Basis of Presentation

3 Months Ended

Mar. 31, 2016

Basis Of Presentation

Basis of Presentation

Note 1: Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments and the elimination of intercompany accounts) considered necessary for a fair statement of all periods presented. The results of Adamis Pharmaceuticals Corporation’s operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2015.

In January 2016, two wholly owned subsidiaries of Adamis Corporation, Adamis Viral Therapies, Inc., or Adamis Viral, and Adamis Laboratories, Inc., or Adamis Labs, effected a short-form merger, pursuant to which Adamis Viral and Adamis Labs merged with and into Adamis Corporation, with Adamis Corporation remaining as the surviving corporation. 

Liquidity and Capital Resources

Our cash was $4,426,883 and $4,080,648 at March 31, 2016 and December 31, 2015, respectively.

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

The Company has significant operating cash flow deficiencies. Additionally, the Company will need significant funding for future operations and the expenditures that will be required to conduct the clinical and regulatory work to develop the Company’s product candidates, commercially launch any products that may be approved by applicable regulatory authorities, to market and sell products and otherwise support the Company's intended business activities. Management’s plans include attempting to secure additional required funding through equity or debt financings, sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions, in order to satisfy existing obligations, liabilities and future working capital needs, to build working capital reserves, to fund the Company’s research and development projects and to support the operations of the newly acquired company, U.S. Compounding, Inc. ("USC"). There is no assurance that the Company will be successful in obtaining the necessary funding to meet its business objectives.

As we have previously disclosed in our SEC filings, in connection with our acquisition of USC and the transactions contemplated by the merger agreement relating to the USC transaction, we assumed approximately $5,722,500 principal amount of debt obligations under certain loan agreements and related agreements and documents of USC and certain related entities (the “Existing Loan Documents”), and agreed to become an additional co-borrower under such Existing Loan Documents. The borrowers under these Existing Loan Documents, which include USC and us, among other parties, are required to make current periodic interest and principal payments under the Existing Loan Documents, in an amount of approximately $32,000 per month. We also entered into a loan and security agreement with the lender under the Existing Loan Documents, Bear State Bank, N.A. (the “Lender” or the “Bank”), pursuant to which we may borrow up to an aggregate of $2,000,000 to provide working capital to USC, subject to the terms and conditions of the loan agreement.  Interest on amounts borrowed under our loan agreement with the Bank accrues at a rate equal to the prime interest rate, as defined in the agreement. Interest payments are required to be made quarterly.  The entire outstanding principal balance, and all accrued and unpaid interest and all other sums payable pursuant to the loan documents, are due and payable on March 1, 2017, or sooner upon the occurrence of certain events as provided in the loan agreement and related documents.  Our obligations under our loan agreement are secured by certain collateral, including without limitation our interest in amounts that we have loaned to USC, and a warrant that we issued to the Bank to purchase up to 1,000,000 shares of our common stock at an exercise price equal to par value per share, exercisable only if we are in default under the loan agreement or related loan documents. 

Basic and Diluted (Loss) per Share

The Company computes basic loss per share by dividing the loss attributable to holders of common stock for the period by the weighted average number of shares of common stock outstanding during the period. The diluted loss per share calculation is based on the treasury stock method and gives effect to dilutive options, warrants, convertible notes, convertible preferred stock and other potential dilutive common stock. Except as noted below, the effect of common stock equivalents was anti-dilutive and was excluded from the calculation of weighted average shares outstanding. Potential dilutive securities, which are not included in dilutive weighted average shares for the three months ended March 31, 2016 and March 31, 2015 consist of outstanding equity classified warrants (2,914,300 and 1,730,868, respectively), outstanding options (3,101,830 and 2,032,885, respectively), outstanding restricted stock units (5,590 and 11,184, respectively), and convertible preferred stock (2,192,453 and 1,009,021, 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 liability classified equity securities and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in the calculation is required to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. Accordingly, the Company considered the impact of the warrants from the June 2013 private placement (see Note 4) on the calculation of the diluted earnings per share. The Company recognized a loss on change in fair value of the warrant liabilities which resulted in an anti-dilutive impact in the first quarter of 2016.

	For the Three Months Ended March 31, 2016			For the Three Months Ended March 31, 2015
Loss per Share - Basic
Numerator for basic loss per share	$	(6,408,491	)	$	(3,141,706	)
Denominator for basic loss per share		13,444,500			12,828,124
Loss per common share - basic	$	(0.48	)	$	(0.24	)
Loss per Share - Diluted
Numerator for basic loss per share	$	(6,408,491	)	$	(3,141,706	)
Adjust: Change in Fair Value of Warrant Liability		—			(1,092,058	)
Adjust: Change in Fair Value Warrant Derivative Liability		—			84,895
Numerator for dilutive loss per share	$	(6,408,491	)	$	(4,148,869	)
Denominator for basic loss per share		13,444,500			12,828,124
Plus: Incremental shares underlying “in the money” warrants outstanding		—			258,166
Denominator for dilutive loss per share		13,444,500			13,086,290
Loss per common share - diluted	$	(0.48	)	$	(0.32	)

Recent Accounting Pronouncements

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. ASU 2016-10 is intended to reduce the cost and complexity of applying the guidance in the FASB's new revenue standard on identifying performance obligations, and is also intended to improve the operability and understandability of the licensing implementation guidance. The effective date for ASU 2016-10 is the same as for ASU 2014-09, which will be our first quarter of fiscal 2018. We have not yet evaluated the impact of ASU 2014-09 on our financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company’s payments for tax withholdings should be classified. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, which will be fiscal 2017 for us. We do not expect adoption of ASU 2016-09 to have a significant impact on our financial statements.

          In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for ASU 2016-08 is the same as for ASU 2014-09, which will be our first quarter of fiscal 2018. We have not yet evaluated the impact of ASU 2014-09 on our financial statements.