BLA has been approved. Foreign manufacturing facilities are also subject to periodic FDA inspections or inspections by foreign regulatory authorities. Among other things, the FDA may withhold approval of NDAs, BLAs or other product applications if deficiencies are found at the facility. Vendors that may supply us with finished products or components used to manufacture, package and label products are also subject to similar regulations and periodic inspections.

 

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In addition, the FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals, including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the Internet.

 

Failure to comply with FDA and other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs or BLAs, injunctions and criminal prosecution. Any of these actions could have a material adverse effect on us.

 

Some of our cancer and vaccine product candidates may involve biological products, which are subject to regulation under the PHSA. In addition to the FDA requirements, the NIH has established guidelines for research involving human genetic materials, including recombinant DNA molecules. The FDA cooperates in the enforcement of these guidelines, which apply to all recombinant DNA research that is conducted at facilities supported by the NIH, including proposals to conduct clinical research involving gene therapies. The NIH review of clinical trial proposals and safety information is a public process and often involves review and approval by the Recombinant DNA Advisory Committee, or RAC, of the NIH. Some of our cancer and vaccine product candidates may be subject to NIH RAC review.

 

The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests, proposed labeling and other relevant information are submitted to the FDA in the form of a BLA, requesting approval to market the product for one or more specified indications. The submission of a BLA is subject to the payment of substantial user fees.

 

Once the FDA receives an NDA or BLA, it has 60 days to review the application to determine if it is substantially complete and the data is readable, before it accepts the NDA or BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the submission to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity.

 

Under the goals and policies agreed to by the FDA under PDUFA, the FDA agrees to specific goals for NDA review time through a two-tiered classification system, Priority Review and Standard Review. A Priority Review designation is given to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. For a Priority Review application, the FDA aims to complete the initial review cycle for New Molecular Entities, or NMEs, within six months of the 60 day filing date, and for non-NMEs within six months of the date of receipt. Standard Review applies to all applications that are not eligible for Priority Review. The FDA aims to complete Standard Review NDAs for NMEs within ten months of the 60 day filing date, and for Non-NMEs within ten months of the date of receipt. Such dates are often referred to as the PDUFA dates. The FDA does not always meet its PDUFA dates for either Standard Reviews or Priority Reviews of NDAs or BLAs. The review process and the PDUFA date may be extended by three months if the FDA requests or the sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA date. In addition, the FDA’s review processes can extend beyond, and in some cases significantly beyond, anticipated completion dates due to FDA requests for additional information or clarification, difficulties scheduling an advisory committee meeting, negotiations regarding any required risk evaluation and mitigation strategies, FDA workload issues or other reasons. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to the application’s approval. The amount of time taken for the approval process is a function of a number of variables, including whether the product has received priority review, the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA.

 

The FDA may, during its review of a NDA or BLA, ask for additional test data or the conducting of additional clinical trials. If the FDA does ultimately approve the product, it may require post-marketing testing to monitor the safety and effectiveness of the product. In addition, the FDA may in some circumstances impose restrictions on the use of the product, which may be difficult and expensive to administer and may require prior approval of promotional materials.

 

Prior to regulatory approval, the FDA may elect to obtain advice from outside experts regarding scientific issues and/or marketing applications under FDA review. These outside experts are convened through the FDA’s Advisory Committee process. An Advisory Committee will report to the FDA and make recommendations. Views of the Advisory Committee may differ from those of the FDA, and the FDA is not bound by the recommendations of an Advisory Committee.

 

Before approving an NDA or BLA, the FDA can inspect the facilities at which the product is manufactured. The FDA will not approve the submission unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical studies were conducted in compliance with GCP requirements. If the FDA determines that the processes and procedures used are not acceptable, it will outline the deficiencies in the submission and often will request additional clinical testing or information before an NDA or BLA can be approved. The FDA may also inspect one or more of the preclinical toxicology research sites to assure that the preclinical studies were conducted in compliance with GLP requirements. If the FDA determines that the studies were not performed in compliance with applicable GLP rules and regulations, the FDA may request additional preclinical testing or information before an NDA or BLA can be approved.

 

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The FDA will issue a complete response letter if the agency decides not to approve the NDA or BLA. The complete response letter describes all of the specific deficiencies in the submission identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

 

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require post marketing studies, sometimes referred to as Phase 4 testing, which involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. After approval, certain changes to the approved drug or biologic, such as adding new indications, manufacturing changes or additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, an NDA or BLA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to an NDA or BLA, the FDA has up to 180 days to review the application. As with new NDAs or BLAs, the review process is often significantly extended by FDA requests for additional information or clarification.

 

Following receipt of regulatory approval, any products that we market continue to be subject to extensive regulation including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product storage, sampling and distribution requirements, complying with certain electronic records and signature requirements, complying with FDA promotion and advertising requirements, which include, among others, restrictions on direct-to-consumer advertising, promoting biologics for uses or in patient populations that are not described in the product’s approved labeling, known as “off-label use, and requirements relating to industry-sponsored scientific and educational activities and promotional activities involving the internet. These regulations impact many aspects of our operations, including the manufacture, labeling, packaging, adverse event reporting, storage, distribution, advertising, promotion and record keeping related to the products. The FDA also frequently requires post-marketing testing and surveillance to monitor the effects of approved products or places conditions on any approvals that could restrict the commercial applications of these products. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, disgorgement of money, operating restrictions and criminal prosecution.

 

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. If one or more of our products are approved by the FDA and we commence marketing operations, our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

 

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment.

 

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The Patient Protection and Affordable Care Act, or PPACA, enacted in 2010, imposes new reporting and disclosure requirements for pharmaceutical and device manufacturers with regard to payments or other transfers of value made to physicians and teaching hospitals. In addition, pharmaceutical and device manufacturers will also be required to report and disclose investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties for payments, transfers of value or ownership or investment interests not reported in an annual submission. The reforms imposed by the PPACA will significantly impact the pharmaceutical industry; however, the full effects of the new law cannot be known until these provisions are implemented. In addition, although the PPACA was recently upheld by the U.S. Supreme Court, it is possible that the PPACA may be modified or repealed in the future.

 

If not preempted by this federal law, several states require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to individual physicians in the states. Other states prohibit providing various other marketing related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In addition, certain states require pharmaceutical companies to implement compliance programs or marketing codes. Currently, several additional states are considering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties. Because of the breadth of these laws and the narrowness of the safe harbors, once we commence marketing products it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

 

In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. This practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures. Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.

 

The FDA closely regulates the post-approval marketing and promotion of drugs. While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. These “off-label” uses are not unusual across certain medical specialties and may constitute an appropriate treatment for many patients in varied circumstances. Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to delay its approval or refuse to approve a product, suspend or withdraw of an approved product from the market, and could result in other consequences such as recalls, fines, disgorgement of money, operating restrictions, injunctions, civil or criminal prosecution or penalties, or other possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, mandated corrective advertising or communications with healthcare professionals, or criminal penalties or other negative consequences, including adverse publicity. Any of these consequences could harm our business.

 

We will rely, and expect to continue to rely, on third-parties for the production of clinical and commercial quantities of our products. Our collaborators may also utilize third-parties for some or all of a product we are developing with such collaborator. Manufacturers are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved biologics are required to register their establishments with the FDA and certain state agencies and are subject to periodic inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

 

Section 505(b)(2) New Drug Applications

 

Most drug products obtain FDA marketing approval pursuant to a Section 505(b)(1) NDA filing or an Abbreviated NDA, or ANDA. An alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA’s findings with respect to certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

 

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In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. For some drugs, the FDA may require risk evaluation and mitigation strategies, or REMS, which could include medication guides, physician communication plans, or restrictions on distribution and use, such as limitations on who may prescribe the drug or where it may be dispensed or administered.

 

To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2) application with respect to any patents for the previously approved product on which the applicant’s application relies that are listed in the Orange Book. Specifically, the applicant must certify for each listed patent that, in relevant part, (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. Further, the FDA will also not approve, as applicable, a Section 505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired.

 

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holder receives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. Even if a patent infringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invoke the 30-month stay. Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of a previously approved drug’s five year exclusivity period and the patent holder brings suit within 45 days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and one-half year period if either party is found not to be reasonably cooperating in expediting the litigation.

 

As a result, we may invest a significant amount of time and expense in the development of a product and our Section 505(b)(2) applications only to be subject to significant delay and patent litigation before our product may be commercialized. Alternatively, if the prior NDA applicant or relevant patent holder does not file a patent infringement lawsuit within the specified 45-day period, the FDA may approve the Section 505(b)(2) application at any time, assuming the application is otherwise approvable.

 

Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.

 

We intend to pursue a Section 505(b)(2) regulatory filing in connection with our Epinephrine PFS product, APC-1000, APC-2000, and APC-5000 DPI products and product candidates. Accordingly, if we rely in our regulatory filing on clinical trials conducted, or the FDA’s prior findings of safety and effectiveness, for a previously approved drug product that involves patents referenced in the Orange Book, then we will need to make the patent certifications or the Paragraph IV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that we referenced in our application initiates patent litigation within the time periods described above, then we will be subject to the risks of patent litigation, with the accompanying delay described above and potentially material expense of patent litigation, before we could commercially market our product.

 

In addition, even if we submit a 505(b)(2) application, such as we have submitted for the Epinephrine PFS product and as we may submit for other future products, that relies on clinical trials conducted for a previously approved product where there are no patents for such other product with respect to which we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on the particular previously approved product that we chose to rely on, conclude that such previously approved product is not an acceptable reference product, and require us instead to reference another previously approved product that involves patents referenced in the Orange Book, requiring us to make the certifications described above and subjecting us to the risks of delay and expense described above.

 

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Abbreviated New Drug Applications

 

In contrast to the kind of clinical trial and other data that is required for an NDA submitted pursuant to Section 505(b)(1) of the FDCA, an Abbreviated New Drug Application, or ANDA, contains data that, when submitted to the FDA pursuant to Section 505(j) of the FDCA, provides for the review and ultimate approval of a product commonly referred to as a “generic equivalent” or a “generic” drug product. These kinds of drug applications are called “abbreviated” because ANDA applicants are generally not required to conduct or submit preclinical (animal) and clinical (human) data to establish safety and effectiveness of their product, other than the requirement for bioequivalence testing. Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent, that is, that the product performs in the same manner as the listed drug. For locally acting inhaled products, we believe that demonstration of bioequivalency in most cases will require human clinical studies that demonstrate that the generic product performs in the same manner as the listed drug. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

 

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA. The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book, in a manner generally similar to the certifications that are required in connection with Section 505(b)(2) regulatory filings as described above. As with Section 505(b)(2) regulatory filings, if the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

 

If the ANDA applicant has provided a Paragraph IV certification to the FDA, then the procedures described above in connection with Section 505(b)(2) regulatory filings also apply, and the risks of the patent holder initiating a patent infringement lawsuit as described above also apply. The ANDA application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. Federal law provides a period of five years following approval of a drug containing no previously approved active ingredients, during which ANDAs for generic versions of those drugs cannot be submitted unless the submission contains a Paragraph IV challenge to a listed patent, in which case the submission may be made four years following the original product approval. Federal law provides for a period of three years of exclusivity following approval of a listed drug that contains previously approved active ingredients, but is approved in a new dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials conducted by or for the sponsor, during which FDA cannot grant effective approval of an ANDA based on that listed drug.

 

Regulation Outside the United States

 

If we market our products in foreign countries, we also will be subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product approval, pricing and reimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained before manufacturing or marketing the product in those countries. The approval process varies from country to country and the time required for such approvals may differ substantially from that required for FDA approval. There is no assurance that any future FDA approval of any of our clinical trials or drugs will result in similar foreign approvals or vice versa.

 

Additional Regulation

 

Third-Party Reimbursement

 

In the United States, physicians, hospitals and other healthcare providers that purchase pharmaceutical products generally rely on third-party payors, principally private health insurance plans, Medicare and, to a lesser extent, Medicaid, to reimburse all or part of the cost of the product and procedure for which the product is being used. Even if a product is approved for marketing by the FDA, there is no assurance that third-party payors will cover the cost of the product and related medical procedures. If they do not, end-users of the drug would not be eligible for any reimbursement of the cost, and our ability to successfully market any such drug would be materially and adversely impacted.

 

Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursement approvals must be obtained on a country-by-country basis. In many foreign markets, including markets in which we hope to sell our products, the pricing of prescription pharmaceuticals is subject to government pricing control. In these markets, once marketing approval is received, pricing negotiations could take significant additional time. As in the United States, the lack of satisfactory reimbursement or inadequate government pricing of any of our products would limit their widespread use and lower potential product revenues.

 

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Fraud and Abuse Laws

 

Federal and state anti-kickback and anti-fraud and abuse laws, as well as the federal Civil False Claims Act may apply to certain drug and device research and marketing practices. The Civil False Claims Act prohibits knowingly presenting or causing to be presented a false, fictitious or fraudulent claim for payment to the United States. Actions under the Civil False Claims Act may be brought by the Attorney General or by a private individual acting as an informer or whistleblower in the name of the government. Violations of the Civil False Claims Act can result in significant monetary penalties. The federal government is using the Civil False Claims Act, and the threat of significant liability, in its investigations of healthcare providers, suppliers and drug and device manufacturers throughout the country for a wide variety of drug and device marketing and research practices, and has obtained multi-million dollar settlements. The federal government may continue to devote substantial resources toward investigating healthcare providers’, suppliers’ and drug and device manufacturers’ compliance with the Civil False Claims Act and other fraud and abuse laws. We may have to expend significant financial resources and management attention if we ever become the focus of such an investigation, even if we are not guilty of any wrong doings.

 

HIPAA

 

We may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, addresses the privacy and transmission of individually identifiable health information and, among other things, requires the use of standard transactions, privacy and security standards and other administrative simplification provisions, by covered entities which include many healthcare providers, health plans and healthcare clearinghouses. HIPAA instructs the Secretary of the Department of Health and Human Services to promulgate regulations implementing these standards in the United States. HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, such as independent contractors or agents of covered entities, that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. Material monetary penalties and other remedies can result from violation of these laws and regulations. In addition, many state laws also address the privacy and security of health information, and many of these laws differ from each other in significant ways, thus complicating compliance efforts.

 

Other Laws

 

We are also subject to other federal, state and local laws of general applicability, such as laws regulating working conditions, and various federal, state and local environmental protection laws and regulations, including laws such as the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other similar federal and state laws regarding, among other things, occupational safety, the use and handling of radioisotopes, environmental protection and hazardous substance control. Although we believe that we have complied with these laws and regulations in all material respects and have not been required to take any action to correct any noncompliance, there can be no assurance that we will not be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development activities may involve the controlled use of hazardous materials, including chemicals that cause cancer, volatile solvents, radioactive materials and biological materials that have the potential to transmit disease, and our operations may produce hazardous waste products. If we fail to comply with these laws and regulations we could be subjected to criminal sanctions and substantial financial liability or be required to suspend or modify our operations. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects with legally prescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources.

 

License Agreements

 

Agreement Relating to APC-5000 DPI

 

On August 1, 2013, we entered into an agreement with 3M Company to exclusively license and, upon final payment acquire, assets relating to 3M Company’s patented Taper dry powder inhaler, or DPI, technology under development by 3M for the treatment of asthma and COPD. Pursuant to the agreement, we made an initial payment of $3.0 million to 3M and acquired an exclusive license to the assets for all indications in the dry powder inhalation field through December 31, 2013, and on December 27, 2013, we made a final payment to 3M of $7.0 million and the assets were transferred to us, with Adamis granting back to 3M a license to the intellectual property assets outside of the dry powder inhalation field. The intellectual property includes patents, patent applications and other intellectual property relating to the assets. The agreement includes certain other customary provisions, including representations and warranties, warranty disclaimers and indemnification provisions. We intend to utilize the assets initially to develop a pre-metered inhaler device, referred to as APC-5000 DPI, for the treatment of asthma and COPD to deliver the same active ingredients as GlaxoSmithKline’s Advair Diskus.

 

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The design of the APC-5000 DPI uses proprietary 3M technology to store the active pharmaceutical ingredients on a microstructured carrier tape. Under the agreement, 3M and Adamis have agreed to work in good faith to negotiate and enter into a separate supply agreement providing for the supply of the drug delivery tape to be used with the product.

 

License Agreements Relating to APC-100, APC-200 and APC-300

 

Pursuant to an agreement entered into in February 2010, a privately held company assigned to us all of its rights under exclusive license agreements relating to the APC-100, APC-200 and APC-300 product candidates, in return for consideration consisting of shares of our common stock. Under the license agreement, Wisconsin Alumni Research Foundation, or WARF, is the licensor of the patents, patent applications and related intellectual property relating to the compounds. Under each separate agreement, WARF grants to us, as the licensee, an exclusive license, with rights of sublicense, under the patents and patent applications identified in the agreement, for the fields of human nutraceuticals, preventatives, therapeutics and diagnostics and for all territories worldwide that are covered by any of the licensed patents.

 

The license agreements include milestones that we, as the licensee, agree to meet by certain dates, relating to obtaining cumulative funding by certain dates, the filing of an IND relating to a covered product, enrollment of a first patient under a Phase II clinical trial by certain dates, and filing of an NDA with the FDA relating to a covered product by certain dates. WARF has the right to terminate the license agreement with advance notice if we fail to meet any of the funding milestones or commercialization milestones. Under each agreement, we agree to pay WARF a milestone payment of $25,000 upon the filing of the first IND or comparable regulatory filing for a covered product, and additional payments upon the achievement of the additional milestones, aggregating approximately $600,000.

 

Under all of the agreements, we agree to pay product royalties to WARF based on net sales of covered products, at a rate of 5% of net sales. The agreements include customary stacking provisions providing for a reduction in royalties if we become obligated to pay royalties to other third parties on sales of covered products, but in all events the rate will be not less than 2.5% of net sales. In addition, if we receive any fees or other payments in consideration for any rights granted under a sublicense, and the fees or payments are not based directly on the amount or value of products sold by the sublicensee or provided as reimbursement for research and development costs incurred by us, then we are obligated to pay to WARF a percentage of such payments, ranging from 10% to 40% depending on what the stage of regulatory approval and clinical trial development at the time the payments are received. Each agreement provides that we will reimburse WARF for legal fees and other costs incurred in filing, prosecuting and maintaining the licensed patents during the term of the agreement. These amounts will accrue for a period of four years after the date of the agreement, after which time the accrued amounts will be paid in four annual installments.

 

The term of each agreement continues until the date that none of the licensed patents under the agreement remains an enforceable patent. We may terminate the agreement at any time with 90 days prior notice to WARF. WARF may terminate the agreement if the date of first commercial sale of a covered product does not occur by December 31, 2020 under the APC-100 and APC-200 agreements and December 31, 2021 under the APC-300 agreement. WARF may also terminate the agreement following our failure to meet a funding or commercialization milestone, or if we fail to pay amounts when due or deliver a development report or commits a material breach of the agreement and fail to cure the default within 90 days.

 

Telomerase Vaccine Technology

 

Our telomerase vaccine technology was licensed pursuant to exclusive license agreements entered into in April 2011 with the Regents of the University of California and the Dana-Farber Cancer Institute, Inc. Pursuant to the agreement with the University of California, we acquired a license to certain patents and related intellectual property rights relating to a telomerase-based cancer vaccine technology. We licensed a complementary patent based on technology from the Dana-Farber Cancer Institute, Inc. Under the terms of the license agreement, we licensed the patents and related intellectual property for a field that includes therapeutic and preventive cancer vaccines in humans, and for a territory that includes the United States. The term of the license extends through the expiration date of the longest-lived patent rights covered by the agreement. Under the agreement, we paid to the universities a small upfront license issue fee in connection with the execution of the license agreement. We will pay the universities a small annual maintenance fee on the first three anniversaries of the date of the agreement, increasing in an immaterial amount thereafter, until we or a permitted sublicensee is commercially selling a licensed product.

 

For the first indication of a licensed product, we will make payments upon reaching specified milestones in clinical development and obtaining U.S. regulatory approval for a licensed product, potentially aggregating approximately $1.87 million if all milestone payments are made, including obtaining U.S. regulatory approval for a licensed product. Similar payments apply to the second indication of a licensed product. The agreement also provides that we will pay the universities royalties, in the low single digits, payable on net sales of licensed products. The agreement includes customary provisions for adjusting the royalty rate in the case of a combination product that includes a licensed product and other products or product components. The agreement includes customary royalty stacking provisions providing for a reduction in the royalty rate if we are required to pay royalties to other third parties to acquire patent rights necessary to make, use or sell licensed products, up to one-half of the amounts otherwise due to the universities.

 

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If we enter into sublicenses of the licensed technology, then a portion of the sublicense fees received by us from the sublicensee is payable to the universities, with the exact percentage depending on the time during the product development, clinical trials and regulatory approval process that the sublicense is entered into. If we receive product royalty payments from sublicensees, we are obligated to pay a percentage of those fees to the universities, with the exact percentage depending on the status of product development and commercialization. Following commercial sales of a licensed product, the agreement provides for minimum annual royalties to the universities, with an increased amount starting with the third full year of sales. We are responsible for payment of patent costs relating to the licensed patents, including patent costs previously incurred by the universities. In the agreement, we agree to diligently proceed with the development, manufacture and sale of licensed products, and to satisfy certain development and regulatory submission milestones by certain dates. Failure to satisfy these obligations permits the universities to either terminate the license agreement or convert the license to a non-exclusive license. The universities may terminate the agreement if we fail to perform or violate any term of the agreement and do not cure the default within 60 days of notice. We may terminate the agreement upon 90 days’ notice to the universities.

 

License Agreement Relating to Vaccine Technologies

 

On July 28, 2006, for consideration consisting of shares of our common stock and a $55,000 initial license fee, we entered into a worldwide exclusive license agreement with Nevagen, LLC, an entity owned by Dr. Zanetti, to utilize technology held by Nevagen within the field of viral infectious agents. The licensed intellectual property includes the use of the technology known as “Transgenic Lymphocyte Technology” covered by certain U.S. and foreign patents and patent applications. The license will terminate with the expiration of the U.S. patent for the intellectual property.

 

For the first product, we will make payments upon reaching specified milestones in clinical development and submission of an application regulatory approval, potentially aggregating $900,000 if all milestone payments are made. As of the date of this Annual Report on Form 10-K, no milestones have been achieved and no milestone payments have been made. The agreement also provides that we will pay Nevagen royalties, in the low single digits, payable on net sales received by us of covered products. If additional technologies are required to be licensed to produce a functional product, the royalty rate will be reduced by the amount of the royalty paid to the other licensor, but not more than one-half the specified royalty rate. Royalties and incremental payments with respect to influenza will continue until reaching a cumulative total of $10.0 million.

 

Adamis and Nevagen have the right to sublicense with written permission of the other party. In the event that Nevagen sublicenses or sells the improved technology to a third party, then a portion of the total payments, to be decided by mutual agreement, will be due to us. If we sublicense the intellectual property for use in influenza to a third party, Nevagen will be paid a fixed percentage of all license fees, royalties, and milestone payments, in addition to royalties due and payable based on net sales.

 

If we grant a sublicense to another company for any indication in the field covered by the license agreement other than with respect to influenza, Nevagen will be paid a portion of all license fees, royalties and milestone payments, with the percentage declining over time based on the year in which the sublicense is granted. Certain incremental non-flu virus related sublicensing payments described in the license agreement are specifically excluded from the royalty cap.

 

All improvements of the intellectual property conceived of, or reduced to practice by us, or made jointly by us and Nevagen, will be owned solely by us. We granted Nevagen a royalty-free nonexclusive license to use any improvements made on the existing technology for research purposes only, but not for any commercial purposes of any kind. We have agreed to grant to Nevagen a royalty-free license for any improvement needed for the commercialization of the intellectual property for Nevagen’s use outside the field licensed to us. If Nevagen sublicenses or sells the improved technology to a third party, then a portion of the total payments, to be decided by mutual agreement, will be due to us. We also have the right of first offer to license certain related technologies from Nevagen, if and when it becomes available.

 

We have the right to terminate the agreement if it is determined that no viable product can come from the licensed technology. Upon such termination, we would be required to transfer and assign to Nevagen all filings, rights and other information in our control. We would retain the same royalty rights for license, or sublicense, agreements if the technology is later developed into a product. Either party may terminate the license agreement in the event of a material breach of the agreement by the other party that has not been cured or corrected within 90 days of notice of the breach.

 

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Employees

 

As of December 31, 2015, we had 15 full-time employees and one part-time employee. None of our employees is subject to a collective bargaining agreement or represented by a labor or trade union, and we believe that our relations with our employees are good.

 

Corporate Background

 

Adamis Pharmaceuticals Corporation was founded in June 2006 as a Delaware corporation. Effective April 1, 2009, the company formerly named Adamis Pharmaceuticals Corporation, or Old Adamis, completed a business combination transaction with Cellegy Pharmaceuticals, Inc., or Cellegy. Before the merger, Cellegy was a public company and Old Adamis was a private company. In connection with the consummation of the merger and pursuant to the terms of the definitive merger agreement relating to the transaction, Cellegy was the surviving corporation in the merger and changed its name from Cellegy Pharmaceuticals, Inc. to Adamis Pharmaceuticals Corporation, and Old Adamis survived as a wholly-owned subsidiary and changed its corporate name to Adamis Corporation.

 

We have two wholly-owned subsidiaries: Adamis Corporation and Biosyn, Inc., which has rights to the C31G product. Adamis Corporation has two wholly-owned subsidiaries: Adamis Viral Therapies, Inc., or Adamis Viral, which was formed to focus on our cancer and vaccine technologies; and Adamis Laboratories, Inc., or Adamis Labs, which was formed to focus on our allergy and respiratory products.

 

Our principal executive offices are located at 11682 El Camino Real, Suite 300, San Diego, CA 92130, and our telephone number is (858) 997-2400. Our website address is: www.adamispharmaceuticals.com . We have included our website address as a factual reference and do not intend it to be an active link to our website.

 

ITEM 1A. RISK FACTORS

 

You should consider carefully the following information about the risks described below, together with the other information contained in this Annual Report on Form 10-K and in our other public filings in evaluating our business. Our business, financial condition, results of operations and future prospects could be materially and adversely affected by these risks if any of them actually occurs. In these circumstances, the market price of our common stock would likely decline. The risks and uncertainties described below are not the only ones we face. Additional risks not currently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business.

 

Risks Related to Our Business, Industry and Financial Condition

 

We may never commercialize any of our products or earn a profit.

 

We have not received regulatory approval for any drugs or products. Since our fiscal 2010 year, we have not generated commercial revenue from marketing or selling any drugs or other products. We currently have no revenue from product sales, have not generated any revenue from operations for the last four fiscal years, and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our product candidates and technologies. We may never be able to commercialize any of our product candidates or be able to generate revenue from products sales. Because of the risks and uncertainties associated with developing and commercializing our specialty pharmaceuticals, cancer and other product candidates, we are unable to predict when we may commercially introduce products, the extent of any future losses or when we will become profitable, if ever. We may never successfully commercialize our product candidates, and our business may fail.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.

 

Our audited financial statements for the year ended December 31, 2015, were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our financial statements for the year ended December 31, 2015, indicating that we have sustained substantial losses from continuing operations and have used, rather than provided, cash in our continuing operations, and that these factors raise substantial doubt about our ability to continue as a going concern. Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional funding in the near future and thereafter, and there are no assurances that such funding will be available at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. Without additional funds from debt or equity financings, sales of assets, sales or out-licenses of intellectual property or technologies, or other transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.

 

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We will require additional financing to continue as a going concern.

 

We incurred a net loss of approximately $13.6 million for the year ended December 31, 2015, and a net loss of approximately $9.3 million for the Transition 2014 Period ended December 31, 2014. At December 31, 2015, we had cash and cash equivalents of approximately $4.0 million, no accounts receivable and liabilities of approximately $2.7 million. In January 2016, we sold preferred stock and warrants in a private placement transaction that resulted in gross proceeds of approximately $5.0 million, excluding transaction costs, fees and expenses. The development of our business will require substantial additional capital in the future to commercialize our Epinephrine PFS product, proceed with development of the APC-5000 DPI, APC-2000 and APC-1000 products, and conduct research and development of other product candidates, as well as to fund our ongoing operations and satisfy our obligations and liabilities. We have historically relied upon sales of our equity or debt securities to fund our operations. We currently have no credit facility or committed sources of capital. Delays in obtaining funding could adversely affect our ability to develop and commercially introduce products and cause us to be unable to comply with our obligations under outstanding instruments.

