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ADMP > SEC Filings for ADMP > Form 10-Q on 14-Feb-2014All Recent SEC Filings

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Form 10-Q for ADAMIS PHARMACEUTICALS CORP


14-Feb-2014

Quarterly Report


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

Information Relating to Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking" statements. These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. These forward-looking statements include statements about our strategies, objectives and our future achievement. To the extent statements in this Quarterly Report involve, without limitation, our expectations for growth, estimates of future revenue, our sources and uses of cash, our liquidity needs, our current or planned clinical trials or research and development activities, product development timelines, our future products, regulatory matters, expense, profits, cash flow balance sheet items or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made through the use of word or phrases such as "believe," "will," "expect," "anticipate," "estimate," "intend," "plan," and "would. " These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements. Actual events or results may differ materially from those discussed in this Quarterly Report on Form 10-Q. Except as may be required by applicable law, we undertake no obligation to update any forward-looking statements or to reflect events or circumstances arising after the date of this Report. Important factors that could cause actual results to differ materially from those in these forward-looking statements are in the section entitled "Risk Factors" in the most recent Annual Report on Form 10- K, as amended, filed with the Securities and Exchange Commission, and the other risks and uncertainties described elsewhere in this report as well as other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications. In addition, the statements contained throughout this Quarterly Report concerning future events or developments or our future activities, including concerning, among other matters, current or planned clinical trials, anticipated research and development activities, anticipated dates for commencement of clinical trials, anticipated completion dates of clinical trials, anticipated meetings with the FDA or other regulatory authorities concerning our product candidates, anticipated dates for submissions to obtain required regulatory marketing approvals, anticipated dates for commercial introduction of products, and other statements concerning our future operations and activities, are forward-looking statements that in each instance assume that we are able to obtain sufficient funding in the near term and thereafter to support such activities and continue our operations and planned activities in a timely manner. There can be no assurance that this will be the case. Also, such statements assume that there are no significant unexpected developments or events that delay or prevent such activities from occurring. Failure to timely obtain sufficient funding, or unexpected developments or events, could delay the occurrence of such events or prevent the events described in any such statements from occurring.

Unless the context otherwise requires, the terms "we," "our," and "the Company" refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its subsidiaries. Savvy and C31GŪ are our trademarks, among others. We also refer to trademarks of other corporations and organizations in this document.

General

Company Overview

We are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicines for patients and physicians. Within our group of specialty pharmaceutical products, we are currently developing four products in the allergy and respiratory markets, including a dry powder inhaler technology that we recently 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, regulatory approval filings with the FDA whenever applicable in order to reduce the time needed to get to market and to save on costs, compared to Section 505(b)(1) NDA filings for new drug products. Within our group of biotechnology products, we are focused on the development of therapeutic vaccine product candidates and cancer drugs for patients with unmet medical needs in the global cancer market.

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

Recent Developments

On August 1, 2013, we entered into an agreement with 3M Company, or 3M, to exclusively license and, upon final payment acquire, assets relating to 3M's patented Taper dry powder inhaler, or DPI, technology under development for the treatment of asthma and chronic obstructive pulmonary disease, or COPD. The Taper DPI technology was under development as a device designed to efficiently deliver dry powder by utilizing a 3M proprietary microstructured carrier tape, to be supplied by 3M under a separate supply agreement to be negotiated with 3M. We intend to utilize the Taper DPI assets initially to develop a pre-metered inhaler device for the treatment of asthma and COPD, to deliver the same active ingredients as GlaxoSmithKline's Advair DiskusŪ. The Advair DiskusŪ is a 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. Upon completion of product development and clinical trials and if required regulatory approvals are obtained, we intend to commercially market the inhaler product to compete for a share of the Advair Diskus market with a branded generic version utilizing the acquired technology. Pursuant to the agreement, we made an initial payment of $3 million to 3M and acquired an exclusive license to the DPI assets, and we made the remaining closing payment of $7 million on December 27, 2013 to acquire the Taper DPI assets.

