Unassociated Document

10-Q/A 1 v158843_10qa.htm Unassociated Document

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the quarterly period ended June 30, 2009

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

For the transition period from to

Commission File Number: 0-26372

ADAMIS PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)

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

2658 Del Mar Heights Rd., #555, Del Mar, CA 19512

(Address of principal executive offices, including zip code)

(858) 401-3984

(Registrant’s telephone number, including area code)

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

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

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

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

EXPLANATORY NOTE

Adamis Pharmaceuticals Corporation is filing this Amendment No. 1 to Form 10-Q (the "Amended Form 10-Q/A"), which amends the Quarterly Report on Form 10-Q for the period ended June 30, 2009, that the Company filed with the Securities and Exchange Commission on August 19, 2009, to include in note 4 to the financial statements disclosure concerning the implementation of SFAS No. 165, Subsequent Events, and to include in note 7 to the financial statements disclosure concerning the period of time through which the Company evaluated subsequent events. As provided by applicable regulations, the full Item 1, including the financial statements and notes, is set forth in this Amended Form 10-Q/A. Except as so amended, this Amended Form 10-Q/A does not modify or update any other disclosures set forth in the Form 10-Q as originally filed, and the contents of the Form 10-Q as originally filed have not otherwise been modified or changed.

CELLEGY PHARMACEUTICALS, INC.

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Cash Flows	6&7

	Notes to Condensed Consolidated Financial Statements	8

PART II	OTHER INFORMATION

Item 6.	Exhibits	13

	Signatures	14

PART I - FINANCIAL INFORMATION

ITEM 1: Financial Statements

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2009
	(Unaudited)			March 31, 2009
ASSETS
CURRENT ASSETS
Cash	$	9,212		$	17,697
Accounts Receivable		170,786			136,283
Inventory, Net		193,712			195,167
Prepaid Expenses and Other Current Assets		43,442			4,087
Assets from Discontinued Operations		350,000			350,000

Total Current Assets		767,152			703,234

PROPERTY AND EQUIPMENT, Net		27,129			31,726
DEFERRED ACQUISTION COSTS		-			147,747

	$	794,281		$	882,707

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts Payable	$	1,317,089		$	972,522
Accrued Expenses		1,272,643			723,896
Notes Payable to Related Parties		287,065			599,765

Total Current Liabilities		2,876,797			2,296,183

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock – Par Value $.0001; 10,000,000 Shares Authorized; Issued and Outstanding-None		-			-
Common Stock – Par Value $.0001; 175,000,000 Shares Authorized; 39,005,685 and 36,321,685 Issued and Outstanding, Respectively		3,963			3,663
Additional Paid-in Capital		10,781,858			10,763,031
Accumulated Deficit		(12,868,337	)		(12,179,854	)
Treasury Stock		-			(316	)

Total Stockholders' Equity (Deficit)		(2,082,516	)		(1,413,476	)

	$	794,281		$	882,707

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended
	June 30, 2009			June 30, 2008
	(Unaudited)			(Unaudited)

REVENUE	$	106,470		$	109,142

COST OF GOODS SOLD		48,078			43,689

Gross Margin		58,392			65,453

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		729,627			1,001,974
RESEARCH AND DEVELOPMENT		13,015			310,943

Loss from Operations		(684,250	)		(1,247,464	)

OTHER INCOME (EXPENSE)
Interest Expense		(4,233	)		(197,075	)
Gain on Fixed Asset Disposal		-			1,329

Total Other Income (Expense)		(4,233	)		(195,746	)

(Loss) from Continuing Operations		(688,483	)		(1,443,210	)
(Loss) from Discontinued Operations		-			(2,130,711	)

Net (Loss)		(688,483	)		(3,573,921	)

Basic and Diluted (Loss) Per Share:
Continuing Operations	$	(0.02	)	$	(0.06	)
Discontinued Operations		-			(0.09	)

Basic and Diluted (Loss) Per Share	$	(0.02	)	$	(0.15	)