 

Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms, 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. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.

 

Statements in this Annual Report on Form 10-K concerning our future plans and operations are dependent on our ability to secure adequate funding and the absence of unexpected delays or adverse developments. We may not be able to secure required funding.

 

The statements contained in this Annual Report on Form 10-K concerning future events or developments or our future activities, such as concerning 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 which could adversely affect our business, financial condition and results of operations.

 

We have incurred losses since our inception, and we anticipate that we will continue to incur losses. We may never achieve or sustain profitability.

 

We incurred net losses of approximately $13.6 million for the year ended year ended December 31, 2015, and a net loss of approximately $9.3 million for the nine-month Transition 2014 Period ended December 31, 2014. From inception through December 31, 2015, we have an accumulated deficit of approximately $69.0 million. These losses will increase as we continue our research and development activities, seek regulatory approvals for our product candidates and commercialize any approved products. These losses will cause, among other things, our stockholders’ equity and working capital to decrease. Any future earnings and cash flow from operations of our business are dependent on our ability to further develop our products and on revenue and profitability from sales of products.

 

There can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis. Even if we generate revenue, we expect to have quarter-to-quarter fluctuations in revenue and expenses, some of which could be significant, due to research, development, clinical trial, marketing and manufacturing expenses and activities. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our products do not achieve market acceptance, we may never become profitable. As we commercialize and market products, we will need to incur expenses for product marketing and brand awareness and conduct significant research, development, testing and regulatory compliance activities that, together with general and administrative expenses, could result in substantial operating losses for the foreseeable future. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

 

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Our limited operating history may make it difficult to evaluate our business and our future viability.

 

We are in the relatively early stage of operations and development of our current products and product candidates and have only a limited operating history on which to base an evaluation of our business and prospects. Even if we successfully obtain additional funding, we are subject to the risks associated with early stage companies with a limited operating history, 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; regulatory setbacks and delays; competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; fluctuations in expenses; and dependence on corporate partners and collaborators. Any failure to successfully address these risks and uncertainties could seriously harm our business and prospects. We may not succeed given the technological, marketing, strategic and competitive challenges we will face. The likelihood of our success must be considered in light of the expenses, difficulties, complications, problems and delays frequently encountered in connection with the growth of a new business, the continuing development of new drug technology, and the competitive and regulatory environment in which we operate or may choose to operate in the future.

 

Many of our potential products and technologies are in early stages of development.

 

The development of new pharmaceutical products is a highly risky undertaking, and there can be no assurance that any future research and development efforts we might undertake will be successful. Our potential products in the cancer and viral fields will require extensive additional research and development before any commercial introduction, as will research and development work on our allergy and respiratory products. There can be no assurance that any future research, development or clinical trial efforts will result in viable products or meet efficacy standards. Future clinical or preclinical results may be negative or insufficient to allow us to successfully market our product candidates. Obtaining needed data and results may take longer than planned or may not be obtained at all. Any such delays or setbacks could have a material adverse effect on our ability to achieve our financial goals.

 

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain, or may experience delays in obtaining, regulatory approval, or may not be successful in commercializing our planned and future products.

 

Like many companies our size, we do not have the ability to conduct preclinical or clinical studies for our product candidates without the assistance of third parties who conduct the studies on our behalf. These third parties are usually toxicology facilities and clinical research organizations, or CROs, that have significant resources and experience in the conduct of pre-clinical and clinical studies. The toxicology facilities conduct the pre-clinical safety studies as well as associated tasks connected with these studies. The CROs typically perform patient recruitment, project management, data management, statistical analysis, and other reporting functions. We intend to rely on third parties to conduct clinical trials of our product candidates and to use third party toxicology facilities and CROs for our pre-clinical and clinical studies. We may also rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products.

 

Our reliance on these third parties for development activities will reduce our control over these activities. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, we may be required to replace them, and our clinical trials may be extended, delayed or terminated. Although we believe there are a number of third-party contractors that we could engage to continue these activities, replacing a third-party contractor may result in a delay of the affected trial.

 

Delays in the commencement or completion of clinical testing of our product candidates could result in increased costs and delay our ability to generate significant revenues.

 

The actual timing of commencement and completion of clinical trials can vary dramatically from our anticipated timing due to factors such as funding limitations, scheduling conflicts with participating clinicians and clinical institutions, and the rate of patient enrollment. Clinical trials involving our product candidates may not commence or be completed as forecast. Delays in the commencement or completion of clinical testing could significantly impact our product development costs. We do not know whether current or planned clinical trials will begin on time or be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including delays in:

 

  obtaining required funding;
  obtaining regulatory approval to commence a clinical trial;
  reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;
  obtaining sufficient quantities of clinical trial materials for product candidates;
  obtaining institutional review board approval to conduct a clinical trial at a prospective site; and
  recruiting participants for a clinical trial.

 

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In addition, once a clinical trial has begun, it may be suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors, including:

 

  failure to conduct the clinical trial in accordance with regulatory requirements;
  inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
  failure to achieve certain efficacy and/or safety standards; or
  lack of adequate funding to continue the clinical trial.

 

Clinical trials require sufficient participant enrollment, which is a function of many factors, including the size of the target patient population, the nature of the trial protocol, the proximity of participants to clinical trial sites, the availability of effective treatments for the relevant disease, the eligibility criteria for our clinical trials and competing trials. Delays in enrollment can result in increased costs and longer development times. Our failure to enroll participants in our clinical trials could delay the completion of the clinical trials beyond current expectations. In addition, the FDA could require us to conduct clinical trials with a larger number of participants than we may project for any of our product candidates. As a result of these factors, we may not be able to enroll a sufficient number of participants in a timely or cost-effective manner.

 

Furthermore, enrolled participants may drop out of clinical trials, which could impair the validity or statistical significance of the clinical trials. A number of factors can influence the discontinuation rate, including, but not limited to: the inclusion of a placebo in a trial; possible lack of effect of the product candidate being tested at one or more of the dose levels being tested; adverse side effects experienced, whether or not related to the product candidate; and the availability of numerous alternative treatment options that may induce participants to withdraw from the trial.

 

We may be required to suspend, repeat or terminate our clinical trials if the trials are not well designed, do not meet regulatory requirements or the results are negative or inconclusive, which may result in significant negative repercussions on business and financial condition.

 

Before regulatory approval for a potential product can be obtained, we must undertake clinical testing on humans to demonstrate the tolerability and efficacy of the product. We cannot assure you that we will obtain authorization to permit product candidates that are in the preclinical development phase to enter the human clinical testing phase. In addition, we cannot assure you that any authorized preclinical or clinical testing will be completed successfully within any specified time period by us, or without significant additional resources or expertise to those originally expected to be necessary. We cannot assure you that such testing will show potential products to be safe and efficacious or that any such product will be approved for a specific indication. Further, the results from preclinical studies and early clinical trials may not be indicative of the results that will be obtained in later-stage clinical trials. In addition, we or regulatory authorities may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks.

 

We are subject to the risk of clinical trial and product liability lawsuits.

 

The testing of human health care product candidates entails an inherent risk of allegations of clinical trial liability, while the marketing and sale of approved products entails an inherent risk of allegations of product liability and associated adverse publicity. We currently maintain liability insurance coverage of $1,000,000. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, or at all. As we conduct additional clinical trials and introduce products into the United States market, the risk of adverse events increases and our requirements for liability insurance coverage are likely to increase. We are subject to the risk that substantial liability claims from the testing or marketing of pharmaceutical products could be asserted against us in the future. There can be no assurance that we will be able to obtain or maintain insurance on acceptable terms, particularly in overseas locations, for clinical and commercial activities or that any insurance obtained will provide adequate protection against potential liabilities. An inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could inhibit our business.

 

Moreover, our current and future coverages may not be adequate to protect us from all of the liabilities that we may incur. If losses from liability claims exceed our insurance coverage, we may incur substantial liabilities that exceed our financial resources. In addition, a product or clinical trial liability action against us would be expensive and time-consuming to defend, even if we ultimately prevailed. If we are required to pay a claim, we may not have sufficient financial resources and our business and results of operations may be harmed. A product liability claim brought against us in excess of our insurance coverage, if any, could have a material adverse effect upon our business, financial condition and results of operations.

 

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We do not have commercial-scale manufacturing capability, and we lack commercial manufacturing experience. We will likely rely on third parties to manufacture and supply our product candidates .

 

We do not own or operate manufacturing facilities for clinical or commercial production of product candidates. We do not have any experience in drug formulation or manufacturing, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. Accordingly, we expect to depend on third-party contract manufacturers for the foreseeable future. Any performance failure on the part of our contract manufacturers could delay clinical development, regulatory approval or commercialization of our current or future product candidates, depriving us of potential product revenue and resulting in additional losses.

 

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production.

 

These problems can include difficulties with production costs and yields, quality control (including stability of the product candidate and quality assurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations. If our third-party contract manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations or under applicable regulations, our ability to provide product candidates to patients in our clinical trials or commercially would be jeopardized. If we file an application for marketing approval of the product and the FDA grants marketing approval, any delay or interruption in the supply of product could delay the commercial launch of the product or impair our ability to meet demand for the product. Difficulties in supplying products for clinical trials could increase the costs associated with our clinical trial programs and, depending upon the period of delay, require us to commence new trials or qualify new manufacturers at significant additional expense, possibly causing commercial delays or termination of the trials.

 

Our products can only be manufactured in a facility that has undergone a satisfactory inspection by the FDA and other relevant regulatory authorities. For these reasons, we may not be able to replace manufacturing capacity for our products quickly if we or our contract manufacturer(s) were unable to use manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure, or other difficulty, or if such facilities were deemed not in compliance with the regulatory requirements and such non-compliance could not be rapidly rectified. An inability or reduced capacity to manufacture our products would have a material adverse effect on our business, financial condition, and results of operations.

 

We are subject to substantial government regulation, which could materially adversely affect our business. If we do not receive regulatory approvals, we may not be able to develop and commercialize our technologies.

 

We need FDA approval to market our proposed Epinephrine PFS product and other products in the United States, and similar approvals from foreign regulatory authorities to market products outside the United States. The production and marketing of our products and potential products and our ongoing research and development, pre-clinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities in the United States and will face similar regulation and review for overseas approval and sales from governmental authorities outside of the United States. The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of our products, as well as the evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals. Many of the product candidates that we are currently developing must undergo rigorous pre-clinical and clinical testing and an extensive regulatory approval process before they can be marketed. This process makes it longer, more difficult and more costly to bring our potential products to market, and we cannot guarantee that any of our potential products will be approved. Many products for which FDA approval has been sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record-keeping procedures. If we or our collaboration partners do not comply with applicable regulatory requirements, such violations could result in non-approval, suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.

 

Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decide after review of an application that the data submitted is insufficient to allow approval of the proposed product. If regulatory authorities do not accept or approve our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatory authorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authorities believe is sufficient. Depending on the extent of these studies, approval of applications may be delayed by several years, or may require us to expend more resources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval.

 

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Failure to obtain FDA or other required regulatory approvals, or withdrawal of previous approvals, would adversely affect our business. Even if regulatory approval of a product is granted, this approval may entail limitations on uses for which the product may be labeled and promoted, or may prevent us from broadening the uses of products for different applications.

 

Following regulatory approval of any of our drug candidates, we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability to commercialize our potential products.

 

With regard to our drug candidates, if any, approved by the FDA or by another regulatory authority, we are held to extensive regulatory requirements over product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority. Previously unknown problems with the drug candidate, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market. In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.

 

We intend to pursue Section 505(b)(2) regulatory approval filings with the FDA for our products where applicable. Such filings involve significant costs, and we may also encounter difficulties or delays in obtaining regulatory approval for our products. Similar difficulties or delays may also arise in connection with any Abbreviated New Drug Applications that we may file.

 

We submitted a Section 505(b)(2) NDA regulatory filing to the FDA in connection with our Epinephrine PFS product, and we intend to pursue Section 505(b)(2) NDA filings with the FDA in connection with our APC-1000, APC-2000 and APC-5000 DPI products and product candidates. A Section 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing previously approved product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Such filings involve significant filing costs, including filing fees.

 

To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2) application with respect to any patents for the previously approved product on which the applicant’s application relies and that are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Specifically, the applicant must certify for each listed patent that, in relevant part, (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired.

 

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holder receives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed.

 

If we rely in our Section 505(b)(2) regulatory filings on clinical trials conducted, or the FDA’s prior findings of safety and effectiveness, for a previously approved drug product that involves patents referenced in the Orange Book, then we will need to make the patent certifications or the Paragraph IV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that we referenced in our application initiates patent litigation within the time periods described above, then any FDA approval of our 505(b)(2) application would be delayed until the earlier of 30 months, resolution of the lawsuit, or the other events described above. Accordingly, our anticipated dates of a product that was subject to such litigation would be delayed. In addition, we would incur the expenses, which could be material, involved with any such patent litigation. As a result, we may invest a significant amount of time and expense in the development of our product only to be subject to significant delay and patent litigation before our product may be commercialized, if at all.

 

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In addition, even if we submit a Section 505(b)(2) application, such as we have submitted for the Epinephrine PFS product, and as we may submit for other future products, that relies on clinical trials conducted for a previously approved product where there are no patents referenced in the Orange Book for such other product with respect to which we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on the particular previously approved product that we chose to rely on, conclude that such previously approved product is not an acceptable reference product, and require us instead to rely as a reference product on another previously approved product that involves patents referenced in the Orange Book, requiring us to make the certifications described above and subjecting us to additional delay, expense and the other risks described above.

 

Similarly, if we submit one or more ANDA applications to the FDA pursuant to Section 505(j) of the FDCA in connection with one or more of our product candidates, we could encounter generally similar difficulties or delays, including difficulties or delays resulting from the Paragraph IV certification process or from any clinical trials that might be required in connection with any such ANDAs.

 

If we fail to obtain acceptable prices or appropriate reimbursement for our products, our ability to successfully commercialize our products will be impaired.

 

Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians and pharmaceutical companies such as Adamis, that plan to offer various products in the United States and other countries in the future. Physicians and patients may decide not to order our products unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid, pay a substantial portion of the price of the products. Market acceptance and sales of our products and potential products will depend in part on the extent to which reimbursement for the costs of such products will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the United States, our ability to have our products eligible for Medicare, Medicaid or private insurance reimbursement will be an important factor in determining the ultimate success of our products. If, for any reason, Medicare, Medicaid or the insurance companies decline to provide reimbursement for our products, our ability to commercialize our products would be adversely affected.

 

Third-party payors may challenge the price of medical and pharmaceutical products. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that our product candidates are:

 

not experimental or investigational;
effective;
medically necessary;
appropriate for the specific patient;
cost-effective;
supported by peer-reviewed publications; and
included in clinical practice guidelines.

 

If purchasers or users of our products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products, they may forego or reduce such use. Significant uncertainty exists as to the reimbursement status of newly approved pharmaceutical products, and there can be no assurance that adequate third-party coverage will be available for any of our products. Even if our products are approved for reimbursement by Medicare, Medicaid and private insurers, of which there can be no assurance, the amount of reimbursement may be reduced at times or even eliminated. This would have a material adverse effect on our business, financial condition and results of operations.

 

Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably.

 

In both the United States and certain foreign jurisdictions, there have been and are expected to be a number of legislative and regulatory changes to the healthcare system in ways that could impact our ability to sell our products profitably, including the Patient Protection and Affordable Care Act signed into law in the United States in March 2010. Given the enactment of these laws and other federal and state legislation and regulations relating to the healthcare system, it is still too early to determine their impact on the biotechnology and pharmaceutical industries and our business. The U.S. Congress continues to consider issues relating to the healthcare system, and future legislation or regulations may affect our ability to market and sell products on favorable terms, which would affect our results of operations, as well as our ability to raise capital, obtain additional collaborators or profitably market our products. Such legislation or regulation may reduce our revenues, increase our expenses or limit the markets for our products. In particular, we expect to experience pricing pressures in connection with the sale of our products due to the influence of health maintenance and managed health care organizations and additional legislative proposals.

 

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We have limited sales, marketing and distribution experience.

 

We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that we will be able to establish sales, marketing, and distribution capabilities or make arrangements with our current collaborators or others to perform such activities or that such efforts will be successful. If we decide to market any products directly, we must either acquire or internally develop a marketing and sales force with technical expertise and with supporting distribution capabilities. The acquisition or development of a sales, marketing and distribution infrastructure would require substantial resources, which may not be available to us or, even if available, could divert the attention of our management and key personnel and have a negative impact on further product development efforts.

 

We may seek to enter into arrangements to develop and commercialize our products. These collaborations, if secured, may not be successful.

 

We have entered into arrangements with third parties regarding development and commercialization of some of our products and may in the future seek to enter into collaborative arrangements to develop and commercialize some of our potential products both in North America and international markets. There can be no assurance that we will be able to negotiate collaborative arrangements on favorable terms or at all or that our current or future collaborative arrangements will be successful. The amount and timing of resources such third parties will devote to these activities may not be within our control. There can be no assurance that such parties will perform their obligations as expected. There can be no assurance that our collaborators will devote adequate resources to our products.

 

If our potential products are unable to compete effectively with current and future products targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated.

 

The markets for epinephrine products, our proposed APC-5000 inhaler product and other allergy and respiratory products, and cancer and vaccine products, are intensely competitive and characterized by rapid technological progress. We face competition from numerous sources, including major biotechnology and pharmaceutical companies worldwide. Many of our competitors have substantially greater financial and technical resources, and development, production and marketing capabilities, than we do. Certain companies have established technologies that may be competitive with our product candidates and any future products that we may develop or acquire. Some of these products may use different approaches or means to obtain results, which could be more effective or less expensive than our products for similar indications. In addition, many of these companies have more experience than we do in pre-clinical testing, clinical trials and manufacturing of compounds, obtaining FDA and foreign regulatory approvals, and brand name exposure and expertise in sales and marketing. We also compete with academic institutions, governmental agencies and private organizations that are conducting research in the same fields.

 

Competition among these entities to recruit and retain highly qualified scientific, technical and professional personnel and consultants is also intense. As a result, there is a risk that one or more of our competitors will develop a more effective product for the same indications for which we are developing a product or, alternatively, bring a similar product to market before we can do so. Failure to successfully compete will adversely impact the ability to raise additional capital and ultimately achieve profitable operations.

 

Our product candidates may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generate revenue, which will undermine our future growth prospects.

 

Even if our product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, health care professionals and third-party payors, and our profitability and growth will depend on a number of factors, including:

 

the ability to provide acceptable evidence of safety and efficacy;
pricing and cost effectiveness, which may be subject to regulatory control;
our ability to obtain sufficient third-party insurance coverage or reimbursement;
effectiveness of our or our collaborators’ sales and marketing strategy;
relative convenience and ease of administration;
the prevalence and severity of any adverse side effects; and
availability of alternative treatments.

 

If any product candidate that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care or otherwise does not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance and we will not generate sufficient revenues to achieve profitability.

 

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If we suffer negative publicity concerning the safety of our products in development, our sales may be harmed and we may be forced to withdraw such products.

 

If concerns should arise about the safety of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for these products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not these claims are supported by applicable law.

 

Our failure to adequately protect or to enforce our intellectual property rights or secure rights to third party patents could materially harm our proprietary position in the marketplace or prevent the commercialization of our products.

 

Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technologies and products. The patents and patent applications in our existing patent portfolio are either owned by us or licensed to us. Our ability to protect our product candidates from unauthorized use or infringement by third parties depends substantially on our ability to obtain and maintain, or license, valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions for which important legal principles are unresolved.

 

There is a substantial backlog of patent applications at the United States Patent and Trademark Office, or USPTO. There can be no assurance that any patent applications relating to our products or methods will be issued as patents, or, if issued, that the patents will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide a competitive advantage. We may not be able to obtain patent rights on products, treatment methods or manufacturing processes that we may develop or to which we may obtain license or other rights. Even if we do obtain patents, rights under any issued patents may not provide us with sufficient protection for our product candidates or provide sufficient protection to afford us a commercial advantage against our competitors or their competitive products or processes. It is possible that no patents will be issued from any pending or future patent applications owned by us or licensed to us. Others may challenge, seek to invalidate, infringe or circumvent any patents we own or license. Alternatively, we may in the future be required to initiate litigation against third parties to enforce our intellectual property rights. The defense and prosecution of patent and intellectual property claims are both costly and time consuming, even if the outcome is favorable to us. Any adverse outcome could subject us to significant liabilities, require us to license disputed rights from others, or require us to cease selling our future products.

 

In addition, many other organizations are engaged in research and product development efforts that may overlap with our products. Such organizations may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products or methods under development or consideration by us. These rights may prevent us from commercializing technology, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and we cannot be sure that the patents underlying any such licenses will be valid or enforceable. As with other companies in the pharmaceutical industry, we are subject to the risk that persons located in other countries will engage in development, marketing or sales activities of products that would infringe our patent rights if such activities were conducted in the United States.

 

Our patents also may not afford protection against competitors with similar technology. We may not have identified all patents, published applications or published literature that affect our business either by blocking our ability to commercialize our product candidates, by preventing the patentability of our products or by covering the same or similar technologies that may affect our ability to market or license our product candidates. Many companies have encountered difficulties in protecting and defending their intellectual property rights in foreign jurisdictions. If we encounter such difficulties or are otherwise precluded from effectively protecting our intellectual property rights in either the United States or foreign jurisdictions, our business prospects could be substantially harmed. In addition, because of funding limitations and our limited cash resources, we may not be able to devote the resources that we might otherwise desire to prepare or pursue patent applications, either at all or in all jurisdictions in which we might desire to obtain patents, or to maintain already-issued patents.

 

We may become involved in patent litigations or other intellectual property proceedings relating to our future product approvals, which could result in liability for damages or delay or stop our development and commercialization efforts.

 

The pharmaceutical industry has been characterized by significant litigation and other proceedings regarding patents, patent applications, trademarks, and other intellectual property rights. The situations in which we may become parties to such litigation or proceedings may include any third parties initiating litigation claiming that our products infringe their patent or other intellectual property rights, or that one of our trademarks or trade names infringes the third party’s trademark rights; in such case, we will need to defend against such proceedings. For example, the field of generic pharmaceuticals is characterized by frequent litigation that occurs in connection with the regulatory filings under Section 505(b)(2) of the FDCA and attempts to invalidate the patent of the reference drug.

 

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The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial. Many of our potential competitors will be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significant management time.

 

In the event that a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be costly, difficult, and time-consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time-consuming and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patent or other intellectual property rights against a challenge. If we are unsuccessful in enforcing and protecting our intellectual property rights and protecting our products, it could materially harm our business.

 

We depend on our officers. If we are unable to retain our key employees or to attract additional qualified personnel, our product operations and development efforts may be seriously jeopardized.

 

Our success will be dependent upon the efforts of a small management team and staff, including Dennis J. Carlo, Ph.D., our chief executive officer. The employment of Dr. Carlo may be terminated at any time by either us or Dr. Carlo. We currently do not have key man life insurance policies covering any of our executive officers or key employees. If key individuals leave us, we could be adversely affected if suitable replacement personnel are not quickly recruited. There is competition for qualified personnel in all functional areas, which makes it difficult to attract and retain the qualified personnel necessary for the operation of our business. Our success also depends in part on our ability to attract and retain highly qualified scientific, commercial and administrative personnel. If we are unable to attract new employees and retain existing key employees, the development and commercialization of our product candidates could be delayed or negatively impacted.

 

We may experience difficulties in managing growth.

 

We are a small company. Future growth will impose significant added responsibilities on members of management, including the need to identify, attract, retain, motivate and integrate highly skilled personnel. We may increase the number of employees in the future depending on the progress of our development of our products and technologies. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

 

manage our clinical studies effectively;
integrate additional management, administrative, manufacturing and regulatory personnel;
maintain sufficient administrative, accounting and management information systems and controls; and
hire and train additional qualified personnel.

 

We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results.

 

There are significant limitations on our ability in the future to utilize any net operating loss carry forwards for federal and state income tax purposes.

 

At December 31, 2015, we had net operating loss carry forwards of approximately $40 million and $32 million for federal and state purposes, respectively. The net operating loss carry forwards expire through the year 2031. The Tax Reform Act of 1986, as amended, or the TRA, provides for a limitation on the annual use of net operating loss carry forwards following certain ownership changes that could limit our ability to utilize these carry forwards. We most likely have experienced various ownership changes, as defined by the TRA, as a result of past financings and merger transactions. Accordingly, our ability to utilize some or all of these carry forwards is likely limited. Additionally, U.S. tax laws limit the time during which these carry forwards may be applied against future taxes, and as a result we may not be able to take full advantage of these carry forwards for federal income tax purposes. 

 

Risks Related to Our Common Stock

 

Provisions of our charter documents could discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and making it difficult to remove, management.

 

Provisions of our restated certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us, even if a change of control would benefit our stockholders. For example, shares of our preferred stock may be issued in the future without further stockholder approval, and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine, including, for example, rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain investors might be willing to pay in the future for shares of our common stock and discourage those investors from acquiring a majority of our common stock. Similarly, our bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations. The existence of these charter provisions could have the effect of entrenching management and making it more difficult to change our management. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, unless one or more exemptions from such provisions apply. These provisions under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future.

 

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The price of our common stock may be volatile.

 

The market price of our common stock may fluctuate substantially. For example, from April 2014 to December 31, 2015, the market price of our common stock has fluctuated between $2.82 and $7.07. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

 

relatively low trading volume, which can result in significant volatility in the market price of our common stock based on a relatively smaller number of trades and dollar amount of transactions;
the timing and results of our current and any future preclinical or clinical trials of our product candidates;
the entry into or termination of key agreements, including, among others, key collaboration and license agreements;
the results and timing of regulatory reviews relating to the approval of our product candidates;
the initiation of, material developments in, or conclusion of, litigation to enforce or defend any of our intellectual property rights;
failure of any of our product candidates, if approved, to achieve commercial success;
general and industry-specific economic conditions that may affect our research and development expenditures;
the results of clinical trials conducted by others on products that would compete with our product candidates;
issues in manufacturing our product candidates or any approved products;
the loss of key employees;
the introduction of technological innovations or new commercial products by our competitors;
changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
future sales of our common stock;
period-to-period fluctuations in our financial results;
publicity or announcements regarding regulatory developments relating to our products;
period-to-period fluctuations in our financial results, including our cash and cash equivalents balance, operating expenses, cash burn rate or revenue levels;
common stock sales in the public market by one or more of our larger stockholders, officers or directors;
our filing for protection under federal bankruptcy laws;
a negative outcome in any litigation or potential legal proceeding; or
other potentially negative financial announcements, such as a review of any of our filings by the SEC, changes in accounting treatment or restatement of previously reported financial results or delays in our filings with the SEC.

 

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

 

Trading of our common stock is limited.

 

Trading of our common stock is limited, and trading restrictions imposed on us by applicable regulations may further reduce our trading, making it difficult for our stockholders to sell their shares.

 

Prior to the listing of our common stock on the NASDAQ Capital Market, trading of our common stock was conducted on the OTCQB. The liquidity of our common stock is limited, not only in terms of the number of shares that can be bought and sold at a given price, but also as it may be adversely affected by delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if at all.

 

The foregoing factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. In addition, without a large public float, our common stock is less liquid than the stock of companies with broader public ownership, and as a result, the trading price of our common stock may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate his or her investment in our common stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the case if our public float were larger. We cannot predict the price at which our common stock will trade at any given time.

 

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Our common stock could become subject to additional trading restrictions as a “penny stock,” which could adversely affect the liquidity and price of such stock. If our common stock became subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

 

Prior to the listing of our common stock on the NASDAQ Capital Market, our common stock was traded on the OTCQB. The OTCQB, the OTC Bulletin Board and Pink Sheets are viewed by most investors as a less desirable, and less liquid, marketplace. As a result, if our common stock was delisted from the NASDAQ Capital Market and was traded on the OTCQB, the OTC Bulletin Board or the Pink Sheets, an investor could find it more difficult to purchase, dispose of or obtain accurate quotations as to the value of our common stock.