On December 18, 2013, we completed an underwritten public offering of 3,720,000 shares of common stock at a public offering price of $5.95 per share, with gross proceeds to us of approximately $22,134,000, before deducting underwriting discounts and commissions and other estimated offering expenses payable by us, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission. On January 13, 2014, the underwriters exercised in full their over-allotment option to purchase an additional 558,000 shares of common stock at a public offering price of $5.95 per share, bringing the total gross proceeds from the offering to approximately $25,454,100, before underwriting discounts and commissions and other offering expenses and before any use by us of the proceeds. The sale of the additional shares was completed on January 16, 2014. We used $7 million of the net proceeds to make the remaining closing payment to 3M to acquire the Taper DPI assets, as described above, and we used approximately $7,255,000 the net proceeds from the offering to pay in full the unconverted outstanding balance owed on the June 2013 Secured Notes.

Going Concern and Management Plan

Our independent registered public accounting firm has included a "going concern" explanatory paragraph in its report on our financial statements for the years ended March 31, 2013 and 2012 indicating that we have incurred recurring losses from operations and have limited working capital to pursue our business alternatives, and that these factors raise substantial doubt about our ability to continue as a going concern. As of December 31, 2013, we had approximately $4,674,000 in cash and equivalents, an accumulated deficit of approximately $44.6 million and substantial liabilities and obligations. We have limited cash reserves and significant operating cash flow deficiencies. Additionally, we will need significant funding to continue operations and for the future operations and the expenditures that will be required to conduct the clinical and regulatory work to develop our product candidates.

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

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

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

Results of Operations

Nine Months Ended December 31, 2013 and 2012

Revenues. Adamis had no revenues during the nine month periods ending December 31, 2013 and 2012, respectively.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $627,000 and $735,000 for the nine months ending December 31, 2013 and 2012, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of legal fees, accounting and audit fees, professional/consulting fees and employee salaries. Selling, general and administrative expenses for the nine months ending December 31, 2013 and 2012 were approximately $2,054,000 and $1,589,000, respectively. Consulting fees, legal and accounting fees represented the variance between the comparable periods.

Other Income (Expense). Interest expense for the nine month period ending December 31, 2013 and 2012 was approximately $(8,481,000) and approximately $(1,719,000), respectively. Interest consists primarily of interest expense in connection with various notes, and the amortization of debt issuance costs as well as the amortization of the discounts on the notes for the nine months ended December 31, 2013. The increase in interest expense for the nine month period ended December 31, 2013, in comparison to the same period for fiscal 2013 was due to the June 26, 2013 Secured Notes entered into during the first quarter of fiscal 2014. The change in fair value of the derivative liability for the period was approximately $938,000 and the change in the fair value of the conversion feature was approximately $2,985,000. The change in fair value of warrants liability is approximately $635,000. The June 26, 2013 Secured Notes contained full ratchet anti-dilution provisions and the corresponding changes in fair value are recorded in Other Income (Expense).

Three Months Ended December 31, 2013 and 2012

Revenues. Adamis had no revenues during the three month periods ending December 31, 2013 and 2012, respectively.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $208,000 and $206,000 for the three months ending December 31, 2013 and 2012, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of legal fees, accounting and audit fees, professional/consulting fees and employee salaries. Selling, general and administrative expenses for the three months ending December 31, 2013 and 2012 were approximately $776,000 and $542,000, respectively. Consulting fees represented the variance between the comparable periods.

Other Income (Expense). Interest expense for the three month period ending December 31, 2013 and 2012 was approximately $(5,298,000) and approximately $(845,000), respectively. Interest consists primarily of interest expense in connection with various notes outstanding, and the amortization of debt issuance costs as well as the amortization of the discounts on the notes for the three months ended December 31, 2013. The increase in interest expense for the three month period ended December 31, 2013, in comparison to the same period for fiscal 2013 was due to the June 26, 2013 Secured Notes entered into during the first quarter of fiscal 2014. The change in fair value of the derivative liability for the period was approximately $1,142,000 and the change in the fair value of the conversion feature was approximately $381,000. The change in fair value of warrants liability was approximately $(769,000). The June 26, 2013 Secured Notes contained full ratchet anti-dilution provisions and the corresponding changes in fair value are recorded in Other Income (Expense).