Basic and Diluted Weighted Average Shares Outstanding		28,671,722			24,176,378

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended June 30,
	2009			2008
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) from Continuing Operations	$	(688,483	)	$	(1,443,210	)
Adjustments to Reconcile Net (Loss) from Continuing Operations to Net Cash (Used in) Operating Activities:
Depreciation Expense		4,597			4,675
Gain on Fixed Asset Disposal		-			(1,329	)
Loan Discount Acretion		-			88,000
Inventory Reserve Adjustment		(4,821	)		(20,981	)
Sales Return Reserve Adjustment		(11,308	)		(137,327	)
Stock-Based Compensation Expense		23,034			-
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable		(34,503	)		(3,099	)
Inventory		6,276			20,248
Prepaid Expenses and Other Current Assets		(12,992	)		14,152
Increase (Decrease) in:
Accounts Payable		117,443			338,096
Accrued Expenses		339,358			352,754

Net Cash (Used in) Operating Activities from Continuing Operations		(260,899	)		(788,021	)

Net Cash (Used in) Operating Activities from Discontinued Operations		-			(1,392,068	)

Net Cash (Used in) Operating Activities		(260,899	)		(2,180,089	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash Acquired in Cellegy Pharmaceuticals, Inc. Merger		65,114			-
Sale of Property and Equipment		-			5,001
Net Cash Provided by Investing Activities from Continuing Operations		65,114			5,001

Net Cash Provided by Investing Activities from Discontinued Operations		-			98,035

Net Cash Provided by Investing Activities		65,114			103,036

CASH FLOWS FROM FINANCING ACTIVITIES
Payments of Notes Payable to Shareholders		-			(5,436	)
Proceeds from Issuance of Common Stock		-			828,740
Proceeds from Issuance of Notes Payable to Related Parties		172,300			-
Proceeds from Issuance of Notes Payable to Shareholders		15,000			-

Net Cash Provided by Financing Activities from Continuing Operations		187,300			823,304

Net Cash Provided by Financing Activities from Discontinued Operations		-			1,273,780

Net Cash Provided by Financing Activities		187,300			2,097,084

Increase (Decrease) in Cash		(8,485	)		20,031
Cash:
Beginning		17,697			541
Ending	$	9,212		$	20,572

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended June 30,
	2009 (Unaudited)		2008 (Unaudited)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash Paid for Interest	$	-	$	37,054

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES

Note Payable and Accrued Interest Converted into Equity	$	556,610	$	-

Deferred Acquisition Costs Converted to Additional Paid-In Capital in Connection with Asset Acquisition and Recapitalization	$	147,747		-

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

Note 1: Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments and the elimination of intercompany accounts) considered necessary for a fair statement of all periods presented. The results of Adamis Pharmaceuticals Corporation operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and Form 8-K/A as of and for the year ended March 31, 2009 filed on July 1, 2009.

Liquidity and Capital Resources

Our cash and cash equivalents were $9,212 and $17,697 at June 30, 2009 and March 31, 2009, respectively.

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

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

Note 2: Asset Acquisition and Recapitalization

The stockholders of Cellegy Pharmaceuticals, Inc. (“Cellegy”) and the former Adamis Pharmaceuticals Corporation (“Old Adamis”) approved the merger transaction and related matters at an annual meeting of Cellegy’s stockholders and at a special meeting of Old Adamis’ stockholders each held on March 23, 2009. On April 1, 2009, Cellegy completed the merger transaction with Old Adamis. In connection with the closing of the merger transaction, the promissory note issued to Old Adamis converted into shares of Old Adamis stock, and these shares were immediately cancelled.

In connection with the consummation of the merger and pursuant to the terms of the Merger Agreement, Cellegy changed its name from Cellegy Pharmaceuticals, Inc. to Adamis Pharmaceuticals Corporation (“Adamis” or “the Company”), and Old Adamis changed its corporate name to Adamis Corporation.