 

Unless our common stock is listed on a national securities exchange, such as the NASDAQ Capital Market, our common stock may also be subject to the regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations. The following is a list of the general restrictions on the sale of penny stocks:

 

Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser’s financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement.
A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an “established customer.”
The Securities Exchange Act of 1934, or the Exchange Act, requires that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a “risk disclosure document” that contains, among other things, a description of the penny stock market and how it functions and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.
A dealer that sells penny stock must send to the purchaser, within 10 days after the end of each calendar month, a written account statement including prescribed information relating to the security.

 

These requirements can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing to undertake these compliance activities. If our common stock is not listed on a national securities exchange, the rules and restrictions regarding penny stock transactions may limit an investor’s ability to sell to a third party and our ability to raise additional capital. We make no guarantee that market-makers will make a market in our common stock, or that any market for our common stock will continue.

 

Our stockholders may experience significant dilution as a result of any additional financing using our securities, as the result of the exercise or conversion of our outstanding securities.

 

We will need to raise significant additional capital in order to maintain and continue our operations. To the extent that we raise additional funds by issuing equity securities or securities convertible into or exercisable for equity securities, our stockholders may experience significant dilution. In addition, conversion or exercise of other outstanding options, warrants or convertible securities could result in there being a significant number of additional shares outstanding and dilution to our stockholders. Certain of our outstanding securities include anti-dilution provision providing that, with certain exceptions, if we issue shares of common stock or options, warrants, convertible securities or other common stock equivalents, at an effective price per share less than the conversion or exercise price of such securities, the conversion or exercise price of such securities (and, in certain circumstances, the number of shares issuable upon exercise or conversion of such securities) will be adjusted downward to equal the per share price of the securities issued in such transaction, entitling the holders to pay a lower per share exercise price and/or to acquire a larger number of shares upon exercise or conversion of such securities, which could result in dilution to our stockholders. As a result, sale of additional equity or convertible securities at prices below certain levels could trigger anti-dilution provisions with respect to certain securities we have previously sold. In addition, if additional funds are raised through the issuance of preferred stock, holders of preferred stock would likely have rights that are senior to the rights of holders of our common stock, and the agreements relating to any such issuance could contain covenants that would restrict our operations.

 

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We have not paid cash dividends on our common stock in the past and do not expect to pay cash dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

 

No cash dividends have been paid on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on a stockholder’s investment will only occur if our stock price appreciates.

 

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline and may impair our ability to raise capital in the future.

 

There have been and may continue to be periods when our common stock could be considered “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions resulting in a large amount of newly issued shares that become readily tradable, conversion of outstanding convertible notes or exercise of outstanding warrants and sale of the shares issuable upon conversion of such notes or exercise of such warrants, or other events that cause stockholders to sell shares, could place downward pressure on the trading price of our stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, the market price of our common stock could decline. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We may never obtain substantial research coverage by industry or financial analysts. If no or few analysts commence or continue coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

 

Our restated certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock.

 

Future sales of substantial amounts of our common stock, or the possibility that such sales could occur, could adversely affect the market price of our common stock.

 

We expect to incur research, development and selling, general and administrative costs, and to satisfy our funding requirements we will need to sell additional equity securities, which may be subject to registration rights, and warrants with anti-dilutive protective provisions. Future sales in the public market of our common stock, or shares issued upon exercise of our outstanding stock options, warrants or convertible securities, or the perception by the market that these issuances or sales could occur, could lower the market price of our common stock or make it difficult for us to raise additional capital. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon the sale of their shares. Also, new equity securities issued may have greater rights, preferences or privileges than our existing common stock.

 

As of March 23, 2016, we had 13,459,061 shares of common stock issued and outstanding, substantially all of which we believe may be sold publicly, subject in some cases to volume and other limitations, provisions or limitations in registration rights agreements, or prospectus-delivery or other requirements relating to the effectiveness and use of registration statements registering the resale of such shares.

 

As of March 23, 2016, we had reserved for issuance 3,101,830 shares of our common stock issuable upon the exercise of outstanding stock options under our equity incentive plans at a weighted-average exercise price of $5.12 per share, and we had outstanding warrants to purchase 3,463,320 shares of common stock. Subject to applicable vesting requirements, upon exercise of these options or warrants, the underlying shares may be resold into the public market, subject in some cases to volume and other limitations or prospectus delivery requirements pursuant to registration statements registering the resale of such shares. In the case of outstanding options or warrants that have exercise prices that are below the market price of our common stock from time to time, our stockholders would experience dilution upon the exercise of these options.

 

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Some of our outstanding warrants may result in dilution to our stockholders.

 

As of December 31, 2015, we had outstanding warrants, other than the warrants described in the next sentence, to purchase 1,730,868 shares of common stock, including the 1,418,439 shares of common stock issuable upon exercise of the Series A Convertible Preferred Stock warrants, at a weighted average exercise price of $4.19 per share. As of December 31, 2015, 575,164 shares of our common stock were issuable upon exercise of warrants that we issued in our June 2013 private placement transaction (the “June Warrants”) at a current exercise price of $3.40 per share. The 1,418,439 shares of our common stock were issuable (subject to certain beneficial ownership limitations) upon exercise of warrants that we issued in our August 2014 private placement transaction at an exercise price of $3.40 per share, and 1,009,021 shares of Series A Convertible Preferred Stock were convertible on a one-for-one basis (subject to certain beneficial ownership limitations) into 1,009,021 shares of common stock. The June Warrants contained full-ratchet anti-dilution provisions that will be triggered, and that will provide for a reduction in the exercise price of the June Warrants (and, in certain circumstances, an increase in the number of shares issuable upon exercise), upon any issuance by us of shares of our common stock or common stock equivalents at a price per share below the then-exercise price of the June Warrants, subject to some exceptions. In the event of conversion of shares of Series A Preferred, or exercise of warrants that have exercise prices that are below the market price of our common stock from time to time, our stockholders would experience dilution upon the conversion of such shares or exercise of such warrants.

 

Our principal stockholders have significant influence over us, they may have significant influence over actions requiring stockholder approval, and your interests as a stockholder may conflict with the interests of those persons.

 

Based on the number of outstanding shares of our common stock held by our stockholders as of March 23, 2016, our directors, executive officers and their respective affiliates owned approximately 5% of our outstanding shares of common stock and our largest stockholder owned approximately 12% of the outstanding shares of our common stock. As a result, those stockholders have the ability to exert a significant degree of influence with respect to the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. The interests of these persons may not always coincide with our interests or the interests of our other stockholders. This concentration of ownership could harm the market price of our common stock by (i) delaying, deferring or preventing a change in corporate control, (ii) impeding a merger, consolidation, takeover or other business combination involving us, or (iii) discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

The Company’s principal headquarters consisting of approximately 7,525 square feet of leased premises is located at 11682 El Camino Real, Suite 300, San Diego, CA 92130. The Company occupies this space pursuant to a sublease agreement with a term that expired on November 30, 2014; rent during the term was $15,050 per month. The Company has entered into a lease agreement to lease the same space with a term commencing December 1, 2014. The lease has a basic term expiring four years after the commencement date, and the Company has an option to extend the term of the lease for an additional three years. Average rent during the term will be $23,304 per month, with a deposit of $170,000 paid in November 2014. In December 2015, $42,500 of the deposit was applied to rent and the balance of deposit as of December 31, 2015 was $127,500.

 

ITEM 3. LEGAL PROCEEDINGS

 

We may become involved in or subject to routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. Any such litigation could divert management time and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses, or could have a material adverse effect on our financial condition, cash flows or results of operations.

 

ITEM 4. MINE SAFETY DISCLOSURES

  

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Price Range of Common Stock

 

Our common stock is traded on the Nasdaq Capital Market under the trading symbol “ADMP.” The following table sets forth the range of high and low sales prices for the common stock as reported for the periods indicated below.

 

    High   Low
2014 Transition Year        
First Quarter (April 2014 - June 2014)   $ 7.02     $ 4.78  
Second Quarter (July 2014 - September 2014)   $ 5.07     $ 2.82  
Third Quarter (October 2014 - December 2014)   $ 6.17     $ 3.85  
Fiscal 2015                
First Quarter (January 2015 - March 2015)   $ 7.07     $ 3.83  
Second Quarter ( April 2015 to June 2015 )                                          $ 4.99     $ 3.77  
Third Quarter ( July 2015 to September 2015 )            $ 4.63     $ 3.25  
Fourth Quarter ( October 2015 to December 2015 )        $ 5.56     $ 3.76  

 

As of December 31, 2015, we had approximately 92 common stock holders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our common stock, and we do not intend to do so in the foreseeable future. Accordingly, our stockholders will not receive a return on their investment unless the value of our shares increases, which may or may not occur. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, any applicable contractual restrictions and such other factors as our deems relevant.

 

Equity Compensation Plan Information

 

The following table sets forth, as of December 31, 2015, information with respect to our equity compensation plans, including our 1995 Equity Incentive Plan, the 1995 Directors’ Stock Option Plan, the 2005 Equity Incentive Plan and the 2009 Equity Incentive Plan, and with respect to certain other options and warrants.

  

Plan Category   Number of securities
to be issued upon
exercise of
outstanding options,
 warrants and rights
(1) (a)
  Weighted
average exercise
price of
outstanding
options,
warrants and
rights (1)
(b)
  Number of securities
remaining available
for future issuance
under equity
compensation plans (excluding securities
reflected in
column (a)) (2)
(c)
Equity compensation plans
 approved by security holders
    4,418,831     $ 4.77       960,379  

  

(1) Excludes shares issuable upon exercise of restricted stock units, which do not have an exercise price.
   
(2) Under the Company’s 2009 Equity Incentive Plan, the number of shares available for issuance under the plan increases automatically increase on January 1st of each year in an amount equal to the lesser of (i) five percent of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, or (ii) a lesser number of shares of Common Stock determined by the board of directors before the start of a calendar year for which an increase applies.

 

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Recent Sales of Unregistered Securities

 

Information concerning our sales of unregistered securities during the year ended December 31, 2015, has previously been reported in reports on Form 10-Q and reports on Form 8-K that we filed during that fiscal year.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

The following discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes of the Company appearing elsewhere in this Report. This discussion of our financial condition and results of operations contains certain statements that are not strictly historical and are “forward-looking” statements and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in our operations, development efforts and business environment, including those set forth in this Item 7, and in the sections entitled “1A. Risk Factors” and “1. Business” in this Report and uncertainties described elsewhere in this Report. All forward-looking statements included in this Report are based on information available to the Company as of the date hereof.

 

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 a dry powder inhaler technology that we acquired from 3M Company. Our goal is to create low cost therapeutic alternatives to existing treatments. Consistent across all specialty pharmaceuticals product lines, we intend to pursue Section 505(b)(2) New Drug Application, or NDA, or Section 505(j) Abbreviated New Drug Application, or ANDA, regulatory approval filings with 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 for patients with unmet medical needs in the global cancer market.

 

NDA Filing Regarding Epinephrine PFS Product

 

On May 28, 2014, we submitted a Section 505(b)(2) NDA application to the FDA for approval for sale of our Epinephrine PFS product, for the emergency treatment of acute allergic reactions, including anaphylaxis. We received a complete response letter (CRL) from FDA on March 27, 2015 and resubmitted the application on December 4, 2015. The FDA subsequently confirmed that it considered the resubmission to be a complete class 2 response to the CRL and provided a PDUFA target response date of June 4, 2016.

 

Private Placement in January 2016

 

On January 26, 2016, we completed a private placement transaction with a small number of accredited investors pursuant to which we issued 1,183,432 shares of Series A-1 Convertible Preferred Stock and warrants to purchase up to 1,183,432 shares of common stock or Series A-1 Convertible Preferred Stock. The shares of Series A-1 Preferred and warrants were sold in units, with each unit consisting of one share and one warrant, at a purchase price of $4.225 per unit. The Series A-1 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 $4.10 per share, and the warrants are exercisable for five years. If we grant, issue or sell any Common Stock equivalents pro rata to the record holders of any class of shares of Common Stock, referred to as the “Purchase Rights”, then a holder of Series A-1 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-1 Preferred or exercise of the Warrants (without regard to any limitations on conversion). If we declare or make any dividend or other distribution our assets (or rights to acquire our assets) to holders of Common Stock, then a holder of Series A-1 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-1 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 within 60 days of the closing date to register the resale from time to time of shares of common stock underlying the Series A-1 Preferred and the warrants.

 

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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 year ended December 31, 2015 and nine-month transition period ended December 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 December 31, 2015, we had cash and cash equivalents of approximately $4.1 million, an accumulated deficit of approximately $69.0 million, and liabilities of approximately $2.7 million. In January 2016, we raised approximately $4,966,000, after deducting approximately $34,000 in fees and transaction expenses payable by us, through a private placement transaction with a small number of accredited investors to which the Company issued preferred stock. However, 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 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.

 

The above conditions raise substantial doubt about our ability to continue as a going concern. The financial statements included elsewhere herein for the year ended December 31, 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 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 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.

 

Our management intends to attempt to secure additional required funding through equity or debt financings, sales or out-licensing of product candidates or 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 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.

 

Funding that we may receive during fiscal 2016 is expected to be used to satisfy existing obligations and liabilities and working capital needs, to begin building working capital reserves and to fund a number of projects, which may include, without limitation, some or all of the following:

 

continue development and commercialization of our Epinephrine PFS product;
continue development of our allergy and respiratory product candidates;
continue development of the APC-5000 DPI product candidate;
pursue the development of other product candidates that we may develop or acquire;
fund clinical trials and seek regulatory approvals;
expand research and development activities;
access manufacturing, commercialization and sales capabilities;
implement additional internal systems and infrastructure;
maintain, defend and expand the scope of our intellectual property portfolio; 
acquire products, technologies, intellectual property or companies and support continued development and funding thereof; and
hire additional management, sales, research, development and clinical personnel.

 

Results of Operations

 

Our consolidated results of operations are presented for the year ended December 31, 2015 and for the nine-month Transition 2014 Period ended December 31, 2014. We changed our fiscal year to the calendar twelve months ending December 31, effective beginning after our previous fiscal year ended March 31, 2014. As a result, our prior fiscal period was shortened from twelve months to a nine-month transition period ended on December 31, 2014. Unless otherwise indicated, comparisons below are based on results for the 12-month year ended December 31, 2015, to the nine-month Transition 2014 Period from April 1, 2014 through December 31, 2014, and accordingly are not comparing results for comparable periods of time.

 

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Twelve Months Ended December 31, 2015 and Nine Months Ended December 31, 2014

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2015 and Transition 2014 Period were approximately $9.0 million and $4.6 million, respectively. Selling, general and administrative expenses consist primarily of depreciation and amortization, legal fees, accounting and audit fees, consulting, professional fees, stock based compensation, and employee compensation. The higher expenses in 2015 was due in part to the results of operations for the longer 12-month period ending December 31, 2015 compared to the nine months ending December 31, 2014. The increase in expense was also primarily due to activities related to the anticipated commercialization of Epinephrine PFS product, including approximately $980,000 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 $1,310,000 increase in compensation expense for 2015 for Sales and Marketing employees, primarily due to salaries, stock options and employee benefits and bonus accrual. Compensation for General and Administrative employees increased by approximately $1,535,000 for the year ended December 31, 2015 compared to the Transition 2014 Period, primarily due to salary increases, new hires and additional stock options granted. Other increase in expenditures for the year ended December 31, 2015 compared to the nine-month Transition 2014 Period included, in each of the following instances, increases in rent of approximately $133,000, amortization of intangibles of approximately $102,000, insurance of approximately $89,000, accounting and legal expenses of approximately $151,000, and other administrative expenses incurred as a public company of approximately $150,000. Selling, general and administrative expenses are expected to continue to increase especially if the FDA grants marketing approval of our Epinephrine PFS product.

 

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 expenses were approximately $4.8 million and $3.5 million for the year ended December 31, 2015 and Transition 2014 Period, respectively, which were expensed. The increase in expenses for 2015 was due in part to the results of operations for the longer 12-month period ending December 31, 2015 compared to the nine months ending December 31, 2014. The increase in research and development expenses was also primarily due to the increase of $885,000 in compensation expense for Research and Development employees, which includes salaries, benefits, additional stock options and bonus accrual and increased other research and development expenses of approximately $413,000 primarily related to the development of  the APC-1000, APC-2000 and APC-5000 products.

 

Other Income (Expenses). Other expenses for the year ended December 31, 2015 and Transition 2014 Period were approximately $278,000 and $(1,215,000), respectively. Other Income (Expenses) consist primarily of interest expense, change in fair value of warrants and change in fair value of derivative liabilities. Interest expense consists primarily of expense in connection with various notes payable and the amortization of debt issuance costs. The decrease in interest expense by approximately $226,000 for the year ended December 31, 2015, in comparison to the Transition 2014 Period was primarily due to the full payment of the December 2012 Convertible Notes balance in 2014. The net change in fair value of warrants and warrant derivatives resulted in income of approximately $278,000 for the year ended December 31, 2015, compared to expense of approximately $(988,000) for the Transition 2014 Period, primarily due to the fluctuation in the valuation of outstanding warrants. Warrant and warrant derivative values are generally a function of movement in the stock trading price, duration and volatility. Additionally, the probabilities of issuing new stock above or below the exercise price of the warrants will impact the anti-dilution valuation.

 

Liquidity and Capital Resources

 

We have incurred net losses of approximately $13.6 million and $9.3 million for year ended December 31, 2015 and the nine-month Transition Period ended December 31, 2014, respectively. Since our inception, June 6, 2006, and through December 31, 2015, we have an accumulated deficit of approximately $69.0 million. Since inception and through December 31, 2015, we have financed our operations principally through debt financing and through private issuances of common stock and preferred 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 acquisitions or investments in other businesses, products or technologies, and for capital expenditures.

 

Net cash used in operating activities from continuing operations for the year ended December 31, 2015 and the Transition 2014 Period was approximately $10.3 million and $6.4 million, respectively. The higher cash used in operating activities in 2015 was largely due to the results of operations for the longer 12-month period ending December 31, 2015 compared to the nine months ending December 31, 2014. We expect net cash used in operating activities to increase going forward as we continue with product development and other business activities, assuming that we are able to obtain sufficient funding.

 

We had no investing activities for the year ended December 31, 2015 and the Transition 2014 Period.

 

Net cash provided by financing activities from continuing operations was approximately $10.6 million in the year ended December 31, 2015 and approximately $4.8 million for the Transition 2014 Period. During the Transition 2014 Period, we repaid outstanding promissory notes. The primary sources of cash provided by financing activities in the year ended December 31, 2015 and in the Transition 2014 Period were from the issuance of common stock with net proceeds of approximately $10.6 million and the issuance of Series A convertible preferred stock with net proceeds of approximately $4.9 million, respectively.

 

35  
 

 

On December 31, 2012, we issued a convertible promissory note in the principal amount of $600,000 and 35,294 shares of common stock to a private investor, and received gross proceeds of $600,000, 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 February 1, 2013. As amended, all unpaid and unconverted principal and interest on the note was due and payable on June 30, 2014. At any time on or before the maturity date, the investor had the right to convert part or all of the principal and interest owed under the note into common stock at a conversion price, as amended, equal to $6.00 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 note was repaid in June 2014.

 

For additional information concerning our debt and equity financing transactions, see Notes 8, 9, 13 and 14 accompanying our financial statements included elsewhere herein.

 

As noted above under the heading “Going Concern and Management Plan,” at December 31, 2015, Adamis had incurred substantial losses. The availability of any required additional funding cannot be assured. Even taking into account the net proceeds from the transactions described above, if we do not obtain additional equity or debt funding in the near future, our cash resources would become 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 may pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales, and we will require additional funds. 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 audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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.

 

We believe the following accounting policies and estimates are most critical to aid you in understanding and evaluating our reported financial results. For further discussion of our accounting policies, see Note 3 in the accompanying notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K.

 

Stock-Based Compensation. We account for stock-based compensation transactions in which we receive employee services in exchange for options to purchase common stock. Stock-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of our common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.

 

Derivative Financial Instruments . Derivatives are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair value. The treatment of gains and losses resulting from changes in the fair values of derivative instruments is dependent on the use of the respective derivative instrument and whether they qualify for hedge accounting. As of December 31, 2015, no derivative instruments qualified for hedge accounting.

 

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, 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.

 

The Company recognizes the derivative assets and 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 its notes. See Note 9 in the accompanying financial statements for further discussion of derivative instruments.

 

36  
 

 

 

Intangible Assets. Intangible assets, such as patents and unpatented technology, consist of legal fees and other costs needed to acquire the intellectual property. Acquired patents are recorded at cost, based on the relative fair value of the assets as of the date acquired. Patents are amortized on a straight line basis over their estimated remaining useful life.

 

Off Balance Sheet Arrangements

 

At December 31, 2015, we did not have any off balance sheet arrangements.

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-03, “ Interest – Imputation of Interest (Subtopic 835-50): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with the debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public businesses, ASU 2015-03 will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of ASU 2015-03 will be allowed for financial statements that have yet to be issued. The amendments must be applied retrospectively, where the balance sheet of each individual period presented is adjusted to reflect the period-specific impact of using the new guidance. Upon transition, a business must adhere to the appropriate disclosures for an adjustment in an accounting principle. Such disclosures include why the change in accounting principle is occurring, the transition method, an explanation of the prior period information that was retrospectively adjusted, and how the change impacts the financial statement line items (i.e., debt issuance cost asset and the debt liability). The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. ASU 2015-05 will be effective for annual periods beginning after December 15, 2015. Early adoption of ASU 2015-05 will be allowed for financial statements that have yet to be issued. The amendment may be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

 

In May 2014, the FASB issued ASU 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.

 

In November 2014, the FASB issued ASU 2014-16, "Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity". The ASU provides guidance relating to certain hybrid financial instruments when determining whether the characteristics of the embedded derivative feature are clearly and closely related to the host contract. In making that evaluation, the characteristics of the entire hybrid instrument should be considered, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The amendments are effective for our fiscal year ending December 31, 2016; however, early adoption is permitted. Adoption is not expected to have a significant effect on the Company's consolidated financial statements.

 

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of  Deferred Taxes," which requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The new accounting guidance is effective for annual reporting periods beginning after December 15, 2016 and interim periods therein. Early adoption is permitted as of the beginning of the interim or annual reporting periods. The new guidance may be applied either on a prospective or retrospective basis. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements. 

 

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments under this pronouncement will change the way all leases with a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

37  
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   

The financial statements and financial information required by Item 8 are set forth below commencing on page F-1.

 

ITEM 9. CHANGES IN AND DIS AGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

 

None.

   

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of the Principal Executive Officer and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of December 31, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and Accounting Officer, to allow timely decisions regarding required disclosures.

 

Based on their evaluation, our Principal Executive Officer and Accounting Officer concluded that disclosure controls and procedures were effective as of December 31, 2015, for reasons described below.

 

Internal Control over Financial Reporting

 

Management’s report on our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) in the Exchange Act), is included in this Annual Report on Form 10-K, under the heading “Management’s Annual Report on Internal Control Over Financial Reporting” and is incorporated herein by reference. This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, unless we specifically state that the report is to be considered “filed” under the Exchange Act or incorporate it by reference into a filing under the Securities Act of 1933, as amended, or under the Exchange Act.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, particularly those related to subjective measurements and complex transactions, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 2013 Framework in Internal Control - Integrated Framework and Internal Control over Financial Reporting-Guidance for Smaller Public Companies. As a result of this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2015, the end of the most recent fiscal year.

 

38  
 

 

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules that permit us to provide only management’s report in this Annual Report on Form 10-K.

 

Changes in Internal Controls

 

During the period that ended on December 31, 2015, the Company completed its remediation efforts related to the company’s inappropriate segregation of duties between incompatible functions. As a result of the completed remediation efforts noted below, there were improvements in internal control over financial reporting during the fiscal year 2015 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

 

Remediation Actions

 

As disclosed in our 2014 Transition Report on Form 10K, we identified a material weakness in our internal control over financial reporting as of December 31, 2014, based on the absence of finance and accounting personnel other than the Chief Financial Officer in most of the reporting period. This resulted in not ensuring appropriate segregation of duties between incompatible functions, and made it more difficult to ensure review of financial reporting issues sufficiently in advance of the dates on which filings are required to be made with the Securities and Exchange Commission to ensure financial information (both routine and non-routine) is adequately analyzed and reviewed on a timely basis to detect misstatements. These above deficiencies represented a material weakness in our internal control over financial reporting, as of December 31, 2014, given that they result in a reasonable possibility that a material misstatement to the annual or interim financial statements would not have been prevented or detected.

 

In response, the Company took a number of remedial actions including hiring an accounting manager and additional accounting personnel. In addition, during the fourth quarter the Company implemented a number of remedial actions including the following:

 

  Processes were identified and the Company prepared additional narratives describing processes intended to ensure appropriate segregation of duties. 
  Prepared additional risk control matrices to assist in identifying financial reporting risks and including links to the related accounts and financial statement assertions. 
  Prepared materials regarding segregation of duties and summarizing responsibilities by process and how the Company addresses appropriate segregation of duties.
  An independent consultant was hired to perform walkthrough testing of processes and compliance of controls.
  Employees not involved in the processes conducted testing compliance of processes and established controls.

 

Management has determined that the remediation actions discussed above were effectively designed and demonstrated effective operation for a sufficient period of time to enable the Company to conclude that the 2014 material weakness regarding inappropriate segregation of duties between incompatible functions has been fully remediated as of December 31, 2015.

 

39  
 

 

ITEM 9B. OTHER INFORMATION

 

Not Applicable.

 

40  
 

 

PART III

 

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

   

The information required by Item 10 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.

 

ITEM 11: EXECUTIVE COMPENSATION

  

The information required by Item 11 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K. 

   

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

   

The information required by Item 12 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.

 

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

   

The information required by Item 13 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.

 

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by Item 14 of Part III is incorporated by reference to the registrant’s proxy statement, to be filed within 120 days of the registrant’s fiscal year end, or will be included in an amendment to this Annual Report on Form 10-K.

 

41  
 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibits

 

The following exhibits are attached hereto or incorporated herein by reference.