Financial Position

Total assets were approximately $14.8 million at December 31, 2013, an increase of approximately $14.4 million from March 31, 2013. All liabilities are classified as current. Current assets exceed current liabilities by approximately $10,000,000 at December 31, 2013.

The most significant change in assets resulted from the payment of $10 million to purchase long-term assets from 3M Company and 3M Innovative Company (see Note 6 to the condensed unaudited financial statements) and from the remaining proceeds of approximately $4.7 million, included in cash, received from the sale of common stock in December 2013. The most significant changes in liabilities result from the reduction of accounts payable and convertible notes payable. These reductions were partially offset by increases in warrant liabilities.

Liquidity and Capital Resources

We have incurred net loss of approximately $6.6 million and $5.6 million for the nine months ended December 31, 2013 and 2012, respectively. Since inception, and through December 31, 2013, we have an accumulated deficit of approximately $44.6 million. Since inception and through December 31, 2013 we have financed our operations principally through debt financing, through private issuances of common stock, and through our underwritten public offering of common stock completed in December 2013 and January 2014. Since inception, we have raised a total of approximately $51.2 million in debt and equity financing transactions, consisting of approximately $15.7 million in debt financing and approximately $35.5 million in equity financing transactions. We expect to finance future cash needs primarily through proceeds from equity or debt financings, loans, sales of assets, out-licensing transactions, and/or collaborative agreements with corporate partners. We have used the net proceeds from debt and equity financings for general corporate purposes, which have included funding for research and development, selling, general and administrative expenses, working capital, reducing indebtedness, pursuing and completing licenses, acquisitions or investments in other businesses, products or technologies, and for capital expenditure

Net cash used in operating activities for the nine months ended December 31, 2013 and 2012, was approximately $(4.4) million and $(2.5) million, respectively. Net cash used in operating activities increased due to a reduction of accounts payable and accrued expenses and the net change in notes payable related activity.

Net cash used in investing activities for the nine months ended December 31, 2013 and 2012 was $10.0 million and $0, respectively. Results for the nine months ended December 31, 2013 reflected the completion of the purchase from 3M Company and 3M Innovative Properties Company certain intellectual property and assets described in Note 6 to the condensed consolidated financial statements.

Net cash provided by financing activities was approximately $19.1 million and $2.5 million for the nine months ended December 31, 2013 and 2012, respectively. Results for the nine months ended December 31, 2013, were affected primarily by $5.3 million of proceeds received from the a private placement completed in June 2013, $22.1 million of gross proceeds received from a stock sale in December 2013 and the repayment of the Secured Notes from the June 2013 private placement.

As noted above under the heading "Going Concern and Management's Plan," we have substantial liabilities and obligations. If we do not obtain additional equity or debt funding, our cash resources will be depleted and we will be required to materially reduce or suspend operations. Even if are successful in obtaining additional funding to permit us to continue operations at the levels that we desire, substantial time will pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales, and during this period 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 unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

The Company's critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2013 have not significantly changed, and no additional policies have been adopted during the nine months ended December 31, 2013, except for the policies listed below.

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, consist of legal fees and other costs needed to obtain the patent. Acquired patents are recorded at purchase price as of the date acquired. Patents are amortized on a straight line basis through expiration.

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.

Recent Accounting Pronouncements

See financial statements.

Off Balance Sheet Arrangements

At December 31, 2013, Adamis did not have any off balance sheet arrangements.

ITEM 3. Quantitative and Qualitative Disclosure of Market Risk

Not required.

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