Pursuant to the terms of the Merger Agreement, immediately before the consummation of the merger Cellegy affected a reverse stock split of its common stock. Pursuant to this reverse stock split, each 9.929060333 shares of common stock of Cellegy that were issued and outstanding immediately before the effective time of the merger was converted into one share of common stock and any remaining fractional shares held by a stockholder (after the aggregating fractional shares) were rounded up to the nearest whole share (the “Reverse Split”).

As a result, the total number of shares of Cellegy that were outstanding immediately before the effective time of the merger were converted into approximately 3,000,000 shares of post-Reverse Split shares of common stock of the Company. Pursuant to the terms of the Merger Agreement, at the effective time of the merger, each share of Adamis common stock that was issued and outstanding immediately before the effective time of the merger ceased to be outstanding and was converted into the right to receive one share of common stock of the Company. As a result, the Company issued approximately 43,053,970, inclusive of 6,732,285 contingent shares held in escrow, post-Reverse Split shares of common stock to the holders of the outstanding shares of common stock of Old Adamis before the effective time of the merger. Old Adamis is the surviving entity as a wholly-owned subsidiary of Cellegy.

Old Adamis security holders owned, immediately after the closing of the merger, approximately 93.5% of the combined company on a fully-diluted basis. Further, Old Adamis directors constitute a majority of the combined company’s board of directors and all members of executive management of the combined company are from old Adamis. Therefore, Old Adamis was deemed to be the acquiring company for accounting purposes and the merger transaction is accounted for as an asset acquisition recapitalization in accordance with accounting principles generally accepted in the United States. Cellegy did not meet the definition of a business related to the combined company and did not have material assets or continuing operations at the time of the closing of the merger. As a result, all of the assets and liabilities of Cellegy have been reflected in the financial statements at their respective fair market values and no goodwill or other intangibles were recorded as part of acquisition accounting and the cost of the merger is measured at the net liabilities acquired. Transaction costs amounting to $147,747 were considered as part of the assets acquired and included as a reduction of additional paid-in capital. The financial statements of the combined entity after the merger reflect the historical results of Old Adamis prior to the merger and do not include the historical financial results of Cellegy prior to the completion of the merger. Stockholders’ equity and earnings per share of the combined entity after the merger have been retroactively restated to include the number of shares received by Old Adamis security holders in the merger with the offset to additional paid-in capital.

In connection with the closing of the merger, the Company amended its certificate of incorporation to increase the authorized number of shares of common stock from 50,000,000 to 175,000,000 and the authorized number of shares of preferred stock from 5,000,000 to 10,000,000.

Note 3: Stock Option Plans, Shares Reserved and Warrants

Cellegy’s stockholders approved a new 2009 Equity Incentive Plan (the “2009 Plan”), which became effective upon the closing of the merger. 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 aggregate number of shares of common stock that may be issued initially pursuant to stock awards under the 2009 Plan is 7,000,000 shares. The number of shares of common stock reserved for issuance will 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.

The Company granted a total of 150,000 stock options to directors upon the closing of the merger. The options have an exercise price of $0.60 per option, which is equal to the fair market value of the Company’s common stock on the date of the grant. The options vest 3 years from the date of the grant, and expire on the 10th anniversary of the options’ grant date. The Company estimated that the options have a fair market value of $0.30 per option using the Black-Scholes valuation model. Management’s assumptions included in the model assumed volatility of 35.4%, a risk-free interest rate of 2.7% based on the 10-year Treasury Rate at the date of the grant and no dividends. The Company estimated a forfeiture rate of 5.5%. The Company recorded stock based compensation expense of $23,034 related to such options for the three months ended June 30, 2009.