 

42  
 

 

            Incorporated by Reference
Exhibit
Number
  Exhibit Description   Filed Herewith   Form/
File No.
  Date
                 
1.1   Underwriting Agreement dated January 9, 2015       8-K   01/09/15
2.1   Agreement and Plan of Share Exchange dated as of October 7, 2004, by and between the Company and Biosyn, Inc.       8-K   10/26/04
3.1   Restated Certificate of Incorporation of the Registrant       S-8   03/17/14
3.2   Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock dated August 19, 2014       8-K   08/20//14
3.3   Certificate of Designation of Preferences, Rights and Limitations of Series A-1 Convertible Preferred Stock       8-K   01/26/16
4.1   Amended and Restated Bylaws of the Company       S-4/A 333-155322   01/12/09
4.2   Specimen stock certificate for common stock       8-K   04/03/09
4.3   Form of Common Stock Purchase Warrant dated August 19, 2014       8-K   08/20/14
4.4   Amended and Restated Warrant       8-K   01/26/16
*10.1   2005 Equity Incentive Plan       10-K   03/31/06
*10.2   Form of Option Agreement under the 2005 Equity Incentive Plan       10-K   03/31/06
*10.3   2009 Equity Incentive Plan       10-Q   11/14/14
*10.4   Form of Stock Option Agreement for option awards       8-K   09/16/11
*10.5   Form of Option Agreement for Non-Employee Directors*       8-K   01/13/11
*10.6   Form of Indemnity Agreement with directors and executive officers       8-K   01/13/11
10.7   Agreement dated as of October 8, 1996 by and among Biosyn, Inc., Edwin B. Michaels and E.B. Michaels Research Associates, Inc. (Confidential treatment has been requested with respect to portions of this agreement.)       10-K   03/31/05
10.8   Patent License Agreement by and among Biosyn, Inc., and certain agencies of the United States Public Health Service       10-K   03/31/05
10.9   License Agreement dated as of May 22, 2001, by and between Crompton Corporation and Biosyn, Inc. (Confidential treatment has been requested for portions of this agreement.)       10-K   03/31/05
10.10   License Agreement dated January 30, 2006, by and between CONRAD, Eastern Virginia Medical School, and Biosyn, Inc. (Confidential treatment has been requested for portions of this agreement.)       10-K   04/02/07
10.11   Amendment to License Agreement dated as of March 15, 2006, by and between Crompton Corporation and Biosyn, Inc.       S-4/A 333-155322   01/12/09
10.12   Funding Agreement dated October 12, 1992, by and between Ben Franklin Technology Center of Southeastern Pennsylvania and Biosyn, Inc.       S-4/A 333-155322   01/12/09
10.13   License Agreement dated July 28, 2006, by and between Nevagen, LLC and Adamis Pharmaceuticals Corporation       S-4/A 333-155322   01/12/09
10.14   Amendment to License Agreement dated December 29, 2008, by and between Nevagen, LLC and Adamis Pharmaceuticals Corporation       S-4/A 333-155322   01/12/09
10.15   Amendment to License Agreement dated October 18, 2007, by and between CONRAD, Eastern Virginia Medical School, and Biosyn, Inc.       S-4/A 333-155322   01/12/09
10.16   Clinical Trial Agreement between Biosyn, Inc. and the National Institute of Child Health and Human Development       S-4/A 333-155322   01/12/09
10.17   Common Stock Purchase Agreement dated as of November 10, 2010, by and between Adamis Pharmaceuticals Corporation and the Purchaser named therein (Confidential treatment has been granted for portions of this exhibit.)       8-K   11/12/10
10.18   Registration Rights Agreement dated as of November 10, 2010, by and between Adamis Pharmaceuticals Corporation and the Purchaser named therein       8-K   11/12/10
10.19   Executive Employment Agreement between the Company and Dennis J. Carlo dated December 31, 2015*    X    
10.20   Executive Employment Agreement between the Company and David J. Marguglio dated December 31, 2015*    X    
10.21   Executive Employment Agreement between the Company and Robert O. Hopkins dated December 31, 2015*    X    
10.23   Executive Employment Agreement between the Company and Karen K. Daniels dated December 31, 2015*    X    
10.24   Executive Employment Agreement between the Company and Thomas H. Moll,Ph.D. dated December 31, 2015*    X    

 

 

43  
 

 

            Incorporated by Reference
Exhibit
Number
  Exhibit Description   Filed Herewith   Form/
File No.
  Date
                 
10.25   License Agreement between Adamis, the Regents of the University of California and Dana-Farber Cancer Institute, Inc.       10-K   07/07/11
10.26   License Agreement dated January 26, 2007, with Wisconsin Alumni Research Foundation       10-K   07/07/11
10.27   License Agreement dated January 26, 2007, with Wisconsin Alumni Research Foundation       10-K   07/07/11
10.28   License Agreement dated January 2, 2008, with Wisconsin Alumni Research Foundation       10-K   07/07/11
10.29 Product Development and Contract Manufacturing Agreement dated November 1, 2010, between the Company and Beximco Pharmaceuticals Ltd. 10-Q 02/14/11
10.30   First Amendment to Common Stock Purchase Agreement dated as of June 30, 2011, by and between the Company and Eses Holdings (FZE)       10-K   07/07/11
10.31   Second Amendment to Common Stock Purchase Agreement dated as of November 10, 2011, by and between the Company and Eses Holdings (FZE)       8-K   11/21/11
10.32   Third Amendment to Common Stock Purchase Agreement dated as of January 31, 2012, by and between the Company and Eses Holdings (FZE)       10-Q   02/14/12
10.33   Securities Purchase Agreement dated as of June 11, 2012       8-K   06/15/12
10.34   10% Senior Convertible Note dated as of June 11, 2012       8-K   06/15/12
10.35   Form of Subsidiary Guarantee dated as of June 11, 2012       8-K   06/15/12
10.36   Convertible Promissory Note dated as of June 11, 2012       8-K   06/15/12
10.37   Zero Coupon Secured Promissory Note dated October 25, 2012       10Q   02/19/13
10.38   Convertible Promissory Note dated December 31, 2012       10-Q   02/19/13
10.39   Amendment to Convertible Promissory Note dated March 26, 2014       8-K   04/01/14
10.40   Securities Purchase Agreement dated as of April 5, 2013       8-K   04/08/13
10.41   12% Convertible Debenture dated April 5, 2013       8-K   04/08/13
10.42   Subscription Agreement dated as of June 26, 2013       8-K   07/01/13
10.43   Form of Secured Convertible Notes dated June 26, 2013       8-K   07/01/13
10.44   Form of Warrants dated June 26, 2013       10-Q   11/14/14
10.45   Security Agreement dated June 26, 2013       8-K   07/01/13
10.46   Intercreditor Agreement dated June 26, 2013       8-K   07/01/13
10.47   Consent and Waiver       8-K   10/31/13
10.48   Exclusive License and Asset Purchase Agreement dated as of August 1, 2013, by and among the Registrant, 3M Corp. and 3M Innovative Properties Company       8-K   08/06/13
10.49   Sublease dated as of March 12, 2011 between the Registrant and Whitney, Bradley & Brown, Inc.       S-1 333-192372   11/15/13
10.50   Sublease Agreement between McDermott Will & Emery LLP and the Registrant dated February 1, 2014       10-Q   02/14/14
10.51   Lease Agreement dated April 1, 2014, between the Registrant and Pacific North Court Holdings, L.P.     10-KT   03/26/15
10.52   Purchase Agreement dated August 19, 2014 by and between the Company and Sio Partners QP LP and Sio Partners Offshores, Ltd.       8-K   08/20/14
10.53   Registration Rights Agreement dated August 18, 2014, by and between the Company and Sio Partners LP, Sio Partners QP LP and Sio Partners Offshores, Ltd.       8-K   08/20/14
10.54   Form of Warrants dated June 26, 2013       10-Q   11/14/14
10.55   Form of Warrant dated January 26, 2016       8-K   01/26/16
10.56   Purchase Agreement       8-K   01/26/16
10.57   Registration Rights Agreement dated as of January 26, 2016       8-K   01/26/16
21.1   Subsidiaries of the Registrant       10-K   07/03/13
23.1   Consent of Mayer Hoffman McCann P.C., Independent Registered Public Accounting Firm   X        
24.1   Power of Attorney (See signature page)   X        
31.1   Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   X        

  

44  
 

 

            Incorporated by Reference
Exhibit
Number
  Exhibit Description   Filed Herewith   Form/
File No.
  Date
                 
31.2   Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   X        
32.1   Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X        
32.2   Certification by CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X        
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.PRE   XBRL Taxonomy Extension Presentation Linkbase Document            

 

* Represents a compensatory plan or arrangement.

 

45  
 

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California.

 

 

    ADAMIS PHARMACEUTICALS CORPORATION
         
    By:   /s/ DENNIS J. CARLO
        Dennis J. Carlo
Dated: March 23, 2016       Chief Executive Officer

 

Power of Attorney

 

Each person whose signature appears below constitutes and appoints each of Dennis J. Carlo and Robert O. Hopkins, true and lawful attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated:

  

Name   Title   Date
Principal Executive Officer:        
         
/s/ DENNIS J. CARLO   Chief Executive Officer and Director    March 23, 2016
Dennis J. Carlo        
         
Principal Financial Officer
and Principal Accounting Officer :
       
         
/s/ ROBERT O. HOPKINS   Vice President, Finance,   March 23, 2016
Robert O. Hopkins   Chief Financial Officer and Secretary    
         
Directors:        
         
/s/ DAVID J. MARGUGLIO   Director   March 23, 2016
David J. Marguglio        
         
/s/RICHARD C. WILLIAMS   Chairman   March 23, 2016
Richard C. Williams        
         
/s/ ROBERT B. ROTHERMEL   Director   March 23, 2016
Robert B. Rothermel        
         
/s/ WILLIAM C. DENBY, III   Director   March 23, 2016
William C. Denby, III        

 

 
 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

DECEMBER 31, 2015 AND 2014

  

    PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   F-1
     
CONSOLIDATED FINANCIAL STATEMENTS:    
     
Consolidated Balance Sheet s   F-2
     
Consolidated Statements of Operations   F-3
     
Consolidated Statements of Stockholders’ Equity   F-4
     
Consolidated Statements of Cash Flows   F-5 - F-6
     
Notes to the Consolidated Financial Statements   F-7 - F-23

   

 
 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Adamis Pharmaceuticals Corporation and Subsidiaries

San Diego, California

 

We have audited the accompanying consolidated balance sheets of Adamis Pharmaceuticals Corporation and Subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2015 and nine-month period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adamis Pharmaceuticals Corporation and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the year ended December 31, 2015 and nine-month period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses from operations, and is dependent on additional financing to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

/s/ MAYER HOFFMAN MCCANN P.C.

 

San Diego, California

March 23, 2016

 

  

F- 1  
 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES  

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2015   December 31, 2014
ASSETS        
CURRENT ASSETS        
Cash   $ 4,080,648     $ 3,774,665  
Prepaid Expenses and Other Current Assets     70,985       179,545  
      4,151,633       3,954,210  
LONG TERM ASSETS                
Security Deposits     85,000       127,500  
Intangible Assets, net     7,766,960       8,737,830  
Equipment, net     58,260       77,680  
Total Assets   $ 12,061,853     $ 12,897,220  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts Payable   $ 497,794     $ 787,012  
Accrued Other Expenses     214,036       129,055  
Accrued Bonuses     478,274       411,500  
Warrants, at fair value     1,174,312       1,809,949  
Warrant Derivative Liabilities, at fair value     383,404       256,530  
Total Liabilities     2,747,820       3,394,046  
COMMITMENTS AND CONTINGENCIES                
STOCKHOLDERS’ EQUITY                
Series A Convertible Preferred Stock – Par Value $.0001; 10,000,000 Shares  Authorized; 1,009,021 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     78,339,143       64,956,524  
Accumulated Deficit     (69,021,356 )     (55,449,359 )
Treasury Stock - 307,540 Shares, at cost     (5,229 )     (5,229 )
Total Stockholders’ Equity     9,314,033       9,503,174  
    $ 12,061,853     $ 12,897,220  

 

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

 

F- 2  
 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES  

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    12 Months Ended
December 31, 2015
  Nine Months Ended
December 31, 2014
REVENUE   $     $  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES     9,007,289       4,556,291  
RESEARCH AND DEVELOPMENT     4,843,139       3,545,475  
Loss from Operations     (13,850,428 )     (8,101,766 )
OTHER INCOME (EXPENSE)                
Interest Expense           (226,286 )
Change in Fair Value of Warrant Liability     433,898       (1,053,256 )
Change in Fair Value of Warrant Derivative Liabilities     (155,467 )     64,953  
Total Other Income (Expense)     278,431       (1,214,589 )
Net (Loss)   $ (13,571,997 )   $ (9,316,355 )
Basic and Diluted (Loss) Per Share:                
Basic (Loss) Per Share   $ (1.02 )   $ (0.89 )
Basic Weighted Average Shares Outstanding     13,275,847       10,526,618  
Diluted (Loss) Per Share   $ (1.03 )   $ (0.89 )
Diluted Weighted Average Shares Outstanding     13,436,683       10,526,618  

 

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

 

F- 3  
 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

    Series A Convertible
Preferred Stock
  Common Stock       Treasury
Stock
       
    Shares   Amount   Shares   Amount   Additional
Paid-In Capital
  Shares   Amount   Accumulated
Deficit
  Total
Balance March 31, 2014         $       10,809,059     $ 1,081     $ 58,324,941       (307,540 )   $ (5,229 )   $ (46,133,004 )   $ 12,187,789  
Common Stock Issued for
Exercised Options
                145,090       14       493,292                         493,306  
Common Stock Issued for Service                 5,331       1       25,002                         25,003  
Release of Warrants Liability Upon Exercise                             319,865                         319,865  
Preferred Stock Issued, net of
issuance cost of $71,003
    1,418,439       142                   4,928,855                         4,928,997  
Share Based Compensation                             625,518                         625,518  
Accrued Share Based
Compensation - Bonuses
                            239,051                         239,051  
Net (Loss)                                               (9,316,355 )     (9,316,355 )
Balance December 31, 2014     1,418,439     $ 142       10,959,480     $ 1,096     $ 64,956,524       (307,540 )   $ (5,229 )   $ (55,449,359 )   $ 9,503,174  
Common Stock Issued for
Exercised Warrants
                58,364       6       75,583                         75,589  
Common Stock Issued for
Exercised Options
                2,677                                      
Common Stock Issued for Service                 3,666             25,002                         25,002  
Issuance of RSU’s                 5,594       1       (1 )                        
Release of Warrants Liability
Upon Exercise
                            230,332                         230,332  
Common Stock Issued, net of
issuance cost of $934,028
                2,300,000       230       10,565,742                         10,565,972  
1:1 Conversion of Series A
Preferred Stock to Common Stock
    (409,418 )     (41 )     409,418       41       —                           
Share Based Compensation
                            2,485,961                         2,485,961  
Net (Loss)                                               (13,571,997 )     (13,571,997 )
Balance December 31, 2015     1,009,021     $ 101       13,739,199     $ 1,374     $ 78,339,143       (307,540 )   $ (5,229 )   $ (69,021,356 )   $ 9,314,033  

   

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

 

F- 4  
 

  

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES  

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    12 Months Ended
December 31, 2015
  Nine Months Ended
December 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES        
Net (Loss)   $ (13,571,997 )   $ (9,316,355 )
Adjustments to Reconcile Net (Loss) to Net                
Cash (Used in) Operating Activities:                
Stock Based Compensation     2,485,961       625,518  
Stock Issued in Exchange of Services     25,002       25,003  
Change in Fair Value of Warrant Liability     (433,898 )     1,053,256  
Change in Fair Value of Warrant Derivative Liabilities     155,467       (64,953 )
Amortization of Discount on Notes Payable           216,661  
Depreciation and Amortization Expense     990,290       888,367  
Change in Assets and Liabilities:                
(Increase) Decrease in:                
Prepaid Expenses and Other Current Assets     108,560       (165,041 )
Security Deposits     42,500       (127,500 )
Increase (Decrease) in:                
Accounts Payable     (289,218 )     115,994  
Accrued Other Expenses and Bonuses     151,755       336,830  
Net Cash (Used in) Operating Activities     (10,335,578 )     (6,412,220 )
CASH FLOWS FROM INVESTING ACTIVITIES                
Net Cash (Used in) Investing Activities            
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from Issuance of Preferred Stock and Warrants, net of issuance cost           4,928,997  
Proceeds from Issuance of Common Stock, net of issuance cost     10,565,972        
Proceeds from Warrant conversion     75,589       493,306  
Payment of Notes Payable           (38,653 )
Payment of Convertible Notes Payable           (600,000 )
Net Cash Provided by Financing Activities     10,641,561       4,783,650  
Increase (Decrease) in Cash     305,983       (1,628,570 )
Cash:                
Beginning     3,774,665       5,403,235  
Ending   $ 4,080,648     $ 3,774,665  

 

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

 

F- 5  
 

 

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES  

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    12 Months Ended
December 31, 2015
  Nine Months Ended
December 31, 2014
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash Paid for Income Taxes   $ 2,400     $ 2,400  
Cash Paid for Interest   $     $ 89,401  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND
 INVESTING ACTIVITIES
               
Release of Warrant Liability Upon Exercise   $ 230,332     $ 319,865  

 

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

 

F- 6  
 

 

NOTE 1: NATURE OF BUSINESS

 

The company formerly named Adamis Pharmaceuticals Corporation, or Old Adamis, was founded in June 2006 as a Delaware corporation. Effective April 1, 2009, Old Adamis completed a business combination transaction with Cellegy Pharmaceuticals, Inc., or Cellegy. Before the merger, Cellegy was a public company and Old Adamis was a private company. In connection with the consummation of the merger and pursuant to the terms of the definitive merger agreement relating to the transaction, Cellegy was the surviving corporation in the merger and changed its name from Cellegy Pharmaceuticals, Inc. to Adamis Pharmaceuticals Corporation (the “Company”, “Adamis Pharmaceuticals” or “Adamis”), and Old Adamis survived as a wholly-owned subsidiary and changed its corporate name to Adamis Corporation. The Company has two wholly-owned subsidiaries: Adamis Corporation; and Biosyn, Inc., which has rights to the C31G product. Adamis Corporation has two wholly-owned subsidiaries: Adamis Viral Therapies, Inc., or Adamis Viral, which was formed to focus on the Company’s cancer and vaccine technologies; and Adamis Laboratories, Inc., or Adamis Labs, which was formed to focus on the Company’s allergy and respiratory products.

   

NOTE 2: GOING CONCERN

 

The Company’s consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying consolidated financial statements, the Company has sustained substantial losses from continuing operations. In addition, the Company has used, rather than provided, cash in its continuing operations. We raised additional funds in January 2016 through a private placement transaction of our preferred stock and warrants. However, 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 our product candidates. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. Management intends to attempt to secure additional required funding through equity or debt financings, sales or out-licensing of product candidates or other intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions.

 

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

  

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying consolidated financial statements include Adamis Pharmaceuticals and its wholly-owned operating subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.

 

Change in Fiscal Year

 

In November 2014, the Board of Directors of the Company determined that, in accordance with its Bylaws and upon the recommendation of its Audit Committee, the Company’s fiscal year shall begin on January 1 and end on December 31 of each year, starting on January 1, 2015. This resulted in a change in fiscal year end from March 31 to December 31. This required transition period of April 1, 2014 to December 31, 2014 is included in these financial statements. For comparative purposes, the unaudited consolidated results of operations for the 12 months ended December 31, 2014 are included in Note   17.

 

Accounting Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates, and the differences could be material.

 

Cash and Cash Equivalents

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents.

 

F- 7  
 

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued liabilities approximate their fair value due to their short-term nature. Additionally, certain warrant obligation agreements contain anti-dilution features which are adjusted to fair value on a recurring basis.

 

Fixed Assets

 

Fixed assets are recorded at historical cost as of the date acquired, and depreciated on a straight line basis with useful lives ranging from 3-7 years.

 

Intangible Assets

 

Intangible assets, such as patents and unpatented technology, consist of legal fees and other costs needed to acquire the intellectual property. Acquired patents are recorded at cost, based on the related fair value of the assets as of the date acquired. Patents are amortized on a straight line basis over their estimated remaining useful life.

 

Long-Lived Assets

 

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

Derivative Instruments and Hedging Activities

 

Derivatives are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair value. The treatment of gains and losses resulting from changes in the fair values of derivative instruments is dependent on the use of the respective derivative instrument and whether they qualify for hedge accounting. As of December 31, 2015 and 2014, no derivative instruments qualified for hedge accounting. See Note 9 for further discussion of derivative instruments.

 

Revenue Recognition

 

In accordance with our revenue recognition policy, revenue is recognized when the parties agree to the terms of the arrangement, title and risk of loss are transferred to the customer, the sales price to the customer is fixed and determinable, and collectability of the sales price is reasonably assured. Reported revenue is net of estimated customer returns and other wholesaler fees. Our policy regarding sales to customers is that we do not recognize revenue from, or the cost of such sales, where we believe the customer has more than a demonstrably reasonable level of inventory. We make this assessment based on historical demand, historical customer ordering patterns for purchases, business considerations for customer purchases and estimated inventory levels. If our actual experience proves to be different than our assumptions, we would then adjust such allowances accordingly.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation transactions in which the Company receives employee services in exchange for options to purchase common stock. Stock-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.

 

Research and Development

 

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.

 

F- 8  
 

 

Legal Expense

 

Legal fees are expensed as incurred and are included in selling, general and administrative expenses on the consolidated statements of operations.

 

Income Taxes

 

The Company accounts for income taxes under the deferred income tax method. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

 

Deferred income tax provisions and benefits are based on changes to the assets and liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which they operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

 

The Company accounts for uncertain tax positions in accordance with accounting guidance which requires the Company to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would, more likely than not, sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied the guidance to all tax positions for which the statute of limitations remained open. Upon implementation, the Company did not recognize any additional liabilities for unrecognized tax benefits. Accordingly, the adoption of the guidance had no impact on the Company’s financial statements. There have been no material changes in unrecognized tax benefits since April 1, 2010.

 

The Company is subject to income taxes in the United States Federal jurisdiction, California and Florida. The Company is no longer subject to the United States Federal, California or Florida income examinations by tax authorities for the years before the year ended March 31, 2011. The Company recognizes interest and penalty accrued related to unrecognized tax benefits in its income tax expense, if any. No interest or penalties have been accrued for all presented periods.

 

In fiscal 2014, the Company adopted accounting guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward exists which became effective for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Pursuant to this guidance, the Company presents an unrecognized tax benefit, or portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for net operating loss carryforward. Adoption did not have an impact on the consolidated financial position, results of operations or cash flows of the Company.

 

Basic and Diluted Net 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. 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 year ended December 31, 2015 and the transition period ended December 31, 2014 consist of outstanding warrants (1,730,868 and 2,401,049, respectively), outstanding options (2,112,800 and 1,239,722, respectively), outstanding restricted stock units (5,590 and 11,184, respectively), and convertible preferred stock (1,009,021 and 1,418,439, respectively).

 

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 the warrants 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. During the year ended December 31, 2015, the Company earned a net gain on the valuation of the Warrant Liability and Warrant Derivative Liability which has a dilutive impact on loss per share.

 

F- 9  
 

 

    For the Twelve
Months Ended
December 31, 2015
  For the Nine
Months Ended
December 31, 2014
Loss per Share - Basic        
Numerator for basic loss per share   $ (13,571,997 )   $ (9,316,355 )
Denominator for basic loss per share     13,275,847       10,526,618  
Loss per common share - basic   $ (1.02 )   $ (0.89 )
                 
Loss per Share - Diluted                
Numerator for basic loss per share   $ (13,571,997 )   $ (9,316,355 )
Adjust: Fair Value of dilutive warrants outstanding     (278,431 )      
Numerator for dilutive loss per share   $ (13,850,428 )   $ (9,316,355 )
                 
Denominator for diluted loss per share     13,275,847       10,526,618  
Plus: Incremental shares underlying “in the money” warrants outstanding     160,836        
Denominator for dilutive loss per share     13,436,683       10,526,618  
Loss per common share - diluted   $ (1.03 )   $ (0.89 )

 

Recently Issued Accounting Pronouncements

 

In April 2015, the FASB issued ASU 2015-03, “ Interest – Imputation of Interest (Subtopic 835-50): Simplifying the Presentation of Debt Issuance Costs". The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with the debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public businesses, ASU 2015-03 will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of ASU 2015-03 will be allowed for financial statements that have yet to be issued. The amendments must be applied retrospectively, where the balance sheet of each individual period presented is adjusted to reflect the period-specific impact of using the new guidance. Upon transition, a business must adhere to the appropriate disclosures for an adjustment in an accounting principle. Such disclosures include why the change in accounting principle is occurring, the transition method, an explanation of the prior period information that was retrospectively adjusted, and how the change impacts the financial statement line items (i.e., debt issuance cost asset and the debt liability). The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. ASU 2015-05 will be effective for annual periods beginning after December 15, 2015. Early adoption of ASU 2015-05 will be allowed for financial statements that have yet to be issued. The amendment may be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

 

In May 2014, the FASB issued ASU 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 these 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. 

 

In November 2014, the FASB issued ASU 2014-16, "Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity". The ASU provides guidance relating to certain hybrid financial instruments when determining whether the characteristics of the embedded derivative feature are clearly and closely related to the host contract. In making that evaluation, the characteristics of the entire hybrid instrument should be considered, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The amendments are effective for our fiscal year ending December 31, 2016; however, early adoption is permitted. Adoption is not expected to have a significant effect on the Company's consolidated financial statements.

 

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of  Deferred Taxes," which requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The new accounting guidance is effective for annual reporting periods beginning after December 15, 2016 and interim periods therein. Early adoption is permitted as of the beginning of the interim or annual reporting periods. The new guidance may be applied either on a prospective or retrospective basis. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements. 

 

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments under this pronouncement will change the way all leases with a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. The company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

 

F- 10  
 

   

NOTE 4: CONCENTRATIONS

 

Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts payable.

 

Cash

 

The Company at times may have cash in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit. The Company maintains its cash with larger financial institutions. The Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

 

Purchases and Accounts Payable

 

The Company had balances greater than 10% of trade accounts payable at December 31, 2015 with two vendors. Vendor A had a balance that accounted for 22% of total accounts payable and Vendor B had a balance of 16% at December 31, 2015. The Company had approximately $262,000 and approximately $1.1 million in total purchases with Vendor A and Vendor B, respectively, during the year ended December 31, 2015. The Company has no exposure to the elimination of Vendor A and B, there are a number of companies which could provide the same services, and management believes, on comparable terms. Comparatively, the Company had balances greater than 10% of trade accounts payable at December 31, 2014 with a vendor. The vendor had a balance that accounted for 15% of total accounts payables and approximately $410,000 in total purchases during the Transition 2014 Period.

   

NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets at December 31, 2015 and December 31, 2014:

 

    December 31, 2015   December 31, 2014
Prepaid Insurance   $ 27,923     $ 34,132  
Other Prepaid     456       102,719  
Other Current Assets     42,606       42,694  
    $ 70,985     $ 179,545  

 

NOTE 6: FIXED ASSETS

 

Fixed assets at December 31, 2015 and December 31, 2014 are summarized in the table below:

 

Description   Useful Life
(Years)
  December 31,
 2015
  December 31,
2014
Equipment     5     $ 97,100     $ 97,100  
Less: Accumulated Depreciation             (38,840 )     (19,420 )
Fixed Assets, net           $ 58,260     $ 77,680  

 

For the year ended December 31, 2015 and transition period ended December 31, 2014, depreciation expense was $19,420 and $14,565, respectively. There were no additions during the year ended December 31, 2015. 

 

NOTE 7: INTANGIBLE ASSETS

 

Intangible assets at December 31, 2015 and December 31, 2014 are summarized in the table below:

 

December 31, 2015    Gross
Carrying
Value
  Accumulated
Amortization
  Net Carrying
Amount
Amortizable assets:            
Patents & intellectual property   $ 9,708,700     $ (1,941,740 )   $ 7,766,960  
Transition services agreement     194,200       (194,200 )      
Balance, December 31, 2015    $ 9,902,900     $ (2,135,940 )   $ 7,766,960  

 

December 31, 2014    Gross
Carrying
Value
  Accumulated
Amortization
  Net Carrying
Amount
Amortizable assets:            
Patents & intellectual property   $ 9,708,700     $ (970,870 )   $ 8,737,830  
Transition services agreement     194,200       (194,200 )      
Balance, December 31, 2014   $ 9,902,900     $ (1,165,070 )   $ 8,737,830  

 

There were no additions during the year ended December 31, 2015. Amortization expense for year ended December 31, 2015 and transition period ended December 31, 2014 were $970,870 and $873,802, respectively.

 

F- 11  
 

 

Estimated amortization expense at December 31, 2015 for each of the five succeeding years and thereafter is as follows:

 

Year ending December 31,    
2016     $ 970,870  
2017       970,870  
2018       970,870  
2019       970,870  
2020       970,870  
Thereafter       2,912,610  
Total     $ 7,766,960  
             

 

NOTE 8: NOTES PAYABLE

Ben Franklin Note

Biosyn (a wholly owned subsidiary of the Company and previously a wholly owned subsidiary of Cellegy) issued a note payable to Ben Franklin Technology Center of Southeastern Pennsylvania (“Ben Franklin Note”) in October 1992, in connection with funding the development of Savvy, a compound then under development to prevent the transmission of HIV/AIDS.

The Ben Franklin Note was recorded at its estimated fair value of $205,000 and was assumed by Cellegy as an obligation in connection with its acquisition of Biosyn in 2004. The repayment terms of the non-interest bearing obligation include the remittance of an annual fixed percentage of 3.0% applied to future revenues of Biosyn, if any, until the principal balance of $777,902 (face amount) is satisfied. Under the terms of the obligation, revenues are defined to exclude the value of unrestricted research and development funding received by Biosyn from nonprofit sources. Absent a material breach of contract or other event of default, there is no obligation to repay the amounts in the absence of future Biosyn revenues. Cellegy accreted the discount of $572,902 against earnings using the interest rate method (approximately 46%) over the discount period of five years, which was estimated in connection with the Ben Franklin Note’s valuation at the time of the acquisition.

Accounting principles generally accepted in the United States emphasize market-based measurement through the use of valuation techniques that maximize the use of observable or market-based inputs. The Ben Franklin Note’s peculiar repayment terms outlined above affects its comparability with main stream market issues and also affects its transferability. The value of the Ben Franklin Note would also be impacted by the ability to estimate Biosyn’s expected future revenues which in turn hinge largely upon future efforts to commercialize the product candidate, the results of which efforts are not known by the Company. Given the above factors and therefore the lack of market comparability, the Ben Franklin Note would be valued based on Level 3 inputs (see Note 9). As such, management has determined that the Ben Franklin Note will have no future cash flows, as we do not believe the product will create a revenue stream in the future. As a result, the Note had no fair market value at the time of the merger between the Company and Cellegy (see Note 1).

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 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 Warrant, 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. A holder has the right to cancel the Warrant Call up until the date 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.

 

 

F- 12  
 

  

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 our 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 December 31, 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.

 

The Warrants with the embedded call option at issuance were valued using the Binomial Option Pricing Model. The average fair value of a single Warrant, including the call option, was $2.329 per share and the average value of the Warrant anti-dilution reset feature was $1.2002 per share at the grant date. As a result, the Company recorded a discount to the Notes for the warrant derivative and warrant down-round protection derivative totaling $2,398,280. The warrant and warrant derivative liabilities were revalued at December 31, 2015, see Note 9.

 

Notes 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 transition period ended December 31, 2014.

 

Notes Payable to Related Parties

 

The Company had notes payable to a related party amounting to $97,122, which was repaid as of March 31, 2014. The notes bore interest at 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 transition year ended December 31, 2014.

   

NOTE 9: DERIVATIVE LIABILITY 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, 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 warrants issued related to the Gemini notes, issued and repaid in the previous period,  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 Warrants and related anti-dilution features.

 

Key assumptions at December 31, 2015 and December 31, 2014 for the Warrants discussed include a volatility factor of 72.5% and 90%, respectively, a dividend yield of 0%, expected life of 2.5 years and 3.5 years, respectively, and a risk free interest rate of 1.55% and 1.41%, respectively.

 

The Company estimated the fair value of the Warrants, including call options, to be $2.0417 per share and the down-round protection derivative for the same warrants is estimated at $0.6666. The number of Warrants issued and outstanding was 575,164. The carrying value of the Warrants with call options at December 31, 2015 was $1,174,312 and the carrying value of the down-round protection derivative for the same date was $383,404.

 

F- 13  
 

 

During the year ended December 31, 2015, a total of 72,150 warrants were exercised, reducing the fair value 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):

 

    Warrants   Warrant
Down-round
Protection
Derivative
  Total
Balance, March 31, 2014   $ (1,019,539 )   $ (378,502 )   $ (1,398,041 )
Release of Warrants Liability upon Exercise     262,846       57,019       319,865  
Net Change in Fair Value     (1,053,256 )     64,953       (988,303 )
                         
Balance, December 31, 2014     (1,809,949 )     (256,530 )     (2,066,479 )
Release of Warrants Liability upon Exercise     201,739       28,593       230,332  
Net Change in Fair Value     433,898       (155,467 )     278,431  
Balance, December 31, 2015   $ (1,174,312 )   $ (383,404 )   $ (1,557,716 )

 

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 year ended December 31, 2015 and transition period ended December 31, 2014.

 

    Fair Value at December 31,
2015
  Fair Value at
December 31,
2014
  Valuation Technique   Unobservable Input   Range
                     
Warrants and Warrant
Down-round Protection
Derivative (combined)
  $ 1,557,716     $ 2,066,479     Binomial Option
Pricing Model
  Probability of
common stock
issuance at prices
less than exercise
prices stated
in agreements
    50%  & 30%, respectively
                                 
                        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 debt and warrants are convertible or 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 December 31, 2015 and December 31, 2014.

 

NOTE 10: LEGAL MATTERS

 

The Company may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business, which in management’s opinion will not have a material adverse effect on our financial condition, cash flows or results of operations. Any such litigation could divert management time and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses.

 

F- 14  
 

 

NOTE 11: LICENSING AGREEMENTS

 

Viral Therapies

 

On July 28, 2006, the Company entered into a nonexclusive, royalty free license agreement with an entity for the technology used to research and develop new viral therapies, and an exclusive royalty-bearing license requiring a small percentage of revenue received by the Company on future products developed and sold with a payment cap of $10,000,000. The Company paid the entity an initial license fee and granted one of the entity’s officers the right to purchase 1,000,000 shares of common stock of the Company at price of $0.001 pursuant to a separate stock purchase agreement. The Company also granted the entity a royalty-free non-exclusive license to use any improvements made on the existing technology for research purposes only. The Company and the entity have the right to sublicense with written permission of each party. In the event that the entity sublicenses or sells the improved technology to a third party, then a portion of the total payments, to be decided by mutual agreement, will be due to the Company.

 

The Company is obligated to make the following milestone payments to the entity based on commencement of various clinical trials and submissions of an application to the FDA for regulatory approval:

  

Amount   Date due
$ 50,000     Within 30 days of commencement of Phase I/II clinical trial.  
50,000     Within 30 days of commencement of a separate Phase II trial as required by the FDA.  
300,000     Within 30 days of commencement of a Phase III trial.  
500,000     Within 30 days of submission of a biological license application or a new drug application with the FDA.  
           

Total milestone payments are not to exceed $900,000 and can only be paid one time and will not repeat for subsequent products. At December 31, 2015 and December 31, 2014, no milestones have been achieved.

 

The agreement will remain in effect as long as the patent rights remain in effect. Adamis has the right to terminate the agreement if it is determined that no viable product can come from the technology. Adamis would be required to transfer and assign all filings, rights and other information in its control if termination occurs. Adamis would retain the same royalty rights for license, or sublicense, agreements if the technology is later developed into a product.

 

Either party may terminate the license agreement in the event of a material breach of the agreement by the other party that has not been cured or corrected within 90 days of notice of the breach.

 

Influenza Vaccine

 

On September 22, 2006, the Company entered into an agreement with an entity to manufacture an influenza vaccine for the Company. The agreement requires the Company to pay $70,000 upon commencement of the project, followed by monthly payments based upon services performed until the project is complete. No product has been manufactured and no payments have been made as of December 31, 2015. Once the project begins, the total payments will aggregate $283,420. The project has an open ended start time. Adamis may terminate the agreement upon notice to the other party, other than reimbursing the other party for non-cancellable materials and supplies ordered, and work in progress, through the date of the termination.

 

Colby Pharmaceuticals

 

On February 24, 2010, the Company entered into an agreement with Colby Pharmaceutical Company (“Colby”) to acquire three separate exclusive license agreements, covering three small molecule anti-inflammatory compounds, named APC-100, APC-200 and APC-300, for the potential treatment of human prostate cancer, or PCa, in exchange for shares of the Company’s common stock. Colby licensed the patents, patent applications and related intellectual property relating to the compounds pursuant to license agreements with a third party (“WARF”). Pursuant to the agreement as amended, on February 25, 2010, the Company was assigned and transferred the license agreement relating to the APC-300 compound in consideration of the issuance of 47,059 shares of common stock to Colby. The transfer of the license agreements relating to APC-100 and APC-200 occurred at a subsequent closing, pursuant to an amendment to the original agreement. Under the amendment, Colby assigned and transferred to the Company the license agreements relating to APC-100 and APC-200 in consideration for the issuance to Colby of 294,118 shares of the Company’s common stock. Additionally, the Company issued 73,529 shares to each of two parties related to Colby, for consulting services rendered to the Company in connection with the intellectual property covered by the license agreements.

 

F- 15  
 

 

Under the agreements, with respect to sublicenses granted by the Company, the Company is to pay WARF according to the following schedule:

 

  1. Forty percent (40%) of amounts received under each agreement entered into before an Investigational New Drug (“IND”) application is filed by the Company with the Federal Drug Administration (“FDA”) for a Product made a subject of the sublicense.
     
  2. Thirty percent (30%) of amounts received under each agreement entered into after the filing of an IND under item (1) above until completion of a Phase 1 clinical trial by the Company for that Product.
     
  3. Twenty-five percent (25%) of amounts received under each agreement entered into after completion of item (2) above until completion of a Phase II clinical trial by the Company for that Product.
     
  4. Twenty percent (20%) of amounts received under each agreement entered into after completion of item (3) above until a New Drug Application (“NDA”) has been approved by the FDA for that Product.
     
  5. Ten percent (10%) of amounts received under each agreement entered into after the NDA has been approved by the FDA for that Product.

 

Milestone Payments are outlined below:

 

  1. $25,000 upon the filing of the first IND or comparable regulatory filing for a human therapeutic Product.
     
  2. $150,000 upon the enrollment of its first patient under a Phase II clinical trial for the first human therapeutic Product.
     
  3. $200,000 upon the enrollment of its first patient under a Phase III clinical trial for the first human therapeutic Product.
     
  4. $250,000 for the first NDA or comparable regulatory approval for a human therapeutic Product.

 

These milestone payments occur only once for each of the compounds. As of December 31, 2015, the Company disbursed a total of $25,000 in milestone payments. No additional milestones were met during 2015.

 

Regents of the University of California and Dana-Farber Cancer Institute

 

On April 18, 2011, the Company entered into an agreement with The Regents of the University of California (University) and the Dana-Farber Cancer Institute, Inc. (DFCI) to acquire the Telomerase Reverse Transcriptase as Antigen for Immunization in Cancer. The term of the agreement expires with the last expiration of the last patent covered by the license.

 

Under the agreement, with respect to sublicenses granted by the Company, the Company is to pay the University and DFCI according to the following schedule:

 

  1. A license issue fee of $10,000, within thirty (30) days after the effective date.
     
  2. License maintenance fees of $10,000 per year and payable on the first through third anniversary of the effective date and $20,000 annually thereafter on each anniversary until commercially selling a licensed product.
     
  3. Milestone payments in the amounts payable according to the following schedule or events:

 

  (i) $25,000 upon dosing of 50% of the patients expected to be enrolled for a Phase I clinical trial for the first indication (if such a trial is needed) of a licensed product;
     
  (ii) $25,000 upon the filing of an IND for the second indication of a licensed product;
     
  (iii) $100,000 upon dosing of the first patient and $150,000 upon dosing of the 40th patient in a Phase II clinical trial for the first indication of a licensed product;
     
  (iv) $250,000 upon dosing of the first patient for a Phase II clinical trial for the second indication of a licensed product;
     
  (v) $600,000 upon dosing of the first patient for a Phase III clinical trial for the first indication of a licensed product;
     
  (vi) $600,000 upon dosing of the first patient for a Phase III clinical trial for the second indication of a licensed product;
     
  (vii) $1,000,000 upon receipt of US regulatory approval for each indication of a licensed product.

 

F- 16  
 

 

  4. An earned royalty of two percent (2%) on net sales of licensed products as defined in the agreement.

 

In addition, the Company will reimburse the University and DFCI for past and future patent costs as outlined in the agreement.

 

During the year ended December 31, 2015 and transition period ended December 31, 2014, the Company paid license fees and reimbursed patent defense costs related to this agreement of approximately $20,000 and $10,000, respectively. As of December 31, 2015,  no milestones were met.

 

3M License and Asset Acquisition Agreement

 

On August 1, 2013, we entered into an agreement to initially license and, with an additional closing payment fully acquire from 3M Company and 3M Innovative Properties Company (“3M”), certain intellectual property and assets relating to 3M’s Taper Dry Powder Inhaler (DPI) technology under development for the treatment of asthma and chronic obstructive pulmonary disease. The intellectual property includes patents, patent applications and other intellectual property relating to the Taper assets.

 

Pursuant to the terms of the agreement, we made an initial non-refundable payment to 3M of $3 million and obtained an exclusive worldwide license to the assets and intellectual property in all indications in the dry powder inhalation field. Upon a subsequent closing payment of $7 million made by Adamis on December 27, 2013, ownership of the assets and intellectual property were transferred to the Company, with the Company granting back to 3M a license to the intellectual property assets outside of the dry powder inhalation field.

 

The Company hired an independent valuation specialist to assist management with its determination of the fair value of the tangible and intangible assets acquired to be used in research and development. Management is responsible for the estimates and valuations. The work performed by the independent valuation specialist has been considered in management’s estimates of fair value reflected below.

 

In addition to the patents and intellectual property, the Company also acquired a transition services agreement outlined in the asset purchase agreement, which provides the buyer certain knowledge transfer rights related to the Taper technology. 3M will provide around five hundred (500) hours of services to the Company as set forth in the letter agreement.

 

The following table summarizes the fair values of the identifiable assets acquired on December 27, 2013:

 

Description    
Taper DPI Intellectual Property   $ 9,708,700  
Equipment     97,100  
3M Transition Services Agreement     194,200  
    $ 10,000,000  

  

The values listed above were determined using the cost savings and discounted cash flow methods. Value is estimated based on the cost savings attributable to the asset being appraised which in this case was the transition service agreement. As with most income-based valuation methods, the cost (or royalty) savings method are generally estimated on an after tax basis and discounted using an after tax discount rate. The cost savings method was used to value the transition services agreement. Discounted cash flow analysis involves projecting monetary benefits directly associated with an asset and factoring them to reflect present value at a rate that considers the risk and rate of return associated with the subject asset. In the application of this approach, the value of the asset is considered to be the sum of the present values of the future cash flows received over the expected life of the asset. We applied the discounted cash flow method to estimate the fair value of the acquired intellectual property (patents and unpatented technology associated with the taper dry powder inhaler IP). In regards to the Taper DPI, we calculated the after-tax net income, or cash flow related to the technology and discounted the future income with a discount rate of 26.5%, a 5.0% premium over the weighted average cost of capital.

 

NOTE 12: COMMITMENTS AND CONTINGENCIES

  

The Company 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. Any such litigation could involve significant amounts of legal fees and other fees and expenses. 

 

Office Lease

 

In April 2011, the Company leased approximately 2,400 square feet of office space in San Diego, California. The term of the lease is three years. There are no options to extend the lease term.

 

F- 17  
 

 

On February 1, 2014, the Company entered into a sublease agreement in connection with the relocation of the Company’s principal headquarters. The new sublease covered approximately 7,525 square feet and had a term that expired November 30, 2014. Rent during the term was $15,050 per month.

 

On April 1, 2014, the Company entered into a modification of its sublease agreement. The terms of the modification began December 1, 2014 and extended the expiration date to November 30, 2018. Average rent expense is approximately $23,304 per month, with a deposit of $170,000 due in November 2014. In December 2015, $42,500 of the deposit was applied to rent and the balance of deposit as of December 31, 2015 was $127,500. The base rent expense over the life of the lease is approximately $1,118,600. Total rent expense for the year ended December 31, 2015 and Transition 2014 Period, was $279,650 and $143,704, respectively. 

 

Future minimum lease payments as of December 31, 2015 are as follows:

   

For the Years Ending December 31,    
2016     $ 299,117  
2017       308,090  
2018       263,129  
      $ 870,336  
             

NOTE 13: CAPITAL STRUCTURE

 

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 $934,000 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 January 5 and January 12, 2015, the Company issued 22,232 shares of common stock upon the exercise of warrants originally issued in the June 2013 private placement financing. The exercise price was $3.40 and the Company received $75,589 in proceeds.

 

On January 8, 2015, the Company issued common stock upon exercise of a liability classified June 2013 warrant. The warrant holder utilized a cashless net exercise (based on a price of $6.81 per share) of 72,150 warrants with an exercise price of $3.40 and received 36,132 shares of common stock. As discussed in Note 9, the warrant exercise resulted to reducing the fair value of warrants and derivative liability and increasing Additional Paid in Capital by $230,332.

 

As of March 31, 2015, the investors in the August 2014 private placement transaction converted 409,418 shares of Series A Preferred into an equal number of shares of common stock, with 1,009,021 shares of Series A Preferred remaining outstanding.

 

On February 2, 2015, the Company issued 3,666 shares of common stock to a third party pursuant to an agreement in consideration for business advisory services covering the period from February 1 to April 30, 2015.

 

On May 18, 2015, the Company issued 5,594 shares of common stock upon the vesting of restricted stock units with a total value of approximately $63,709.

 

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.

 

F- 18  
 

 

NOTE 14: CONVERTIBLE PREFERRED STOCK

On August 19, 2014, the Company completed a private placement transaction with a small number of sophisticated 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. The securities were issued in a private placement transaction 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.

 

NOTE 15: STOCK OPTION PLANS, SHARES RESERVED AND WARRANTS

 

The Company has a 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, and other forms of equity compensation (collectively “stock awards”). In addition, the 2009 Plan provides for the grant of performance cash awards. The initial aggregate number of shares of common stock that may be issued initially pursuant to stock awards under the 2009 Plan was 411,765 shares. The number of shares of common stock reserved for issuance automatically increase on January 1 of each calendar year, from January 1, 2010 through and including January 1, 2019, by the lesser of (a) 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year or (b) a lesser number of shares of common stock determined by the Company’s board of directors before the start of a calendar year for which an increase applies. On November 3, 2014, the number of shares reserved for this issuance increased by 1,000,000. At December 31, 2015, the aggregate balance of shares reserved for issuance under the 2009 plan was 3,395,217. On January 1, 2016, pursuant to the provisions of the 2009 Plan, 671,583 shares were added to the shares reserved for issuance pursuant to awards under the 2009 Plan (see Note 18).

 

On January 23, 2015, the Company issued options to purchase 613,163 shares of common stock to the officers and employees of the Company under the 2009 Equity Incentive Plan with an exercise price of $5.99 per share. The options will vest over a period of three years. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 99%, the term was six years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.62%, which resulted in a calculated fair value of $2,881,866.

 

From March 2, 2015 to March 23, 2015, the Company granted options to purchase 180,000 shares of common stock to the new hires of the Company under the 2009 Equity Incentive Plan with exercise prices ranging from $6.04 to $6.53 per share. These options will vest over a period of three years and were valued using a Black Scholes model; the expected volatility was approximately 98%, the term was six years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.9%. The calculated fair value of the options was $867,350.

 

On May 15, 2015, the Company issued options to purchase 60,000 shares of common stock to the non-employee members of the board of directors of the Company under the 2009 Equity Incentive Plan with an exercise price of $4.28 per share. The options will vest over a period of three years. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 69%, the term was six years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.87%, which resulted in a calculated fair value of $160,200.

 

On June 26, 2015, the Company granted options to purchase 55,000 shares of common stock to a consultant of the Company under the 2009 Equity Incentive Plan with an exercise price of $4.29 per share. These options were immediately vested and were valued using a Black Scholes model; the expected volatility was approximately 59%, the term was five years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.8%. The calculated fair value of the options was $121,000.

 

Similarly, on June 26, 2015, the Company granted options to purchase 20,000 shares of common stock to another consultant of the Company under the 2009 Equity Incentive Plan with an exercise price of $4.29 per share. These options shall vest based on the stipulations of the Consulting Agreement and were valued using the Black Scholes model; the expected volatility was approximately 64%, the term was six years, the dividend rate was 0.0% and the risk-free interest was approximately 2.2%. The calculated fair value of the options was $51,200.

 

In August 2015, options to purchase 12,352 shares expired in accordance with their terms. 

 

In November 2015, 33,333 options issued on October 7, 2014 expired in accordance with their terms following the holder’s termination of employment, 16,667 vested options remain exercisable through February 4, 2016. The options had an exercise price of $4.41 and a calculated fair value of $3.56 per share as of date of grant. 

 

F- 19  
 

 

The following summarizes the stock option activity for the year ended December 31, 2015 and transition period ended December 31, 2014 below:

 

    2009
Equity
Incentive
Plan
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contract
Life
Balance as of March 31, 2014     404,622     $ 5.83       7.26 years  
Options Granted     935,100       5.29       9.35 years  
Options Exercised                  
Options Canceled     (100,000 )     4.80        
                         
Balance as of December 31, 2014     1,239,722     $ 5.46       8.42 years  
                         
Options Granted     933,763       5.78       8.85 years  
Options Exercised     (15,000 )     3.29        
Options Canceled     (45,685 )     5.77        
                         
Balance as of December 31, 2015     2,112,800     $ 5.60       8.05 years  
                         
Exercisable at December 31, 2015     1,173,443     $ 5.56       7.36 years  

 

Stock based compensation expense for the year ended December 31, 2015 and transition period ended December 31, 2014 were $2,485,961 and $625,518, respectively. As of December 31, 2015, unrecognized compensation expense related to these stock options was approximately $3.8 million and will be recorded as compensation expense over the next three years.

 

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) of 2,112,800 and 1,239,722 stock options outstanding at December 31, 2015 and 2014 was approximately $916,000 and $1.4 million, respectively. The aggregate intrinsic value of 1,173,443 and 558,117 stock options exercisable at December 31, 2015 and 2014 was approximately $681,000 and $683,000, respectively.

  

The Company has reserved shares of common stock for issuance upon conversion or exercise at December 31, 2015 as follows:

  

Preferred Stock     1,009,021  
Warrants     2,306,032  
2009 Equity Incentive Plan     3,395,217  
Total Shares Reserved     6,710,270  

 

On August 19, 2014, the Company issued warrants to purchase 1,418,439 shares of common stock to a small number of related funds. The warrants were part of the offering to issue Series A Convertible Preferred Stock (see Note 4). The exercise price of the warrants is $3.40 per share, and the warrants are exercisable for five years from the issuance date.

 

The expiration date of the Old Adamis Warrants was extended two years to November 15, 2017. The following table summarizes warrants outstanding at December 31, 2015:

 

    Warrant
Shares
  Exercise
Price
Per
Share
  Date Issued   Expiration Date
Old Adamis Warrants     58,824     $ 8.50     November 15, 2007   November 15, 2017
Consultant Warrants     17,647     $ 3.74     July 11, 2011   July 11, 2016
2013 Private Placement     597,222     $ 3.40 - 12.16     June 26, 2013   June 25, 2018
Underwriter Warrants     186,000     $ 7.44     December 12, 2013   December 12, 2018
Underwriter Warrants     27,900     $ 7.44     January 16, 2014   January 16, 2019
Aug 2014 Preferred Stock Sale     1,418,439     $ 3.40     August 19, 2014   August 19, 2019
                         
Total Warrants     2,306,032                  

 

F- 20  
 

 

On March 6, 2013, the Company issued restricted stock units (RSUs) of 42,707 shares of common stock to directors, officers and employees of the Company under the 2009 Equity Incentive Plan. The value of the award per share is $11.39. A portion of the award vests on the first anniversary date of issuance with the remaining vesting annually in equal amounts over 2 years. The fair value of RSUs is $486,433. On May 18, 2015, 5,594 RSUs vested and were issued as common stock. The Company recorded compensation expense of $63,686 and $47,764 for the year ended December 31, 2015 and transition period ended December 31, 2014, respectively. Unrecognized compensation expense related to these RSUs as of December 31, 2015 was $15,921, and will be recorded as compensation expense over the next three months.

 

NOTE 16: INCOME TAXES

 

At December 31, 2015, the Company had net operating loss carry forwards of approximately $40 million and $32 million for federal and state purposes, respectively. The net operating loss carry forwards expire through the year 2031.

 

Utilization of the NOL carry forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") as well as similar state and foreign provisions. These ownership changes may limit the amount of  NOL carry forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. The Company most likely has experienced various ownership changes, as defined by the Act, as a result of past financings. Accordingly, the Company’s ability to utilize the aforementioned carry forwards may be limited. Cellegy’s merger with Adamis as described in Note 1, may also impact the ability for the Company to utilize certain of its net operating loss carry forwards. Additionally, U.S. tax laws limit the time during which these carry forwards may be applied against future taxes, therefore, the Company may not be able to take full advantage of these carry forwards for federal income tax purposes. The Company determined that the net operating loss carry forwards relating to Cellegy and Biosyn are limited due to the acquisitions, in 2009 and 2004, and has removed the associated net operating losses from the estimated amount of usable net operating loss carry forwards in its deferred tax assets below, as well as from the total of net operating loss carry forwards described above.

 

The benefit for income taxes from continuing operations consists of the following for the year ended December 31, 2015 and December 31, 2014: 

 

    December 31, 2015   December 31, 2014
Current   $     $  
Deferred     (5,904,000 )     (2,367,000 )
Total     (5,904,000 )     (2,367,000 )
Change in Valuation Allowance     5,904,000       2,367,000  
Tax Benefit, net   $     $  

 

At December 31, 2015 and December 31, 2014 the significant components of the deferred tax assets from continuing operations are summarized below:

 

    December 31, 2015   December 31, 2014
Net Operating Loss Carry forwards   $ 15,486,000     $ 10,592,090  
Stock Compensation     1,601,500       684,000  
Fixed Assets     380,900       303,000  
Accrued Expenses     296,100       281,000  
Gross Deferred Tax Assets     17,764,500       11,860,090  
Less Valuation Allowance     (17,764,500 )     (11,860,090 )
Net Deferred Tax Assets   $     $  

  

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. 

 

We have determined at December 31, 2015 and December 31, 2014 that a full valuation allowance would be required against all of our operating loss carry forwards and deferred tax assets that we do not expect to be utilized by deferred tax liabilities.

 

F- 21  
 

 

The following table reconciles our losses from continuing operations before income taxes for the year ended December 31, 2015 and December 31, 2014.

  

    December 31,
2015
      December 31,
2014
   
Federal Statutory Rate   $ (4,614,000 )     34.00 %   $ (3,167,000 )     34.00 %
State Income Tax, net of Federal Tax     (790,000 )     5.83 %     (323,000 )     3.63 %
Permanent Differences     32,000       (0.24 %)     411,000       (4.42 %)
Change in State Rate     (532,000 )     3.91 %           0.00 %
Change in Valuation Allowance     5,904,000       (43.50 %)     3,079,000       (33.21 %)
Expected Tax Benefit   $           $        

 

Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense. For the tax year ended December 31, 2015, the Company recognized no interest or penalties. 

 

NOTE 17: TRANSITION PERIOD COMPARATIVE BALANCES UNAUDITED

   

In November 2014, the Board of Directors of the Company determined that, in accordance with its Bylaws and upon the recommendation of its Audit Committee, the Company’s fiscal year shall begin on January 1 and end on December 31 of each year, starting on January 1, 2015. This resulted in a change in fiscal year end from March 31 to December 31. The required transition period of April 1, 2014 to December 31, 2014 is included in these financial statements. For comparative purposes, the unaudited consolidated results of operations and comprehensive income for the 12 months ended December 31, 2014 are as follows:

 

REVENUE   $  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES     5,791,616  
RESEARCH AND DEVELOPMENT     3,924,409  
Loss from Operations     (9,716,025 )
OTHER INCOME (EXPENSE)        
Interest Expense     (371,708 )
Gain on Extinguishment of Debt     198,864  
Change in Fair Value of Warrant Liability     (926,350 )
Change in Fair Value of Warrant Derivative Liabilities     46,671  
Total Other Income (Expense)     (1,052,523 )
Net (Loss)   $ (10,768,548 )
Basic and Diluted (Loss) Per Share:        
Basic (Loss) Per Share   $ (1.03 )
Basic Weighted Average Shares Outstanding     10,491,678  
Diluted (Loss) Per Share   $ (1.03 )
Diluted Weighted Average Shares Outstanding     10,491,678  

 

NOTE 18: SUBSEQUENT EVENTS

 

On January 1, 2016, the number of shares reserved for the issuance of stock awards covered by the 2009 Equity Incentive Plan (Note 15) increased to an aggregate of 4,066,800, after adding 671,583 shares.

 

F- 22  
 

 

Between January 7 and February 26, 2016, the Company issued common stock upon exercise of an investor warrant. The warrant holder exercised for cash at an exercise price of $3.40 per share. The Company received a total of approximately $89,000 and the warrant holder received 26,144 shares of common stock.