The following summarizes outstanding stock options at June 30, 2009:

	Number of Options		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Options Vested
1995 Equity Incentive Plan		20,641	4.93 Years	$	31.83		20,641
2005 Equity Incentive Plan		4,834	6.25 Years	$	13.30		4,834
Directors’ Stock Option Plan		8,460	3.06 Years	$	44.16		8,460
Non-Plan Options		100,714	4.36 Years	$	43.82		100,714
Biosyn Options		431	4.56 Years	$	2.90		431
2009 Equity Incentive Plan		150,000	9.76 Years	$	0.60		-

The Company has reserved shares of common stock for issuance upon exercise at June 30, 2009 as follows:

Biosyn Options			431
Director’s Plan			8,460
Warrants			1,212,970
Non-Plan Options			100,714
1995 Equity Incentive Plan			20,641
2005 Equity Incentive Plan			100,714
2009 Equity Incentive Plan			7,000,000
Total Shares Reserved			8,443,931

The following summarizes warrants outstanding at June 30, 2009:

	Warrant Shares		Exercise Price Per Share		Date Issued	Expiration Date
June 2004 PIPE		60,832	$	45.87	July 27, 2004	July 27, 2009
Biosyn Warrants		8,254	$	57.97 - $173.92	October 22, 2004	2013 - 2014
May 2005 PIPE
Series A		71,947	$	22.34	May 13, 2005	May 13, 2010
Series B		71,947	$	24.82	May 13, 2005	May 13, 2010
Old Adamis Warrants		1,000,000	$	0.50	November 15, 2007	November 15, 2012
Total Warrants		1,212,970					-

Note 4: Recent Accounting Pronouncements

On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”). Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific items, including:

acquisition costs will be generally expensed as incurred;

non-controlling interests will be valued at fair value at the acquisition date;

acquired contingent liabilities will be recorded at fair value at the acquisition date;

in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts;

restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted SFAS 141(R) on April 1, 2009, which did not have a material impact on the financial statements.

We implemented SFAS No. 165, Subsequent Events (“SFAS 165”). This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of SFAS 165 did not impact our consolidated financial statements. We evaluated all events or transactions that occurred after June 30, 2009 up through August 19, 2009, the date we filed this quarterly report. We did have a non-recognizable subsequent event as disclosed in Note 7.

Note 5: Inventory

Inventory consists of the following:

	June 30, 2009			March 31, 2009
Respiratory and Allergy Products	$	46,567		$	52,843
Less: Obsolescence Reserve		(32,354	)		(37,175	)

Respiratory and Allergy Products, Net		14,213			15,668
Pre-Launch epi Inventory		179,499			179,499

Inventory, Net	$	193,712		$	195,167

The Company launched the epi product in the second fiscal quarter of 2010.

Note 6: Notes Payable

Ben Franklin Note

Biosyn (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 to prevent the transmission of AIDS.

The Ben Franklin Note was recorded at its estimated fair value of $205,000 and was assumed by Cellegy 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 by Cellegy, 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. At June 30, 2009, the outstanding balance of the note was $777,902.

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 the outcome of its ongoing Savvy contraception trial, the results of which are currently under review and which 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. 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 acquisition..

Notes Payable to Related Parties

The Company had notes payable to related parties amounting to $287,065 at June 30, 2009, which bear interest at 10%. Accrued interest related to the notes was $6,630 at June 30, 2009.

On various dates during May – June 2009 and included in the amount above, the Company issued promissory notes to shareholders for a total of $172,300 that bear interest at 10% with all principal and interest due on various maturity dates during May – June 2010.

Note 7: Subsequent Events

On August 14, 2009, the Company repurchased 756,686 shares of common stock for treasury at a total cost of $786.

PART II - OTHER INFORMATION

ITEM 6. Exhibits

Exhibits

10.1*		2009 Equity Incentive Plan

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Previously filed.

SIGNATURES

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

		CELLEGY PHARMACEUTICALS, INC.


Date:	August 21, 2009	/s/ Dennis J. Carlo
		Dennis J. Carlo
		Chief Executive Officer


Date:	August 21, 2009	/s/ Robert O. Hopkins
		Robert O. Hopkins
		Vice President, Finance and Chief Financial Officer