 

On January 25, 2016, the Company issued options to purchase 1,005,697 shares of common stock to the officers and employees of the Company under the 2009 Equity Incentive Plan with an exercise price of $4.10 per share. The options were granted based on a guideline and not for performance during the year ended December 31, 2015 and will vest over a period of three years. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 60% and the risk-free interest rate was approximately 1.7%, which resulted in a calculated fair value of $2,313,103. The Board of Directors also approved a total of $478,274 in cash bonus to the Company’s officers and employees with respect to performance during the period ended December 31, 2015. The amount of bonus was paid in January 2016 but was accrued and expensed during the period ended December 31, 2015.

 

On January 26, 2016, the Company completed a private placement transaction with a small number of accredited investors pursuant to which the Company issued 1,183,432 shares of Series A-1 Convertible Preferred Stock and warrants to purchase up to 1,183,432 shares of common stock or Series A-1 Convertible Preferred Stock. The shares of Series A-1 Preferred and warrants were sold in units, with each unit consisting of one share and one warrant, at a purchase price of $4.225 per unit. The Series A-1 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 $4.10 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-1 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-1 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-1 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-1 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 within 60 days of the closing date to register the resale from time to time of shares of common stock underlying the Series A-1 Preferred and the warrants.

 

In February 2016, the Company issued 1,258 shares of common stock upon exercise of options granted under the Company’s 2009 Equity Incentive Plan. The option holder utilized a cashless net exercise (based on a common stock price of $4.77 per share on the date of exercise) of a total of 16,667 stock options with an exercise price of $4.41.

 

         

F- 23  

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

 

Exhibit 10.19

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is dated as of December 31, 2015 (the “ Effective Date ”) and is entered into by and between Adamis Pharmaceuticals Corporation , a Delaware corporation (“ Company ”), and Dennis J. Carlo, Ph.D. (“ Executive ”).

 

RECITALS

 

A.            Executive is currently employed by the Company as its President and Chief Executive Officer.

 

B.            Executive and the Company are currently parties to an Employment Agreement dated November 9, 2010 (the “ Prior Agreement ”).

 

C.            The Company and Executive desire to formally restate the terms and conditions of Executive’s employment by the Company and to provide Executive with certain benefits upon a qualifying termination of such employment.

 

D.            The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and the Executive desires to continue in the employ of the Company in such capacity for the period and with the terms and conditions set forth herein.

 

E.            This Agreement shall supersede and completely replace the Prior Agreement as of the Effective Date.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the parties hereby agree as follows:

 

1.             Employment. The Company hereby employs Executive as President and Chief Executive Officer, assigned with responsibilities to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company, subject at all times to the policies set by the Board of Directors of the Company (the “ Board ”), and to the consent of the Board when required by the terms of this contract. Executive hereby accepts such employment and agrees to devote such time and energies as appropriate to fulfill all responsibilities to the Company. Executive shall be employed at will.

 

2.             Compensation. In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Section 2. All such compensation shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)           Salary. Executive shall be paid an initial annual salary of $550,000, payable in equal installments in accordance with the Company’s normal salary and wages practices, but not less than 24 increments annually.

 

1
 

 

(b)           Executive Benefit and Incentive Compensation Plans. During employment hereunder, Executive shall be entitled to receive those benefits which are routinely made available to executive officers of the Company, including participation in any executive stock ownership plan, profit sharing plan, incentive compensation or bonus plan, retirement plan, Company-provided life insurance, or similar executive benefit plans maintained or sponsored by the Company. The Company shall not take any action that would materially diminish the aggregate value of Executive’s fringe benefits as they exist as of the Effective Date of this Agreement or as the same may be increased from time to time, except for actions taken with respect to officers or employees generally.

 

(c)           Expense Reimbursement. The Company shall promptly reimburse Executive for all reasonable expenses necessarily incurred during conduct of Company business, and for which adequate documentation is presented, but in no event later than December 31 of the year following the year in which the expense was incurred. Furthermore, if any reimbursements or in-kind benefits provided by the Company pursuant to this Agreement would constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such reimbursements or in-kind benefits shall be subject to the following rules: (i) the amounts to be reimbursed, or the in-kind benefits to be provided, shall be determined pursuant to the terms of the applicable benefit plan, policy or agreement and shall be limited to Executive’s lifetime and the lifetime of Executive’s eligible dependents; (ii) the amounts eligible for reimbursement, or the in-kind benefits provided, during any calendar year may not affect the expenses eligible for reimbursement, or the in-kind benefits provided, in any other calendar year; (iii) any reimbursement of an eligible expense shall be made on or before the earlier of (A) the last day of the calendar month following the calendar month in which the expense report and any required documentation were submitted or (B) the last day of the calendar year following the calendar year in which the expense was incurred; and (iv) Executive’s right to an in-kind benefit or reimbursement is not subject to liquidation or exchange for cash or another benefit.

 

(d)           Personal Time Off. Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

 

3.             Termination. Executive’s employment may be terminated as follows, with the following effects:

 

(a)           Death. Executive’s employment shall terminate immediately upon the Executive’s death, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the date of his death. If Executive’s employment ceases as a result of death, then all unvested options to purchase common stock, par value $0.001, of the Company (“ Common Stock ”) held by Executive as of the date of Executive’s death shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s death shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(b)           Disability. In the event the Executive is disabled from performing his assigned duties under this Agreement due to illness or injury for a period in excess of sixty

2
 

 

(60) consecutive days or a period or periods of more than one hundred and twenty (120) days in the aggregate in any twelve month period, the Board, in its sole discretion, may terminate Executive’s employment immediately upon written notice to Executive, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the effective date of termination. If Executive’s employment ceases as a result of disability, then all unvested options to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive on the date of Executive’s termination shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(c)           For Cause. The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. For purposes of this Agreement, “ Cause means the occurrence of any one or more of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination. If Executive’s employment ceases as a result of a termination for Cause, then all options (unvested and vested) to purchase Common Stock held by Executive on the date of his termination shall immediately terminate.

 

(d)           Without Cause. The Company in its sole discretion may terminate Executive’s employment without Cause (as defined above) immediately upon written notice from the Board to Executive. In such event, if such termination occurs prior to, or more than thirteen (13) months following, the effective date of a Change in Control (as defined in Section 4(c) below), the Company shall pay to Executive all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of termination, and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i) and the applicable guidance thereunder, contingent upon Executive’s delivery to the Company of an effective Release and Waiver as provided in Section 3(e) below, the Company shall also provide the following benefits to Executive: (i) severance consisting of continued payment of Executive’s base salary at the rate in effect as of the effective date of termination, less standard deductions and withholdings, for a period of eighteen (18) months following the effective date of termination, to be paid in accordance with the Company’s normal payroll practices; (ii) to the extent that Executive is eligible to continue medical benefits under COBRA and upon timely election by Executive complying with COBRA and to the extent it does not result in a penalty to the Company, reimbursement by the Company, within thirty (30) days of the Company’s receipt of evidence of Executive’s payment for the prior month, of the Company’s portion of the premiums required to continue Executive’s medical, dental and vision insurance coverage pursuant to COBRA, for a period of eighteen (18) months following the date of termination (with Executive being

 

3
 

 

responsible to pay that amount of the portion of the premiums, if any, that Executive would have been responsible to pay if Executive had remained an employee during such period) or, if earlier, the date that Executive accepts full time employment with another employer; and (iii) immediate acceleration of the vesting of all options to purchase Common Stock granted to Executive prior to the effective date of such termination (the “ Options ”) such that Executive shall be deemed vested as to the same number of shares as if Executive had continued to be employed by the Company for a period of eighteen (18) months following the effective date of such termination and all vested options held by Executive shall remain exercisable until the one year anniversary of the date of cessation of service. As a condition to receiving the continuing benefits specified in this Section 3(d), to the maximum extent permitted by applicable law, during the eighteen (18) month period following the Executive’s termination date, Executive shall not engage in any employment or business activity that is directly competitive with the Company’s business activities as of such termination date and Executive shall not induce any employee of the Company to leave the employ of the Company. Each payment under this Section 3(d) shall be considered a separate payment and not one of a series of payments for Code Section 409A. Subject to Section 5, any amount due to Executive pursuant to this Section 3(d) during the 60-day period following Executive’s termination without Cause shall be paid to Executive in a single lump sum on the first payroll date immediately after the end of the 60-day period.

 

(e)           Release and Waiver. As a condition to receiving the benefits specified in Sections 3(d) and 4(b) of this Agreement, Executive must deliver to the Company a waiver and release of claims in the form attached hereto as Exhibit A (the “ Release and Waiver ”) within the time frame set forth therein, but in no event later than sixty (60) days following the Executive’s termination date, and any applicable revocation period must expire during the 60-day period following Executive’s termination as described in Section 3(d) or 4(b) without Executive revoking such release.

 

(f)            Voluntary Termination by Executive. Executive may terminate his employment hereunder at any time, whether with or without cause, effective sixty (60) days after delivery of written notice of such termination to the Company, except for Executive’s Emergency Need. “ Emergency Need ”, as used in this Section, is defined to be the advent of illness or related health issues in Executive or his immediate family which a medical doctor would conclude poses a mortal health risk to that person. The Company shall have the option, in its sole discretion, to specify an earlier termination date than that provided by Executive in the written notice. Upon voluntary termination pursuant to this Section, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to effective date of termination as determined by the Company. If Executive voluntarily terminates Executive’s employment, then all unvested options to purchase Common Stock of the Company held by Executive as of the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s termination shall remain exercisable for six (6) months from the date of the voluntary termination.

 

(g)           Resignation as a Director. In the event of any termination of employment pursuant to this Agreement, Executive shall be deemed to have resigned voluntarily from the Board and any Committee of the Board, and from the board of directors (and any

 

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committee thereof) of all subsidiaries of the Company, upon the effective date of termination or such earlier date as may be agreed in writing between the Company and Executive, and Executive’s signature on this Agreement shall, without the need to any further action, constitute Executive’s resignation from such boards of directors in such circumstance.

 

(h)           Returning Company Documents. In the event of any termination of Executive’s employment hereunder, Executive shall, prior to or on such termination deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

 

4.             Change in Control.

 

(a)           Option Acceleration Upon a Change in Control. Effective immediately upon the closing of a Change in Control (as defined below), the vesting of all of the then unvested shares of Common Stock subject to the Options shall be accelerated in full and the Options shall become fully vested and immediately exercisable as to such additional vested shares (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate).

 

(b)           Benefits Upon Termination. Notwithstanding anything herein to the contrary, in the event that Executive’s employment by the Company is terminated without Cause (as defined above) or Executive terminates his employment for Good Reason (as defined below) within thirteen (13) months following, the effective date of a Change in Control (as defined below), contingent upon Executive’s delivery to the Company of a fully effective Release and Waiver as provided in Section 3(e) and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i), the Executive shall be entitled to the benefits and payments specified in Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested shares of Common Stock subject to the Options shall immediately accelerate in full such that the Options shall become fully vested and exercisable with respect to all of the shares of Common Stock subject to such Options (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate). Any amounts owed pursuant to this Section 4(b) shall be paid in accordance with Section 3(d) of this Agreement; provided , however , that if the Change in Control constitutes a “change in control event” under Code Section 409A, any amounts owed as specified in Section 3(d)(i) shall instead be paid in a single lump sum on the first payroll date immediately after the 60 th day following the termination of Executive’s employment.

 

(c)           Change in Control. Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

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(i)          any Exchange Act Person (as defined below) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of beneficial ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur (for purposes of this Section 4(c), “ Exchange Act Person means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”)), except that “Exchange Act Person” shall not include (A) the Company or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) an entity beneficially owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of stock of the Company; or (E) any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the date of this Agreement, is the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities);

 

(ii)         there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)        the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

 

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(iv)        there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(v)         individuals who, on the date of this Agreement, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; ( provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board).

 

(d)           Good Reason. Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

 

(i)          a material adverse change in the nature of the Executive’s authority, duties or responsibilities, as they exist on the Effective Date of this Agreement;

 

(ii)         a material adverse change in the Executive’s reporting level requiring that the Executive report to a corporate officer or executive instead of reporting directly to the Board;

 

(iii)        the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from their location as of the Effective Date of this Agreement; or

 

(iv)        a material reduction by the Company of the Executive’s base salary as initially set forth herein or as the same may be increased from time to time, except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior officers of the Company and does not exceed 15% of Executive’s base salary.

 

Provided however that, such termination by the Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”); and (iii) the Executive terminates employment within thirty (30) days following the end of the Cure Period.

 

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5.           Application of Internal Revenue Code Section 409A . (a) Notwithstanding anything to the contrary contained in this Agreement, if any payment or reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i) would constitute a “deferral of compensation” under Code Section 409A and Executive is a “specified employee” (as determined pursuant to procedures adopted by the Company in compliance with Code Section 409A) on the date of Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i), Executive will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of Executive’s “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) Executive’s death.

 

(b)          To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply to Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Code Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

6.             Code Section 280G. If any payment or benefit Executive would receive pursuant to a Corporate Transaction from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Code Section 4999 (the “ Excise Tax ”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following two amounts would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “ Full Payment ”), or (ii) payment of only a part of the Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a “ Reduced Payment ”), whichever amount results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Payment alternative, and Executive shall have no rights to any additional payments and/or benefits constituting the Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: reduction of cash payments, cancellation of accelerated vesting of stock awards, and reduction of other benefits. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless Executive elects in writing a different order for cancellation.

 

The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Corporate Transaction shall make all determinations required to be made under this Section 6. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Corporate Transaction, the Company shall appoint a

 

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different nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder. The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or at such other time as requested by the Company. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

7.             Conflict of Interest. During the Employment Period, Executive shall devote such time and energies as appropriate to fulfill all responsibilities to the Company in the capacity set forth in Section 1. Executive shall be free to pursue business activities which do not interfere with the performance of his duties and responsibilities under this Agreement; provided, however, Executive shall not engage in any outside business activity which involves actual or potential competition with the business of the Company, except with the written consent of the Board.

 

8.             Executive Benefit Plans. All of the Executive benefit plans referred to or contemplated by this Agreement shall be governed solely by the terms of the underlying plan documents and applicable law. Nothing in this Agreement shall impair the Company’s right to amend, modify, replace, and terminate any and all such plans in its sole discretion as provided by law. This Agreement is for the sole benefit of Executive and the Company, and is not intended to create an Executive benefit plan or to modify existing terms of existing plans.

 

9.             Assignment. This Agreement may not be assigned by Executive. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives. The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.

 

10.           Notices. All notices required by this Agreement may be delivered by first class mail at the following addresses:

 

To Company:

 

Adamis Pharmaceuticals Corporation

11682 El Camino Real, Suite 300

San Diego, CA 92130

 

To Executive:

 

Dennis J. Carlo

P.O. Box 1176

Rancho Santa Fe, CA 92067

 

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11.           Amendment. This Agreement may be modified only by written agreement signed by both the Company and Executive.

 

12.           Choice of Law; Arbitration. This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles. To provide a mechanism for rapid and economical dispute resolution, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or in equity, arising from or relating to this Agreement (including the Release and Waiver) and its enforcement, performance, breach or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration before a single arbitrator held in San Diego, California and conducted by the American Arbitration Association (“ AAA ”), under its then-existing rules and procedures. The parties shall be entitled to conduct adequate discovery, and they may obtain all remedies available to the parties as if the matter had been tried in court. The arbitrator shall issue a written decision which specifies the findings of fact and conclusions of law on which the arbitrator’s decision is based. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless a different allocation is required by law, the parties shall each pay one-half of all fees and costs of the arbitration. Punitive damages shall not be awarded. Unless otherwise required by law, the arbitrator will award reasonable expenses (including reimbursement of the assigned arbitration costs) to the prevailing party. Nothing in this Section or in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in a court of competent jurisdiction to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the above, both Executive and the Company retain the right to seek or obtain, and shall not be prohibited, limited or in any other way restricted from seeking or obtaining, equitable relief from a court having jurisdiction over the parties in order to enforce the nonsolicitation and noncompetition provisions of this Agreement or any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s intellectual property.

 

13.           Partial Invalidity. In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

 

14.           Waiver. No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

 

15.           Complete Agreement. As of the Effective Date, this Agreement, together with the stock option agreements and equity incentive plans governing the Options, constitutes the entire agreement between the parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the parties, including the Prior Agreement.

 

16.           Headings. Headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

17.           Miscellaneous. Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written above.

 

ADAMIS PHARMACEUTICALS CORPORATION

  

By: /s/ David J. Marguglio 

Name:  David J. Marguglio 

Title:    Senior Vice President, Director

  

EXECUTIVE:

 

By: /s/ Dennis J. Carlo 

Name:  Dennis J. Carlo

 

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EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement dated December 31, 2015 (the “ Employment Agreement ”), to which this form is attached, I, Dennis J. Carlo, hereby furnish Adamis Pharmaceuticals Corporation (the “ Company ”), with the following release and waiver (“ Release and Waiver ”).

 

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ ADEA ”), and the California Fair Employment and Housing Act (as amended). Nothing in this Release and Waiver shall be deemed to require the waiver or release of any claim that may not be released or waived under applicable federal or state law.

 

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days from the date of termination of my employment with the

 

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Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired unexercised and no benefits will be paid unless and until this Release and Waiver has become effective. In the event that this Release and Waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, I have forty-five (45) days to consider this Release and Waiver and I shall be provided with the information required by 29 U.S.C. Section 626 (f)(1)(H).

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized member of the Board of Directors of the Company.

 

Date:  

 

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ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 10.20

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is dated as of December 31, 2015 (the “ Effective Date ”) and is entered into by and between Adamis Pharmaceuticals Corporation , a Delaware corporation (“ Company ”), and David J. Marguglio (“ Executive ”).

 

RECITALS

 

A.           Executive is currently employed by the Company as its Senior Vice President, Corporate Development.

 

B.           Executive and the Company are currently parties to an Employment Agreement dated November 9, 2010 (the “ Prior Agreement ”).

 

C.           The Company and Executive desire to formally restate the terms and conditions of Executive’s employment by the Company and to provide Executive with certain benefits upon a qualifying termination of such employment.

 

D.           The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and the Executive desires to continue in the employ of the Company in such capacity for the period and with the terms and conditions set forth herein.

 

E.            This Agreement shall supersede and completely replace the Prior Agreement as of the Effective Date.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the parties hereby agree as follows:

 

1.             Employment. The Company hereby employs Executive as Senior Vice President, Corporate Development, assigned with responsibilities to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company, subject at all times to the policies set by the Board of Directors of the Company (the “ Board ”), and to the consent of the Board when required by the terms of this contract. Executive hereby accepts such employment and agrees to devote such time and energies as appropriate to fulfill all responsibilities to the Company. Executive shall be employed at will.

 

2.             Compensation. In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Section 2. All such compensation shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)           Salary. Executive shall be paid an initial annual salary of $300,000, payable in equal installments in accordance with the Company’s normal salary and wages practices, but not less than 24 increments annually.

 

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(b)           Executive Benefit and Incentive Compensation Plans. During employment hereunder, Executive shall be entitled to receive those benefits which are routinely made available to executive officers of the Company, including participation in any executive stock ownership plan, profit sharing plan, incentive compensation or bonus plan, retirement plan, Company-provided life insurance, or similar executive benefit plans maintained or sponsored by the Company. The Company shall not take any action that would materially diminish the aggregate value of Executive’s fringe benefits as they exist as of the Effective Date of this Agreement or as the same may be increased from time to time, except for actions taken with respect to officers or employees generally.

 

(c)           Expense Reimbursement. The Company shall promptly reimburse Executive for all reasonable expenses necessarily incurred during conduct of Company business, and for which adequate documentation is presented, but in no event later than December 31 of the year following the year in which the expense was incurred. Furthermore, if any reimbursements or in-kind benefits provided by the Company pursuant to this Agreement would constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such reimbursements or in-kind benefits shall be subject to the following rules: (i) the amounts to be reimbursed, or the in-kind benefits to be provided, shall be determined pursuant to the terms of the applicable benefit plan, policy or agreement and shall be limited to Executive’s lifetime and the lifetime of Executive’s eligible dependents; (ii) the amounts eligible for reimbursement, or the in-kind benefits provided, during any calendar year may not affect the expenses eligible for reimbursement, or the in-kind benefits provided, in any other calendar year; (iii) any reimbursement of an eligible expense shall be made on or before the earlier of (A) the last day of the calendar month following the calendar month in which the expense report and any required documentation were submitted or (B) the last day of the calendar year following the calendar year in which the expense was incurred; and (iv) Executive’s right to an in-kind benefit or reimbursement is not subject to liquidation or exchange for cash or another benefit.

 

(d)           Personal Time Off. Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

 

3.             Termination. Executive’s employment may be terminated as follows, with the following effects:

 

(a)           Death. Executive’s employment shall terminate immediately upon the Executive’s death, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the date of his death. If Executive’s employment ceases as a result of death, then all unvested options to purchase common stock, par value $0.001, of the Company (“ Common Stock ”) held by Executive as of the date of Executive’s death shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s death shall remain exercisable until the one year anniversary of the date of cessation of service.

 

 

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(b)           Disability. In the event the Executive is disabled from performing his assigned duties under this Agreement due to illness or injury for a period in excess of sixty (60) consecutive days or a period or periods of more than one hundred and twenty (120) days in the aggregate in any twelve month period, the Board, in its sole discretion, may terminate Executive’s employment immediately upon written notice to Executive, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the effective date of termination. If Executive’s employment ceases as a result of disability, then all unvested options to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive on the date of Executive’s termination shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(c)           For Cause. The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. For purposes of this Agreement, “ Cause means the occurrence of any one or more of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination. If Executive’s employment ceases as a result of a termination for Cause, then all options (unvested and vested) to purchase Common Stock held by Executive on the date of his termination shall immediately terminate.

 

(d)           Without Cause. The Company in its sole discretion may terminate Executive’s employment without Cause (as defined above) immediately upon written notice from the Board to Executive. In such event, if such termination occurs prior to, or more than thirteen (13) months following, the effective date of a Change in Control (as defined in Section 4(c) below), the Company shall pay to Executive all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of termination, and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i) and the applicable guidance thereunder, contingent upon Executive’s delivery to the Company of an effective Release and Waiver as provided in Section 3(e) below, the Company shall also provide the following benefits to Executive: (i) severance consisting of continued payment of Executive’s base salary at the rate in effect as of the effective date of termination, less standard deductions and withholdings, for a period of nine (9) months following the effective date of termination, to be paid in accordance with the Company’s normal payroll practices; (ii) to the extent that Executive is eligible to continue medical benefits under COBRA and upon timely election by Executive complying with COBRA and to the extent it does not result in a penalty to the Company, reimbursement by the Company, within thirty (30) days of the Company’s receipt of evidence of Executive’s payment for the prior month, of the Company’s portion of the premiums required to continue Executive’s medical, dental and vision insurance coverage pursuant to COBRA, for a period of nine (9) months following the date of termination (with Executive being responsible to pay that amount

 

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of the portion of the premiums, if any, that Executive would have been responsible to pay if Executive had remained an employee during such period) or, if earlier, the date that Executive accepts full time employment with another employer; and (iii) immediate acceleration of the vesting of all options to purchase Common Stock granted to Executive prior to the effective date of such termination (the “ Options ”) such that Executive shall be deemed vested as to the same number of shares as if Executive had continued to be employed by the Company for a period of nine (9) following the effective date of such termination and all vested options held by Executive shall remain exercisable until the one year anniversary of the date of cessation of service. As a condition to receiving the continuing benefits specified in this Section 3(d), to the maximum extent permitted by applicable law, during the nine (9) month period following the Executive’s termination date, Executive shall not engage in any employment or business activity that is directly competitive with the Company’s business activities as of such termination date and Executive shall not induce any employee of the Company to leave the employ of the Company. Each payment under this Section 3(d) shall be considered a separate payment and not one of a series of payments for Code Section 409A. Subject to Section 5, any amount due to Executive pursuant to this Section 3(d) during the 60-day period following Executive’s termination without Cause shall be paid to Executive in a single lump sum on the first payroll date immediately after the end of the 60-day period.

 

(e)           Release and Waiver. As a condition to receiving the benefits specified in Sections 3(d) and 4(b) of this Agreement, Executive must deliver to the Company a waiver and release of claims in the form attached hereto as Exhibit A (the “ Release and Waiver ”) within the time frame set forth therein, but in no event later than sixty (60) days following the Executive’s termination date, and any applicable revocation period must expire during the 60-day period following Executive’s termination as described in Section 3(d) or 4(b) without Executive revoking such release.

 

(f)           Voluntary Termination by Executive. Executive may terminate his employment hereunder at any time, whether with or without cause, effective thirty (30) days after delivery of written notice of such termination to the Company, except for Executive’s Emergency Need. “ Emergency Need ”, as used in this Section, is defined to be the advent of illness or related health issues in Executive or his immediate family which a medical doctor would conclude poses a mortal health risk to that person. The Company shall have the option, in its sole discretion, to specify an earlier termination date than that provided by Executive in the written notice. Upon voluntary termination pursuant to this Section, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to effective date of termination as determined by the Company. If Executive voluntarily terminates Executive’s employment, then all unvested options to purchase Common Stock of the Company held by Executive as of the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s termination shall remain exercisable for six (6) months from the date of the voluntary termination.

 

(g)           Resignation as a Director. In the event of any termination of employment pursuant to this Agreement, Executive shall be deemed to have resigned voluntarily from the Board and any Committee of the Board, and from the board of directors (and any

 

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committee thereof) of all subsidiaries of the Company, upon the effective date of termination or such earlier date as may be agreed in writing between the Company and Executive, and Executive’s signature on this Agreement shall, without the need to any further action, constitute Executive’s resignation from such boards of directors in such circumstance.

 

(h)           Returning Company Documents. In the event of any termination of Executive’s employment hereunder, Executive shall, prior to or on such termination deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

 

4.            Change in Control.

 

(a)           Option Acceleration Upon a Change in Control. Effective immediately upon the closing of a Change in Control (as defined below), the vesting of all of the then unvested shares of Common Stock subject to the Options shall be accelerated in full and the Options shall become fully vested and immediately exercisable as to such additional vested shares (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate).

 

(b)           Benefits Upon Termination. Notwithstanding anything herein to the contrary, in the event that Executive’s employment by the Company is terminated without Cause (as defined above) or Executive terminates his employment for Good Reason (as defined below) within thirteen (13) months following, the effective date of a Change in Control (as defined below), contingent upon Executive’s delivery to the Company of a fully effective Release and Waiver as provided in Section 3(e) and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i), the Executive shall be entitled to the benefits and payments specified in Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested shares of Common Stock subject to the Options shall immediately accelerate in full such that the Options shall become fully vested and exercisable with respect to all of the shares of Common Stock subject to such Options (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate). Any amounts owed pursuant to this Section 4(b) shall be paid in accordance with Section 3(d) of this Agreement; provided , however , that if the Change in Control constitutes a “change in control event” under Code Section 409A, any amounts owed as specified in Section 3(d)(i) shall instead be paid in a single lump sum on the first payroll date immediately after the 60 th day following the termination of Executive’s employment.

 

(c)           Change in Control. Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

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(i)             any Exchange Act Person (as defined below) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of beneficial ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur (for purposes of this Section 4(c), “ Exchange Act Person means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”)), except that “Exchange Act Person” shall not include (A) the Company or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) an entity beneficially owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of stock of the Company; or (E) any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the date of this Agreement, is the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities);

 

(ii)            there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)           the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

 

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(iv)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(v)            individuals who, on the date of this Agreement, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; ( provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board).

 

(d)           Good Reason. Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

 

(i)             a material adverse change in the nature of the Executive’s authority, duties or responsibilities, as they exist on the Effective Date of this Agreement;

 

(ii)            a material adverse change in the Executive’s reporting level requiring that the Executive report to a corporate officer or executive instead of reporting directly to the Board;

 

(iii)           the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from their location as of the Effective Date of this Agreement; or

 

(iv)           a material reduction by the Company of the Executive’s base salary as initially set forth herein or as the same may be increased from time to time, except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior officers of the Company and does not exceed 15% of Executive’s base salary.

 

Provided however that, such termination by the Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”); and (iii) the Executive terminates employment within thirty (30) days following the end of the Cure Period.

 

5.            Application of Internal Revenue Code Section 409A . (a) Notwithstanding anything to the contrary contained in this Agreement, if any payment or reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon Executive’s

 

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“separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i) would constitute a “deferral of compensation” under Code Section 409A and Executive is a “specified employee” (as determined pursuant to procedures adopted by the Company in compliance with Code Section 409A) on the date of Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i), Executive will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of Executive’s “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) Executive’s death.

 

(b)          To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply to Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Code Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

6.            Code Section 280G. If any payment or benefit Executive would receive pursuant to a Corporate Transaction from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Code Section 4999 (the “ Excise Tax ”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following two amounts would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “ Full Payment ”), or (ii) payment of only a part of the Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a “ Reduced Payment ”), whichever amount results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Payment alternative, and Executive shall have no rights to any additional payments and/or benefits constituting the Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: reduction of cash payments, cancellation of accelerated vesting of stock awards, and reduction of other benefits. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless Executive elects in writing a different order for cancellation.

 

The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Corporate Transaction shall make all determinations required to be made under this Section 6. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Corporate Transaction, the Company shall appoint a

 

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different nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder. The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or at such other time as requested by the Company. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

7.            Conflict of Interest. During the Employment Period, Executive shall devote such time and energies as appropriate to fulfill all responsibilities to the Company in the capacity set forth in Section 1. Executive shall be free to pursue business activities which do not interfere with the performance of his duties and responsibilities under this Agreement; provided, however, Executive shall not engage in any outside business activity which involves actual or potential competition with the business of the Company, except with the written consent of the Board.

 

8.            Executive Benefit Plans. All of the Executive benefit plans referred to or contemplated by this Agreement shall be governed solely by the terms of the underlying plan documents and applicable law. Nothing in this Agreement shall impair the Company’s right to amend, modify, replace, and terminate any and all such plans in its sole discretion as provided by law. This Agreement is for the sole benefit of Executive and the Company, and is not intended to create an Executive benefit plan or to modify existing terms of existing plans.

 

9.            Assignment. This Agreement may not be assigned by Executive. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives. The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.

 

10.          Notices. All notices required by this Agreement may be delivered by first class mail at the following addresses:

 

To Company:

 

Adamis Pharmaceuticals Corporation

11682 El Camino Real, Suite 300

San Diego, CA 92130

 

To Executive:

 

David J. Marguglio

 

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11.           Amendment. This Agreement may be modified only by written agreement signed by both the Company and Executive.

 

12.           Choice of Law; Arbitration. This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles. To provide a mechanism for rapid and economical dispute resolution, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or in equity, arising from or relating to this Agreement (including the Release and Waiver) and its enforcement, performance, breach or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration before a single arbitrator held in San Diego, California and conducted by the American Arbitration Association (“ AAA ”), under its then-existing rules and procedures. The parties shall be entitled to conduct adequate discovery, and they may obtain all remedies available to the parties as if the matter had been tried in court. The arbitrator shall issue a written decision which specifies the findings of fact and conclusions of law on which the arbitrator’s decision is based. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless a different allocation is required by law, the parties shall each pay one-half of all fees and costs of the arbitration. Punitive damages shall not be awarded. Unless otherwise required by law, the arbitrator will award reasonable expenses (including reimbursement of the assigned arbitration costs) to the prevailing party. Nothing in this Section or in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in a court of competent jurisdiction to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the above, both Executive and the Company retain the right to seek or obtain, and shall not be prohibited, limited or in any other way restricted from seeking or obtaining, equitable relief from a court having jurisdiction over the parties in order to enforce the nonsolicitation and noncompetition provisions of this Agreement or any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s intellectual property.

 

13.           Partial Invalidity. In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

 

14.           Waiver. No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

 

15.           Complete Agreement. As of the Effective Date, this Agreement, together with the stock option agreements and equity incentive plans governing the Options, constitutes the entire agreement between the parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the parties, including the Prior Agreement.

 

16.           Headings. Headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

17.           Miscellaneous. Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written above.

 

ADAMIS PHARMACEUTICALS CORPORATION

 

By: /s/ Dennis J. Carlo

Name:  Dennis J. Carlo

Title:    President and CEO

 

EXECUTIVE:

 

By: /s/ David J. Marguglio

Name:  David J. Marguglio

 

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EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement dated December 31, 2015 (the “ Employment Agreement ”), to which this form is attached, I, David J. Marguglio, hereby furnish Adamis Pharmaceuticals Corporation (the “ Company ”), with the following release and waiver (“ Release and Waiver ”).

 

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ ADEA ”), and the California Fair Employment and Housing Act (as amended). Nothing in this Release and Waiver shall be deemed to require the waiver or release of any claim that may not be released or waived under applicable federal or state law.

 

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days from the date of termination of my employment with the

 

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Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired unexercised and no benefits will be paid unless and until this Release and Waiver has become effective. In the event that this Release and Waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, I have forty-five (45) days to consider this Release and Waiver and I shall be provided with the information required by 29 U.S.C. Section 626 (f)(1)(H).

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized member of the Board of Directors of the Company.

 

Date:  

 

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ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

 

Exhibit 10.21

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is dated as of December 31, 2015 (the “ Effective Date ”) and is entered into by and between Adamis Pharmaceuticals Corporation , a Delaware corporation (“ Company ”), and Robert O. Hopkins (“ Executive ”).

 

RECITALS

 

A.          Executive is currently employed by the Company as its Vice President and Chief Financial Officer.

 

B.           Executive and the Company are currently parties to an Employment Agreement dated November 9, 2010 (the “ Prior Agreement ”).

 

C.           The Company and Executive desire to formally restate the terms and conditions of Executive’s employment by the Company and to provide Executive with certain benefits upon a qualifying termination of such employment.

 

D.          The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and the Executive desires to continue in the employ of the Company in such capacity for the period and with the terms and conditions set forth herein.

 

E.           This Agreement shall supersede and completely replace the Prior Agreement as of the Effective Date.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the parties hereby agree as follows:

 

1.           Employment. The Company hereby employs Executive as Vice President and Chief Financial Officer, assigned with responsibilities to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company, subject at all times to the policies set by the Board of Directors of the Company (the “ Board ”), and to the consent of the Board when required by the terms of this contract. Executive hereby accepts such employment and agrees to devote such time and energies as appropriate to fulfill all responsibilities to the Company. Executive shall be employed at will.

 

2.           Compensation. In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Section 2. All such compensation shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)           Salary. Executive shall be paid an initial annual salary of $260,000, payable in equal installments in accordance with the Company’s normal salary and wages practices, but not less than 24 increments annually.

 

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(b)           Executive Benefit and Incentive Compensation Plans. During employment hereunder, Executive shall be entitled to receive those benefits which are routinely made available to executive officers of the Company, including participation in any executive stock ownership plan, profit sharing plan, incentive compensation or bonus plan, retirement plan, Company-provided life insurance, or similar executive benefit plans maintained or sponsored by the Company. The Company shall not take any action that would materially diminish the aggregate value of Executive’s fringe benefits as they exist as of the Effective Date of this Agreement or as the same may be increased from time to time, except for actions taken with respect to officers or employees generally.

 

(c)           Expense Reimbursement. The Company shall promptly reimburse Executive for all reasonable expenses necessarily incurred during conduct of Company business, and for which adequate documentation is presented, but in no event later than December 31 of the year following the year in which the expense was incurred. Furthermore, if any reimbursements or in-kind benefits provided by the Company pursuant to this Agreement would constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such reimbursements or in-kind benefits shall be subject to the following rules: (i) the amounts to be reimbursed, or the in-kind benefits to be provided, shall be determined pursuant to the terms of the applicable benefit plan, policy or agreement and shall be limited to Executive’s lifetime and the lifetime of Executive’s eligible dependents; (ii) the amounts eligible for reimbursement, or the in-kind benefits provided, during any calendar year may not affect the expenses eligible for reimbursement, or the in-kind benefits provided, in any other calendar year; (iii) any reimbursement of an eligible expense shall be made on or before the earlier of (A) the last day of the calendar month following the calendar month in which the expense report and any required documentation were submitted or (B) the last day of the calendar year following the calendar year in which the expense was incurred; and (iv) Executive’s right to an in-kind benefit or reimbursement is not subject to liquidation or exchange for cash or another benefit.

 

(d)           Personal Time Off. Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

 

3.            Termination. Executive’s employment may be terminated as follows, with the following effects:

 

(a)           Death. Executive’s employment shall terminate immediately upon the Executive’s death, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the date of his death. If Executive’s employment ceases as a result of death, then all unvested options to purchase common stock, par value $0.001, of the Company (“ Common Stock ”) held by Executive as of the date of Executive’s death shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s death shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(b)           Disability. In the event the Executive is disabled from performing his assigned duties under this Agreement due to illness or injury for a period in excess of sixty

 

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(60) consecutive days or a period or periods of more than one hundred and twenty (120) days in the aggregate in any twelve month period, the Board, in its sole discretion, may terminate Executive’s employment immediately upon written notice to Executive, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the effective date of termination. If Executive’s employment ceases as a result of disability, then all unvested options to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive on the date of Executive’s termination shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(c)           For Cause. The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. For purposes of this Agreement, “ Cause means the occurrence of any one or more of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination. If Executive’s employment ceases as a result of a termination for Cause, then all options (unvested and vested) to purchase Common Stock held by Executive on the date of his termination shall immediately terminate.

 

(d)           Without Cause. The Company in its sole discretion may terminate Executive’s employment without Cause (as defined above) immediately upon written notice from the Board to Executive. In such event, if such termination occurs prior to, or more than thirteen (13) months following, the effective date of a Change in Control (as defined in Section 4(c) below), the Company shall pay to Executive all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of termination, and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i) and the applicable guidance thereunder, contingent upon Executive’s delivery to the Company of an effective Release and Waiver as provided in Section 3(e) below, the Company shall also provide the following benefits to Executive: (i) severance consisting of continued payment of Executive’s base salary at the rate in effect as of the effective date of termination, less standard deductions and withholdings, for a period of nine (9) months following the effective date of termination, to be paid in accordance with the Company’s normal payroll practices; (ii) to the extent that Executive is eligible to continue medical benefits under COBRA and upon timely election by Executive complying with COBRA and to the extent it does not result in a penalty to the Company, reimbursement by the Company, within thirty (30) days of the Company’s receipt of evidence of Executive’s payment for the prior month, of the Company’s portion of the premiums required to continue Executive’s medical, dental and vision insurance coverage pursuant to COBRA, for a period of nine (9) months following the date of termination (with Executive being responsible to pay that amount

 

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of the portion of the premiums, if any, that Executive would have been responsible to pay if Executive had remained an employee during such period) or, if earlier, the date that Executive accepts full time employment with another employer; and (iii) immediate acceleration of the vesting of all options to purchase Common Stock granted to Executive prior to the effective date of such termination (the “ Options ”) such that Executive shall be deemed vested as to the same number of shares as if Executive had continued to be employed by the Company for a period of nine (9) months following the effective date of such termination and all vested options held by Executive shall remain exercisable until the one year anniversary of the date of cessation of service. As a condition to receiving the continuing benefits specified in this Section 3(d), to the maximum extent permitted by applicable law, during the nine (9) month period following the Executive’s termination date, Executive shall not engage in any employment or business activity that is directly competitive with the Company’s business activities as of such termination date and Executive shall not induce any employee of the Company to leave the employ of the Company. Each payment under this Section 3(d) shall be considered a separate payment and not one of a series of payments for Code Section 409A. Subject to Section 5, any amount due to Executive pursuant to this Section 3(d) during the 60-day period following Executive’s termination without Cause shall be paid to Executive in a single lump sum on the first payroll date immediately after the end of the 60-day period.

 

(e)           Release and Waiver. As a condition to receiving the benefits specified in Sections 3(d) and 4(b) of this Agreement, Executive must deliver to the Company a waiver and release of claims in the form attached hereto as Exhibit A (the “ Release and Waiver ”) within the time frame set forth therein, but in no event later than sixty (60) days following the Executive’s termination date, and any applicable revocation period must expire during the 60-day period following Executive’s termination as described in Section 3(d) or 4(b) without Executive revoking such release.

 

(f)           Voluntary Termination by Executive. Executive may terminate his employment hereunder at any time, whether with or without cause, effective thirty (30) days after delivery of written notice of such termination to the Company, except for Executive’s Emergency Need. “ Emergency Need ”, as used in this Section, is defined to be the advent of illness or related health issues in Executive or his immediate family which a medical doctor would conclude poses a mortal health risk to that person. The Company shall have the option, in its sole discretion, to specify an earlier termination date than that provided by Executive in the written notice. Upon voluntary termination pursuant to this Section, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to effective date of termination as determined by the Company. If Executive voluntarily terminates Executive’s employment, then all unvested options to purchase Common Stock of the Company held by Executive as of the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s termination shall remain exercisable for six (6) months from the date of the voluntary termination.

 

(g)           Resignation as a Director. In the event of any termination of employment pursuant to this Agreement, Executive shall be deemed to have resigned voluntarily from the Board and any Committee of the Board, and from the board of directors (and any

 

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committee thereof) of all subsidiaries of the Company, upon the effective date of termination or such earlier date as may be agreed in writing between the Company and Executive, and Executive’s signature on this Agreement shall, without the need to any further action, constitute Executive’s resignation from such boards of directors in such circumstance.

 

(h)           Returning Company Documents. In the event of any termination of Executive’s employment hereunder, Executive shall, prior to or on such termination deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

 

4.            Change in Control.

 

(a)           Option Acceleration Upon a Change in Control. Effective immediately upon the closing of a Change in Control (as defined below), the vesting of all of the then unvested shares of Common Stock subject to the Options shall be accelerated in full and the Options shall become fully vested and immediately exercisable as to such additional vested shares (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate).

 

(b)           Benefits Upon Termination. Notwithstanding anything herein to the contrary, in the event that Executive’s employment by the Company is terminated without Cause (as defined above) or Executive terminates his employment for Good Reason (as defined below) within thirteen (13) months following, the effective date of a Change in Control (as defined below), contingent upon Executive’s delivery to the Company of a fully effective Release and Waiver as provided in Section 3(e) and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i), the Executive shall be entitled to the benefits and payments specified in Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested shares of Common Stock subject to the Options shall immediately accelerate in full such that the Options shall become fully vested and exercisable with respect to all of the shares of Common Stock subject to such Options (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate). Any amounts owed pursuant to this Section 4(b) shall be paid in accordance with Section 3(d) of this Agreement; provided , however , that if the Change in Control constitutes a “change in control event” under Code Section 409A, any amounts owed as specified in Section 3(d)(i) shall instead be paid in a single lump sum on the first payroll date immediately after the 60 th day following the termination of Executive’s employment.

 

(c)           Change in Control. Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

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(i)             any Exchange Act Person (as defined below) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of beneficial ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur (for purposes of this Section 4(c), “ Exchange Act Person means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”)), except that “Exchange Act Person” shall not include (A) the Company or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) an entity beneficially owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of stock of the Company; or (E) any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the date of this Agreement, is the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities);

 

(ii)            there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)           the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

 

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(iv)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(v)            individuals who, on the date of this Agreement, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; ( provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board).

 

(d)           Good Reason. Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

 

(i)             a material adverse change in the nature of the Executive’s authority, duties or responsibilities, as they exist on the Effective Date of this Agreement;

 

(ii)            a material adverse change in the Executive’s reporting level requiring that the Executive report to a corporate officer or executive instead of reporting directly to the Board;

 

(iii)           the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from their location as of the Effective Date of this Agreement; or

 

(iv)           a material reduction by the Company of the Executive’s base salary as initially set forth herein or as the same may be increased from time to time, except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior officers of the Company and does not exceed 15% of Executive’s base salary.

 

Provided however that, such termination by the Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”); and (iii) the Executive terminates employment within thirty (30) days following the end of the Cure Period.

 

5.            Application of Internal Revenue Code Section 409A . (a) Notwithstanding anything to the contrary contained in this Agreement, if any payment or reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon Executive’s

 

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“separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i) would constitute a “deferral of compensation” under Code Section 409A and Executive is a “specified employee” (as determined pursuant to procedures adopted by the Company in compliance with Code Section 409A) on the date of Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i), Executive will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of Executive’s “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) Executive’s death.

 

(b) To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply to Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Code Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

6.            Code Section 280G. If any payment or benefit Executive would receive pursuant to a Corporate Transaction from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Code Section 4999 (the “ Excise Tax ”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following two amounts would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “ Full Payment ”), or (ii) payment of only a part of the Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a “ Reduced Payment ”), whichever amount results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Payment alternative, and Executive shall have no rights to any additional payments and/or benefits constituting the Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: reduction of cash payments, cancellation of accelerated vesting of stock awards, and reduction of other benefits. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless Executive elects in writing a different order for cancellation.

 

The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Corporate Transaction shall make all determinations required to be made under this Section 6. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Corporate Transaction, the Company shall appoint a

 

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different nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder. The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or at such other time as requested by the Company. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

7.            Conflict of Interest. During the Employment Period, Executive shall devote such time and energies as appropriate to fulfill all responsibilities to the Company in the capacity set forth in Section 1. Executive shall be free to pursue business activities which do not interfere with the performance of his duties and responsibilities under this Agreement; provided, however, Executive shall not engage in any outside business activity which involves actual or potential competition with the business of the Company, except with the written consent of the Board.

 

8.            Executive Benefit Plans. All of the Executive benefit plans referred to or contemplated by this Agreement shall be governed solely by the terms of the underlying plan documents and applicable law. Nothing in this Agreement shall impair the Company’s right to amend, modify, replace, and terminate any and all such plans in its sole discretion as provided by law. This Agreement is for the sole benefit of Executive and the Company, and is not intended to create an Executive benefit plan or to modify existing terms of existing plans.

 

9.            Assignment. This Agreement may not be assigned by Executive. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives. The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.

 

10.          Notices. All notices required by this Agreement may be delivered by first class mail at the following addresses:

 

To Company:

 

Adamis Pharmaceuticals Corporation

11682 El Camino Real, Suite 300

San Diego, CA 92130

 

To Executive:

 

Robert O. Hopkins

 

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11.           Amendment. This Agreement may be modified only by written agreement signed by both the Company and Executive.

 

12.           Choice of Law; Arbitration. This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles. To provide a mechanism for rapid and economical dispute resolution, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or in equity, arising from or relating to this Agreement (including the Release and Waiver) and its enforcement, performance, breach or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration before a single arbitrator held in San Diego, California and conducted by the American Arbitration Association (“ AAA ”), under its then-existing rules and procedures. The parties shall be entitled to conduct adequate discovery, and they may obtain all remedies available to the parties as if the matter had been tried in court. The arbitrator shall issue a written decision which specifies the findings of fact and conclusions of law on which the arbitrator’s decision is based. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless a different allocation is required by law, the parties shall each pay one-half of all fees and costs of the arbitration. Punitive damages shall not be awarded. Unless otherwise required by law, the arbitrator will award reasonable expenses (including reimbursement of the assigned arbitration costs) to the prevailing party. Nothing in this Section or in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in a court of competent jurisdiction to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the above, both Executive and the Company retain the right to seek or obtain, and shall not be prohibited, limited or in any other way restricted from seeking or obtaining, equitable relief from a court having jurisdiction over the parties in order to enforce the nonsolicitation and noncompetition provisions of this Agreement or any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s intellectual property.

 

13.           Partial Invalidity. In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

 

14.           Waiver. No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

 

15.           Complete Agreement. As of the Effective Date, this Agreement, together with the stock option agreements and equity incentive plans governing the Options, constitutes the entire agreement between the parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the parties, including the Prior Agreement.

 

16.           Headings. Headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

17.           Miscellaneous. Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written above.

 

ADAMIS PHARMACEUTICALS CORPORATION

 

By: /s/ Dennis J. Carlo

Name:  Dennis J. Carlo

Title:   President and CEO

 

EXECUTIVE:

 

By:/s/ Robert O. Hopkins

Name:  Robert O. Hopkins

 

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EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement dated December 31, 2015 (the “ Employment Agreement ”), to which this form is attached, I, Robert O. Hopkins, hereby furnish Adamis Pharmaceuticals Corporation (the “ Company ”), with the following release and waiver (“ Release and Waiver ”).

 

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ ADEA ”), and the California Fair Employment and Housing Act (as amended). Nothing in this Release and Waiver shall be deemed to require the waiver or release of any claim that may not be released or waived under applicable federal or state law.

 

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days from the date of termination of my employment with the

 

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Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired unexercised and no benefits will be paid unless and until this Release and Waiver has become effective. In the event that this Release and Waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, I have forty-five (45) days to consider this Release and Waiver and I shall be provided with the information required by 29 U.S.C. Section 626 (f)(1)(H).

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized member of the Board of Directors of the Company.

 

Date:  

 

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ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 10.23

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is dated as of December 31, 2015 (the “ Effective Date ”) and is entered into by and between Adamis Pharmaceuticals Corporation , a Delaware corporation (“ Company ”), and Karen K. Daniels (“ Executive ”).

 

RECITALS

 

A.           Executive is currently employed by the Company as its Vice President of Operations.

 

B.           Executive and the Company are currently parties to an Employment Agreement dated July 2, 2012 (the “ Prior Agreement ”).

 

C.           The Company and Executive desire to formally restate the terms and conditions of Executive’s employment by the Company and to provide Executive with certain benefits upon a qualifying termination of such employment.

 

D.           The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and the Executive desires to continue in the employ of the Company in such capacity for the period and with the terms and conditions set forth herein.

 

E.           This Agreement shall supersede and completely replace the Prior Agreement as of the Effective Date.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the parties hereby agree as follows:

 

1.           Employment. The Company hereby employs Executive as Vice President of Operations, assigned with responsibilities to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company, subject at all times to the policies set by the Board of Directors of the Company (the “ Board ”), and to the consent of the Board when required by the terms of this contract. Executive hereby accepts such employment and agrees to devote such time and energies as appropriate to fulfill all responsibilities to the Company. Executive shall be employed at will.

 

2.           Compensation. In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Section 2. All such compensation shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)          Salary. Executive shall be paid an initial annual salary of $260,000, payable in equal installments in accordance with the Company’s normal salary and wages practices, but not less than 24 increments annually.

 

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(b)           Executive Benefit and Incentive Compensation Plans. During employment hereunder, Executive shall be entitled to receive those benefits which are routinely made available to executive officers of the Company, including participation in any executive stock ownership plan, profit sharing plan, incentive compensation or bonus plan, retirement plan, Company-provided life insurance, or similar executive benefit plans maintained or sponsored by the Company. The Company shall not take any action that would materially diminish the aggregate value of Executive’s fringe benefits as they exist as of the Effective Date of this Agreement or as the same may be increased from time to time, except for actions taken with respect to officers or employees generally.

 

(c)           Expense Reimbursement. The Company shall promptly reimburse Executive for all reasonable expenses necessarily incurred during conduct of Company business, and for which adequate documentation is presented, but in no event later than December 31 of the year following the year in which the expense was incurred. Furthermore, if any reimbursements or in-kind benefits provided by the Company pursuant to this Agreement would constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such reimbursements or in-kind benefits shall be subject to the following rules: (i) the amounts to be reimbursed, or the in-kind benefits to be provided, shall be determined pursuant to the terms of the applicable benefit plan, policy or agreement and shall be limited to Executive’s lifetime and the lifetime of Executive’s eligible dependents; (ii) the amounts eligible for reimbursement, or the in-kind benefits provided, during any calendar year may not affect the expenses eligible for reimbursement, or the in-kind benefits provided, in any other calendar year; (iii) any reimbursement of an eligible expense shall be made on or before the earlier of (A) the last day of the calendar month following the calendar month in which the expense report and any required documentation were submitted or (B) the last day of the calendar year following the calendar year in which the expense was incurred; and (iv) Executive’s right to an in-kind benefit or reimbursement is not subject to liquidation or exchange for cash or another benefit.

 

(d)           Personal Time Off. Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

 

3.             Termination. Executive’s employment may be terminated as follows, with the following effects:

 

(a)           Death. Executive’s employment shall terminate immediately upon the Executive’s death, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the date of Executive’s death. If Executive’s employment ceases as a result of death, then all unvested options to purchase common stock, par value $0.001, of the Company (“ Common Stock ”) held by Executive as of the date of Executive’s death shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s death shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(b)           Disability. In the event the Executive is disabled from performing Executive’s assigned duties under this Agreement due to illness or injury for a period in excess

 

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of sixty (60) consecutive days or a period or periods of more than one hundred and twenty (120) days in the aggregate in any twelve month period, the Board, in its sole discretion, may terminate Executive’s employment immediately upon written notice to Executive, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the effective date of termination. If Executive’s employment ceases as a result of disability, then all unvested options to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive on the date of Executive’s termination shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(c)           For Cause. The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. For purposes of this Agreement, “ Cause means the occurrence of any one or more of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination. If Executive’s employment ceases as a result of a termination for Cause, then all options (unvested and vested) to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate.

 

(d)           Without Cause. The Company in its sole discretion may terminate Executive’s employment without Cause (as defined above) immediately upon written notice from the Board to Executive. In such event, if such termination occurs prior to, or more than thirteen (13) months following, the effective date of a Change in Control (as defined in Section 4(c) below), the Company shall pay to Executive all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of termination, and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i) and the applicable guidance thereunder, contingent upon Executive’s delivery to the Company of an effective Release and Waiver as provided in Section 3(e) below, the Company shall also provide the following benefits to Executive: (i) severance consisting of continued payment of Executive’s base salary at the rate in effect as of the effective date of termination, less standard deductions and withholdings, for a period of nine (9) months following the effective date of termination, to be paid in accordance with the Company’s normal payroll practices; (ii) to the extent that Executive is eligible to continue medical benefits under COBRA and upon timely election by Executive complying with COBRA and to the extent it does not result in a penalty to the Company, reimbursement by the Company, within thirty (30) days of the Company’s receipt of evidence of Executive’s payment for the prior month, of the Company’s portion of the premiums required to continue Executive’s medical, dental and vision insurance coverage pursuant to COBRA, for a period of nine (9) months following the date of termination (with Executive being responsible to pay that amount

 

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of the portion of the premiums, if any, that Executive would have been responsible to pay if Executive had remained an employee during such period) or, if earlier, the date that Executive accepts full time employment with another employer; and (iii) immediate acceleration of the vesting of all options to purchase Common Stock granted to Executive prior to the effective date of such termination (the “ Options ”) such that Executive shall be deemed vested as to the same number of shares as if Executive had continued to be employed by the Company for a period of nine (9) months following the effective date of such termination and all vested options held by Executive shall remain exercisable until the one year anniversary of the date of cessation of service. As a condition to receiving the continuing benefits specified in this Section 3(d), to the maximum extent permitted by applicable law, during the nine (9) month period following the Executive’s termination date, Executive shall not engage in any employment or business activity that is directly competitive with the Company’s business activities as of such termination date and Executive shall not induce any employee of the Company to leave the employ of the Company. Each payment under this Section 3(d) shall be considered a separate payment and not one of a series of payments for Code Section 409A. Subject to Section 5, any amount due to Executive pursuant to this Section 3(d) during the 60-day period following Executive’s termination without Cause shall be paid to Executive in a single lump sum on the first payroll date immediately after the end of the 60-day period.

 

(e)           Release and Waiver. As a condition to receiving the benefits specified in Sections 3(d) and 4(b) of this Agreement, Executive must deliver to the Company a waiver and release of claims in the form attached hereto as Exhibit A (the “ Release and Waiver ”) within the time frame set forth therein, but in no event later than sixty (60) days following the Executive’s termination date, and any applicable revocation period must expire during the 60-day period following Executive’s termination as described in Section 3(d) or 4(b) without Executive revoking such release.

 

(f)            Voluntary Termination by Executive. Executive may terminate Executive’s employment hereunder at any time, whether with or without cause, effective thirty (30) days after delivery of written notice of such termination to the Company, except for Executive’s Emergency Need. “ Emergency Need ”, as used in this Section, is defined to be the advent of illness or related health issues in Executive or Executive’s immediate family which a medical doctor would conclude poses a mortal health risk to that person. The Company shall have the option, in its sole discretion, to specify an earlier termination date than that provided by Executive in the written notice. Upon voluntary termination pursuant to this Section, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to effective date of termination as determined by the Company. If Executive voluntarily terminates Executive’s employment, then all unvested options to purchase Common Stock of the Company held by Executive as of the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s termination shall remain exercisable for six (6) months from the date of the voluntary termination.

 

(g)           Resignation as a Director. In the event of any termination of employment pursuant to this Agreement, Executive shall be deemed to have resigned voluntarily from the Board and any Committee of the Board, and from the board of directors (and any

 

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committee thereof) of all subsidiaries of the Company, upon the effective date of termination or such earlier date as may be agreed in writing between the Company and Executive, and Executive’s signature on this Agreement shall, without the need to any further action, constitute Executive’s resignation from such boards of directors in such circumstance.

 

(h)           Returning Company Documents. In the event of any termination of Executive’s employment hereunder, Executive shall, prior to or on such termination deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

 

4.             Change in Control.

 

(a)           Option Acceleration Upon a Change in Control. Effective immediately upon the closing of a Change in Control (as defined below), the vesting of all of the then unvested shares of Common Stock subject to the Options shall be accelerated in full and the Options shall become fully vested and immediately exercisable as to such additional vested shares (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate).

 

(b)           Benefits Upon Termination. Notwithstanding anything herein to the contrary, in the event that Executive’s employment by the Company is terminated without Cause (as defined above) or Executive terminates Executive’s employment for Good Reason (as defined below) within thirteen (13) months following, the effective date of a Change in Control (as defined below), contingent upon Executive’s delivery to the Company of a fully effective Release and Waiver as provided in Section 3(e) and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i), the Executive shall be entitled to the benefits and payments specified in Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested shares of Common Stock subject to the Options shall immediately accelerate in full such that the Options shall become fully vested and exercisable with respect to all of the shares of Common Stock subject to such Options (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate). Any amounts owed pursuant to this Section 4(b) shall be paid in accordance with Section 3(d) of this Agreement; provided , however , that if the Change in Control constitutes a “change in control event” under Code Section 409A, any amounts owed as specified in Section 3(d)(i) shall instead be paid in a single lump sum on the first payroll date immediately after the 60 th day following the termination of Executive’s employment.

 

(c)           Change in Control. Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

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(i)             any Exchange Act Person (as defined below) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of beneficial ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur (for purposes of this Section 4(c), “ Exchange Act Person means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”)), except that “Exchange Act Person” shall not include (A) the Company or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) an entity beneficially owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of stock of the Company; or (E) any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the date of this Agreement, is the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities);

 

(ii)            there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)           the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

 

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(iv)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(v)            individuals who, on the date of this Agreement, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; ( provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board).

 

(d)           Good Reason. Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

 

(i)             a material adverse change in the nature of the Executive’s authority, duties or responsibilities, as they exist on the Effective Date of this Agreement;

 

(ii)            the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from their location as of the Effective Date of this Agreement; or

 

(iii)           a material reduction by the Company of the Executive’s base salary as initially set forth herein or as the same may be increased from time to time, except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior officers of the Company and does not exceed 15% of Executive’s base salary.

 

Provided however that, such termination by the Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”); and (iii) the Executive terminates employment within thirty (30) days following the end of the Cure Period.

 

5.              Application of Internal Revenue Code Section 409A .   (a) Notwithstanding anything to the contrary contained in this Agreement, if any payment or reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i) would constitute a “deferral of compensation” under Code Section 409A and Executive is a “specified employee” (as determined pursuant to procedures adopted by the

 

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Company in compliance with Code Section 409A) on the date of Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i), Executive will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of Executive’s “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) Executive’s death.

 

(b)          To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply to Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Code Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

6.             Code Section 280G. If any payment or benefit Executive would receive pursuant to a Corporate Transaction from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Code Section 4999 (the “ Excise Tax ”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following two amounts would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “ Full Payment ”), or (ii) payment of only a part of the Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a “ Reduced Payment ”), whichever amount results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Payment alternative, and Executive shall have no rights to any additional payments and/or benefits constituting the Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: reduction of cash payments, cancellation of accelerated vesting of stock awards, and reduction of other benefits. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless Executive elects in writing a different order for cancellation.

 

The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Corporate Transaction shall make all determinations required to be made under this Section 6. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Corporate Transaction, the Company shall appoint a different nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made

 

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hereunder. The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or at such other time as requested by the Company. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

7.             Conflict of Interest. During the Employment Period, Executive shall devote such time and energies as appropriate to fulfill all responsibilities to the Company in the capacity set forth in Section 1. Executive shall be free to pursue business activities which do not interfere with the performance of Executive’s duties and responsibilities under this Agreement; provided, however, Executive shall not engage in any outside business activity which involves actual or potential competition with the business of the Company, except with the written consent of the Board.

 

8.             Executive Benefit Plans. All of the Executive benefit plans referred to or contemplated by this Agreement shall be governed solely by the terms of the underlying plan documents and applicable law. Nothing in this Agreement shall impair the Company’s right to amend, modify, replace, and terminate any and all such plans in its sole discretion as provided by law. This Agreement is for the sole benefit of Executive and the Company, and is not intended to create an Executive benefit plan or to modify existing terms of existing plans.

 

9.             Assignment. This Agreement may not be assigned by Executive. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives. The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.

 

10.           Notices. All notices required by this Agreement may be delivered by first class mail at the following addresses:

 

To Company:

 

Adamis Pharmaceuticals Corporation

11682 El Camino Real, Suite 300

San Diego, CA 92130

 

To Executive:

 

Karen K. Daniels 

 

11.           Amendment. This Agreement may be modified only by written agreement signed by both the Company and Executive.

 

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12.           Choice of Law; Arbitration. This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles. To provide a mechanism for rapid and economical dispute resolution, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or in equity, arising from or relating to this Agreement (including the Release and Waiver) and its enforcement, performance, breach or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration before a single arbitrator held in San Diego, California and conducted by the American Arbitration Association (“ AAA ”), under its then-existing rules and procedures. The parties shall be entitled to conduct adequate discovery, and they may obtain all remedies available to the parties as if the matter had been tried in court. The arbitrator shall issue a written decision which specifies the findings of fact and conclusions of law on which the arbitrator’s decision is based. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless a different allocation is required by law, the parties shall each pay one-half of all fees and costs of the arbitration. Punitive damages shall not be awarded. Unless otherwise required by law, the arbitrator will award reasonable expenses (including reimbursement of the assigned arbitration costs) to the prevailing party. Nothing in this Section or in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in a court of competent jurisdiction to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the above, both Executive and the Company retain the right to seek or obtain, and shall not be prohibited, limited or in any other way restricted from seeking or obtaining, equitable relief from a court having jurisdiction over the parties in order to enforce the nonsolicitation and noncompetition provisions of this Agreement or any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s intellectual property.

 

13.           Partial Invalidity. In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

 

14.           Waiver. No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

 

15.           Complete Agreement. As of the Effective Date, this Agreement, together with the stock option agreements and equity incentive plans governing the Options, constitutes the entire agreement between the parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the parties, including the Prior Agreement.

 

16.           Headings. Headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

17.           Miscellaneous. Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written above.

 

ADAMIS PHARMACEUTICALS CORPORATION  

 

By: /s/ Dennis J. Carlo  
Name: Dennis J. Carlo  
Title: President and CEO  

 

EXECUTIVE:

  

By: /s/ Karen K. Daniels  
Name: Karen K. Daniels  

 

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EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement dated December 31, 2015 (the “ Employment Agreement ”), to which this form is attached, I, Karen K. Daniels, hereby furnish Adamis Pharmaceuticals Corporation (the “ Company ”), with the following release and waiver (“ Release and Waiver ”).

 

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ ADEA ”), and the California Fair Employment and Housing Act (as amended). Nothing in this Release and Waiver shall be deemed to require the waiver or release of any claim that may not be released or waived under applicable federal or state law.

 

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days from the date of termination of my employment with the

 

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Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired unexercised and no benefits will be paid unless and until this Release and Waiver has become effective. In the event that this Release and Waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, I have forty-five (45) days to consider this Release and Waiver and I shall be provided with the information required by 29 U.S.C. Section 626 (f)(1)(H).

 

In consideration of the severance payments and other benefits set forth in the Employment Agreement, I agree that after the termination of my employment with the Company I will not disparage the Company or its products, services, agents, representatives, directors, officers, shareholders, employees, affiliates, successors or assigns, or any person acting by, through, under or in concert with any of them with any written or oral statement. I also agree that during the severance period set forth in the Employment Agreement I will cooperate from time to time with the Company in providing for the orderly transition of my duties and responsibilities to other individuals, as reasonably requested by the Company and subject to reimbursement by the Company of any costs or expenses incurred by me in providing such cooperation.

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized member of the Board of Directors of the Company.

 

Date:  

 

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ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 10.24

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is dated as of December 31, 2015 (the “ Effective Date ”) and is entered into by and between Adamis Pharmaceuticals Corporation , a Delaware corporation (“ Company ”), and Thomas Moll, Ph.D. (“ Executive ”).

 

RECITALS

 

A.           Executive is currently employed by the Company as its Vice President of Research.

 

B.           Executive and the Company are currently parties to an Employment Agreement dated July 2, 2012 (the “ Prior Agreement ”).

 

C.           The Company and Executive desire to formally restate the terms and conditions of Executive’s employment by the Company and to provide Executive with certain benefits upon a qualifying termination of such employment.

 

D.           The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and the Executive desires to continue in the employ of the Company in such capacity for the period and with the terms and conditions set forth herein.

 

E.            This Agreement shall supersede and completely replace the Prior Agreement as of the Effective Date.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the parties hereby agree as follows:

 

1.           Employment. The Company hereby employs Executive as Vice President of Research, assigned with responsibilities to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company, subject at all times to the policies set by the Board of Directors of the Company (the “ Board ”), and to the consent of the Board when required by the terms of this contract. Executive hereby accepts such employment and agrees to devote such time and energies as appropriate to fulfill all responsibilities to the Company. Executive shall be employed at will.

 

2.           Compensation. In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Section 2. All such compensation shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)           Salary. Executive shall be paid an initial annual salary of $260,000, payable in equal installments in accordance with the Company’s normal salary and wages practices, but not less than 24 increments annually.

 

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(b)           Executive Benefit and Incentive Compensation Plans. During employment hereunder, Executive shall be entitled to receive those benefits which are routinely made available to executive officers of the Company, including participation in any executive stock ownership plan, profit sharing plan, incentive compensation or bonus plan, retirement plan, Company-provided life insurance, or similar executive benefit plans maintained or sponsored by the Company. The Company shall not take any action that would materially diminish the aggregate value of Executive’s fringe benefits as they exist as of the Effective Date of this Agreement or as the same may be increased from time to time, except for actions taken with respect to officers or employees generally.

 

(c)           Expense Reimbursement. The Company shall promptly reimburse Executive for all reasonable expenses necessarily incurred during conduct of Company business, and for which adequate documentation is presented, but in no event later than December 31 of the year following the year in which the expense was incurred. Furthermore, if any reimbursements or in-kind benefits provided by the Company pursuant to this Agreement would constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such reimbursements or in-kind benefits shall be subject to the following rules: (i) the amounts to be reimbursed, or the in-kind benefits to be provided, shall be determined pursuant to the terms of the applicable benefit plan, policy or agreement and shall be limited to Executive’s lifetime and the lifetime of Executive’s eligible dependents; (ii) the amounts eligible for reimbursement, or the in-kind benefits provided, during any calendar year may not affect the expenses eligible for reimbursement, or the in-kind benefits provided, in any other calendar year; (iii) any reimbursement of an eligible expense shall be made on or before the earlier of (A) the last day of the calendar month following the calendar month in which the expense report and any required documentation were submitted or (B) the last day of the calendar year following the calendar year in which the expense was incurred; and (iv) Executive’s right to an in-kind benefit or reimbursement is not subject to liquidation or exchange for cash or another benefit.

 

(d)           Personal Time Off. Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

 

3.            Termination. Executive’s employment may be terminated as follows, with the following effects:

 

(a)           Death. Executive’s employment shall terminate immediately upon the Executive’s death, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the date of his death. If Executive’s employment ceases as a result of death, then all unvested options to purchase common stock, par value $0.001, of the Company (“ Common Stock ”) held by Executive as of the date of Executive’s death shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s death shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(b)           Disability. In the event the Executive is disabled from performing his assigned duties under this Agreement due to illness or injury for a period in excess of sixty

 

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(60) consecutive days or a period or periods of more than one hundred and twenty (120) days in the aggregate in any twelve month period, the Board, in its sole discretion, may terminate Executive’s employment immediately upon written notice to Executive, in which event the Company’s only obligations hereunder shall be to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by the Executive prior to the effective date of termination. If Executive’s employment ceases as a result of disability, then all unvested options to purchase Common Stock held by Executive on the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive on the date of Executive’s termination shall remain exercisable until the one year anniversary of the date of cessation of service.

 

(c)           For Cause. The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. For purposes of this Agreement, “ Cause means the occurrence of any one or more of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination. If Executive’s employment ceases as a result of a termination for Cause, then all options (unvested and vested) to purchase Common Stock held by Executive on the date of his termination shall immediately terminate.

 

(d)           Without Cause. The Company in its sole discretion may terminate Executive’s employment without Cause (as defined above) immediately upon written notice from the Board to Executive. In such event, if such termination occurs prior to, or more than thirteen (13) months following, the effective date of a Change in Control (as defined in Section 4(c) below), the Company shall pay to Executive all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of termination, and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i) and the applicable guidance thereunder, contingent upon Executive’s delivery to the Company of an effective Release and Waiver as provided in Section 3(e) below, the Company shall also provide the following benefits to Executive: (i) severance consisting of continued payment of Executive’s base salary at the rate in effect as of the effective date of termination, less standard deductions and withholdings, for a period of nine (9) months following the effective date of termination, to be paid in accordance with the Company’s normal payroll practices; (ii) to the extent that Executive is eligible to continue medical benefits under COBRA and upon timely election by Executive complying with COBRA and to the extent it does not result in a penalty to the Company, reimbursement by the Company, within thirty (30) days of the Company’s receipt of evidence of Executive’s payment for the prior month, of the Company’s portion of the premiums required to continue Executive’s medical, dental and vision insurance coverage pursuant to COBRA, for a period of nine (9) months following the date of termination (with Executive being responsible to pay that amount

 

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of the portion of the premiums, if any, that Executive would have been responsible to pay if Executive had remained an employee during such period) or, if earlier, the date that Executive accepts full time employment with another employer; and (iii) immediate acceleration of the vesting of all options to purchase Common Stock granted to Executive prior to the effective date of such termination (the “ Options ”) such that Executive shall be deemed vested as to the same number of shares as if Executive had continued to be employed by the Company for a period of nine (9) months following the effective date of such termination and all vested options held by Executive shall remain exercisable until the one year anniversary of the date of cessation of service. As a condition to receiving the continuing benefits specified in this Section 3(d), to the maximum extent permitted by applicable law, during the nine (9) month period following the Executive’s termination date, Executive shall not engage in any employment or business activity that is directly competitive with the Company’s business activities as of such termination date and Executive shall not induce any employee of the Company to leave the employ of the Company. Each payment under this Section 3(d) shall be considered a separate payment and not one of a series of payments for Code Section 409A. Subject to Section 5, any amount due to Executive pursuant to this Section 3(d) during the 60-day period following Executive’s termination without Cause shall be paid to Executive in a single lump sum on the first payroll date immediately after the end of the 60-day period.

 

(e)           Release and Waiver. As a condition to receiving the benefits specified in Sections 3(d) and 4(b) of this Agreement, Executive must deliver to the Company a waiver and release of claims in the form attached hereto as Exhibit A (the “ Release and Waiver ”) within the time frame set forth therein, but in no event later than sixty (60) days following the Executive’s termination date, and any applicable revocation period must expire during the 60-day period following Executive’s termination as described in Section 3(d) or 4(b) without Executive revoking such release.

 

(f)           Voluntary Termination by Executive. Executive may terminate his employment hereunder at any time, whether with or without cause, effective thirty (30) days after delivery of written notice of such termination to the Company, except for Executive’s Emergency Need. “ Emergency Need ”, as used in this Section, is defined to be the advent of illness or related health issues in Executive or his immediate family which a medical doctor would conclude poses a mortal health risk to that person. The Company shall have the option, in its sole discretion, to specify an earlier termination date than that provided by Executive in the written notice. Upon voluntary termination pursuant to this Section, the Company shall have no further obligations to Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to effective date of termination as determined by the Company. If Executive voluntarily terminates Executive’s employment, then all unvested options to purchase Common Stock of the Company held by Executive as of the date of Executive’s termination shall immediately terminate and become unexercisable and all vested options held by Executive as of the date of Executive’s termination shall remain exercisable for six (6) months from the date of the voluntary termination.

 

(g)           Resignation as a Director. In the event of any termination of employment pursuant to this Agreement, Executive shall be deemed to have resigned voluntarily from the Board and any Committee of the Board, and from the board of directors (and any

 

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committee thereof) of all subsidiaries of the Company, upon the effective date of termination or such earlier date as may be agreed in writing between the Company and Executive, and Executive’s signature on this Agreement shall, without the need to any further action, constitute Executive’s resignation from such boards of directors in such circumstance.

 

(h)           Returning Company Documents. In the event of any termination of Executive’s employment hereunder, Executive shall, prior to or on such termination deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

 

4.            Change in Control.

 

(a)           Option Acceleration Upon a Change in Control. Effective immediately upon the closing of a Change in Control (as defined below), the vesting of all of the then unvested shares of Common Stock subject to the Options shall be accelerated in full and the Options shall become fully vested and immediately exercisable as to such additional vested shares (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate).

 

(b)           Benefits Upon Termination. Notwithstanding anything herein to the contrary, in the event that Executive’s employment by the Company is terminated without Cause (as defined above) or Executive terminates his employment for Good Reason (as defined below) within thirteen (13) months following, the effective date of a Change in Control (as defined below), contingent upon Executive’s delivery to the Company of a fully effective Release and Waiver as provided in Section 3(e) and provided such termination is a “separation from service” as such term is defined in Code Section 409A(a)(2)(A)(i), the Executive shall be entitled to the benefits and payments specified in Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested shares of Common Stock subject to the Options shall immediately accelerate in full such that the Options shall become fully vested and exercisable with respect to all of the shares of Common Stock subject to such Options (and, if any Options have been early exercised by Executive, the reacquisition or repurchase rights held by the Company with respect to the shares of Common Stock subject to such acceleration shall lapse in full, as appropriate). Any amounts owed pursuant to this Section 4(b) shall be paid in accordance with Section 3(d) of this Agreement; provided , however , that if the Change in Control constitutes a “change in control event” under Code Section 409A, any amounts owed as specified in Section 3(d)(i) shall instead be paid in a single lump sum on the first payroll date immediately after the 60 th day following the termination of Executive’s employment.

 

(c)           Change in Control. Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

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(i)             any Exchange Act Person (as defined below) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of beneficial ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur (for purposes of this Section 4(c), “ Exchange Act Person means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”)), except that “Exchange Act Person” shall not include (A) the Company or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) an entity beneficially owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of stock of the Company; or (E) any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the date of this Agreement, is the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities);

 

(ii)            there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)           the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

 

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(iv)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions relative to each other as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(v)            individuals who, on the date of this Agreement, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; ( provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board).

 

(d)           Good Reason. Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

 

(i)             a material adverse change in the nature of the Executive’s authority, duties or responsibilities, as they exist on the Effective Date of this Agreement;

 

(ii)            the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from their location as of the Effective Date of this Agreement; or

 

(iii)           a material reduction by the Company of the Executive’s base salary as initially set forth herein or as the same may be increased from time to time, except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior officers of the Company and does not exceed 15% of Executive’s base salary.

 

Provided however that, such termination by the Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”); and (iii) the Executive terminates employment within thirty (30) days following the end of the Cure Period.

 

5.            Application of Internal Revenue Code Section 409A . (a) Notwithstanding anything to the contrary contained in this Agreement, if any payment or reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i) would constitute a “deferral of compensation” under Code Section 409A and Executive is a “specified employee” (as determined pursuant to procedures adopted by the

 

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Company in compliance with Code Section 409A) on the date of Executive’s “separation from service” with the Company within the meaning of Code Section 409A(a)(2)(A)(i), Executive will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of Executive’s “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) Executive’s death.

 

(b)          To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply to Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Code Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

6.             Code Section 280G. If any payment or benefit Executive would receive pursuant to a Corporate Transaction from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Code Section 4999 (the “ Excise Tax ”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following two amounts would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “ Full Payment ”), or (ii) payment of only a part of the Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a “ Reduced Payment ”), whichever amount results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Payment alternative, and Executive shall have no rights to any additional payments and/or benefits constituting the Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: reduction of cash payments, cancellation of accelerated vesting of stock awards, and reduction of other benefits. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless Executive elects in writing a different order for cancellation.

 

The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Corporate Transaction shall make all determinations required to be made under this Section 6. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Corporate Transaction, the Company shall appoint a different nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made

 

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hereunder. The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or at such other time as requested by the Company. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

7.             Conflict of Interest. During the Employment Period, Executive shall devote such time and energies as appropriate to fulfill all responsibilities to the Company in the capacity set forth in Section 1. Executive shall be free to pursue business activities which do not interfere with the performance of his duties and responsibilities under this Agreement; provided, however, Executive shall not engage in any outside business activity which involves actual or potential competition with the business of the Company, except with the written consent of the Board.

 

8.             Executive Benefit Plans. All of the Executive benefit plans referred to or contemplated by this Agreement shall be governed solely by the terms of the underlying plan documents and applicable law. Nothing in this Agreement shall impair the Company’s right to amend, modify, replace, and terminate any and all such plans in its sole discretion as provided by law. This Agreement is for the sole benefit of Executive and the Company, and is not intended to create an Executive benefit plan or to modify existing terms of existing plans.

 

9.             Assignment. This Agreement may not be assigned by Executive. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives. The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.

 

10.           Notices. All notices required by this Agreement may be delivered by first class mail at the following addresses:

 

To Company:

 

Adamis Pharmaceuticals Corporation

11682 El Camino Real, Suite 300

San Diego, CA 92130

 

To Executive:

 

Thomas Moll, Ph.D. 

 

11.           Amendment. This Agreement may be modified only by written agreement signed by both the Company and Executive.

 

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12.           Choice of Law; Arbitration. This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles. To provide a mechanism for rapid and economical dispute resolution, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or in equity, arising from or relating to this Agreement (including the Release and Waiver) and its enforcement, performance, breach or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration before a single arbitrator held in San Diego, California and conducted by the American Arbitration Association (“ AAA ”), under its then-existing rules and procedures. The parties shall be entitled to conduct adequate discovery, and they may obtain all remedies available to the parties as if the matter had been tried in court. The arbitrator shall issue a written decision which specifies the findings of fact and conclusions of law on which the arbitrator’s decision is based. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless a different allocation is required by law, the parties shall each pay one-half of all fees and costs of the arbitration. Punitive damages shall not be awarded. Unless otherwise required by law, the arbitrator will award reasonable expenses (including reimbursement of the assigned arbitration costs) to the prevailing party. Nothing in this Section or in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in a court of competent jurisdiction to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the above, both Executive and the Company retain the right to seek or obtain, and shall not be prohibited, limited or in any other way restricted from seeking or obtaining, equitable relief from a court having jurisdiction over the parties in order to enforce the nonsolicitation and noncompetition provisions of this Agreement or any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s intellectual property.

 

13.           Partial Invalidity. In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

 

14.           Waiver. No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

 

15.           Complete Agreement. As of the Effective Date, this Agreement, together with the stock option agreements and equity incentive plans governing the Options, constitutes the entire agreement between the parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the parties, including the Prior Agreement.

 

16.           Headings. Headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

17.           Miscellaneous. Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

10
 

 

IN WITNESS WHEREOF , the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written above.

 

ADAMIS PHARMACEUTICALS CORPORATION  

 

By: /s/ Dennis J. Carlo  
Name: Dennis J. Carlo  
Title: President and CEO  

 

EXECUTIVE:

 

By: /s/ Thomas Moll, Ph.D.  
Name: Thomas Moll, Ph.D.  

 

11
 

 

EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement dated December 31, 2015 (the “ Employment Agreement ”), to which this form is attached, I, Thomas Moll, hereby furnish Adamis Pharmaceuticals Corporation (the “ Company ”), with the following release and waiver (“ Release and Waiver ”).

 

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ ADEA ”), and the California Fair Employment and Housing Act (as amended). Nothing in this Release and Waiver shall be deemed to require the waiver or release of any claim that may not be released or waived under applicable federal or state law.

 

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days from the date of termination of my employment with the

 

A- 1
 

 

Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired unexercised and no benefits will be paid unless and until this Release and Waiver has become effective. In the event that this Release and Waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, I have forty-five (45) days to consider this Release and Waiver and I shall be provided with the information required by 29 U.S.C. Section 626 (f)(1)(H).

 

In consideration of the severance payments and other benefits set forth in the Employment Agreement, I agree that after the termination of my employment with the Company I will not disparage the Company or its products, services, agents, representatives, directors, officers, shareholders, employees, affiliates, successors or assigns, or any person acting by, through, under or in concert with any of them with any written or oral statement. I also agree that during the severance period set forth in the Employment Agreement I will cooperate from time to time with the Company in providing for the orderly transition of my duties and responsibilities to other individuals, as reasonably requested by the Company and subject to reimbursement by the Company of any costs or expenses incurred by me in providing such cooperation.

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized member of the Board of Directors of the Company.

 

Date:  

 

A- 2

 

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

We hereby consent to the incorporation by reference in the Prospectus constituting a part of the Registration Statements on Form S-8 (Nos. 333-159229, 333-169106, 333-175383, 333-196435, and 333-201742), on Form S-1 (Nos. 333-190798, 333-192372, and 333- 192801), and on Form S-3 (Nos. 333-196976, 333-199454, 333-200447 and 333-209401) of our report dated March 23, 2016, (which includes an explanatory paragraph relating to the uncertainty of the Company’s ability to continue as a going concern) relating to the consolidated financial statements of Adamis Pharmaceuticals Corporation and Subsidiaries (the Company), as of and for the periods ended December 31, 2015 and December 31, 2014, which report is included in this Annual Report on Form 10-K.

 

/s/ MAYER HOFFMAN MCCANN P.C.

San Diego, California

March 23, 2016

 

 

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE

  SARBANES-OXLEY ACT OF 2002

 

I, Dennis J. Carlo, certify that:

 

1. I have reviewed this annual report on Form 10-K of Adamis Pharmaceuticals Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and (15d-15(e)) for the registrant and we have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting disclosure to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  

Date: March 23, 2016    By: /s/ Dennis J. Carlo  
    Chief Executive Officer

 

 

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE

  SARBANES-OXLEY ACT OF 2002

 

I, Robert O. Hopkins, certify that:

 

1. I have reviewed this annual report on Form 10-K of Adamis Pharmaceuticals Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and (15d-15(e)) for the registrant and we have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting disclosure to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: March 23, 2016    By: /s/ Robert O. Hopkins  
    Vice President, Finance and Chief Financial Officer

 

 

 

 

 

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

 

The undersigned, Dennis J. Carlo, the Chief Executive Officer of Adamis Pharmaceuticals Corporation (the “Company”), pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge:

 

   (1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
   
   (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

  /s/ DENNIS J. CARLO
  Dennis J. Carlo
  Chief Executive Officer

 

Dated: March 23, 2016 

 

      This certification is being furnished to the SEC with this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.

 

 

 

ADAMIS PHARMACEUTICALS CORPORATION 10-K

 

 

Exhibit 32.2

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

 

The undersigned, Robert O. Hopkins, as Vice President, Finance and Chief Financial Officer of Adamis Pharmaceuticals, Corporation (the “Company”), pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge:

 

   (1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
   
   (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

   
  /s/ ROBERT O. HOPKINS
  Robert O. Hopkins
  Vice President and Chief Financial Officer

 

Dated: March 23, 2016 

 

This certification is being furnished to the SEC with this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.