STOCK OPTION PLANS, SHARES RESERVED AND WARRANTS

12 Months Ended

Mar. 31, 2012

Stock Option Plans Shares Reserved And Warrants

STOCK OPTION PLANS, SHARES RESERVED AND WARRANTS

NOTE 12: 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 7,000,000 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 January 1, 2012 and 2011, the number of shares reserved for this issuance increased by 4,656,698 and 4,079,517 respectively, aggregating to 18,063,613 at March 31, 2012.

From June 2010 through September 2010 the Company issued warrants to purchase up to 395,000 shares of common stock to purchasers of the Company's common stock. The warrants have an exercise price of $0.30 per share. The options have a five year term and expire between June and September 2015. The warrants had an intrinsic value of $36,550.

On August 20, 2010 the Company granted 3,150,398 options to a number of its employees to purchase the Company's common stock. The stock options have an exercise price of $0.27 per share, which was equal to the fair market value of the Company’s common stock on the date of the grant. 2,525,000 of the stock options vest over a period of three years from the date of the grant, and expire on the 10th anniversary of the grant date of the option and 625,398 of the stock options immediately vest. The Company estimated that the stock options have a fair market value of $0.12 per share using the Black-Scholes valuation model. Management’s assumptions included in the model were volatility of 31.675%, a risk-free interest rate of 2.6% based on the 10-year Treasury Rate at the date of the grant and no dividends. The Company estimated a forfeiture rate of 0%. The Company recorded stock based compensation expense of $125,465 and a reduction of accrued expenses of $1,068,786 related to such stock options for the year-ended March 31, 2011. Stock based compensation expense related to these option was $101,000 for the year - ended March 31, 2012.

On January 12, 2011, the Company added a board member, who was granted a stock option by the Company to purchase up to 50,000 shares of common stock. The stock option has an exercise price of $0.21 per share, which was equal to the fair market value of the Company’s common stock on the date of the grant. The stock option vests over a period of three years from the date of the grant, and expire on the 10th anniversary of the grant date of the option. The Company estimated that the stock option has a fair market value of $0.10 per share using the Black-Scholes valuation model. Management’s assumptions included in the model were volatility of 30.865%, a risk-free interest rate of 3.4% based on the 10-year Treasury Rate at the date of the grant and no dividends. The Company estimated a forfeiture rate of 0%. The Company recorded stock based compensation expense of $832 and $2,708 related to such stock options for the years ended March 31, 2012 and 2011, respectively.

On February 10, 2011, the Company added two board members, who were granted stock options by the Company to purchase up to 100,000 shares of common stock. The stock options have an exercise price of $0.20 per share, which was equal to the fair market value of the Company’s common stock on the date of the grant. The stock options vest over a period of three years from the date of the grant, and expire on the 10th anniversary of the grant date of the options. The Company estimated that the stock options have a fair market value of $0.10 per share using the Black-Scholes valuation model. Management’s assumptions included in the model were volatility of 30.865%, a risk-free interest rate of 3.7% based on the 10-year Treasury Rate at the date of the grant and no dividends. The Company estimated a forfeiture rate of 0%. The Company recorded stock based compensation expense of $1,668 and $5,278 related to such stock options for the years ended March 31, 2012 and 2011, respectively.

On July 11, 2011, the Company entered into a consulting agreement with a consultant to assist the Company in researching its markets and analyzing its opportunities. As part of the compensation, the consultant received a warrant to purchase 300,000 shares of common stock, with an exercise price of $0.22 and a term of five years. The value of the warrants was $21,000.

On September 12, 2011, the Company issued options to purchase 1,575,000 shares of common stock to directors, officers and employees of the Company under the 2009 Equity Incentive Plan with an exercise price of $0.19 per share. One-third of the options vest immediately, and the options become exercisable with respect to the remaining shares over a period of two years. These options were valued using the Black-Scholes option pricing model during the quarter ended September 30, 2011, the expected volatility was approximately 31%, and the risk-free interest rate was approximately 2% which resulted in a calculated fair value of $126,000. The Company recorded stock based compensation expense of $66,500 for the year ended March 31, 2012.

On September 13, 2011, the Company issued options to purchase 105,000 shares of common stock to the independent directors of the Company under the 2009 Equity Incentive Plan with an exercise price of $0.18 per share. The options become exercisable with respect to 1/36 of the shares monthly over a period of three years. These options were valued using the Black-Scholes option pricing model during the quarter ended September 30, 2011, the expected volatility was approximately 31%, and the risk-free interest rate was approximately 2% which resulted in a calculated fair value of $8,400. The Company recorded stock based compensation expense of $1,633 for the year ended March 31, 2012.

The following summarizes the stock option activity for the years ended March 31, 2012 and 2011 below:

	2009 Equity Incentive Plan		Weighted Average Exercise Price		Weighted Average Remaining Contract Life	Non-Plan Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Life
Balance as of April 1, 2010		250,000	$	0.22	8.27 years		100,714	$	41.27	2.61 years
Options Granted		3,350,398	$	0.27	9.42 years		—			—
Options Exercised		—			—		—			—
Options Canceled		50,000	$	0.21	—		—			—
Balance as of March 31, 2011		3,550,398	$	0.26	9.34 years		100,714	$	41.27	2.61 years
Options Granted		1,680,000	$	0.19	9.24 years		—			—
Options Exercised		—			—		—			—
Options Canceled		—			—		—			—
Balance as of March 31, 2012		5,230,398	$	0.24	8.69 years		100,714	$	41.27	1.60 years
Exercisable at March 31, 2012		3,162,109	$	0.24	8.69 years		100,714	$	41.27	1.60 years

The Company has reserved shares of common stock for issuance upon exercise at March 31, 2012 as follows:

Warrants	2,473,245
Non-Plan Stock Options	100,714
2009 Equity Incentive Plan	18,063,613
Total Shares Reserved	20,637,572

The weighted-average grant-date fair value of stock options granted during the years ended March 31, 2012 and 2011 was approximately $317,000 and $895,000 respectively.

At March 31, 2012 and 2011, there was approximately $222,000 and $260,000, respectively, of unrecognized compensation costs related to non-vested option awards. This expense is expected to be recognized over a weighted average period of 3.8 years.

The following summarizes warrants outstanding at March 31, 2012:

	Warrant Shares	Exercise Price Per Share		Date Issued		Expiration Date
Biosyn Warrants	8,245	$	57.97 - $173.92		October 22, 2004	October 2013 - 2014
Investor Warrants	395,000	$	0.30		September 15, 2010	September 15, 2015
Old Adamis Warrants	1,000,000	$	0.50		November 15, 2007	November 15, 2012
Consultant Warrants	300,000	$	0.25		August 26, 2009	August 26, 2014
Consultant Warrants	270,000	$	0.20		January 29, 2010	January 25, 2015
Consultant Warrants	200,000	$	0.29		October 26, 2009	October 26, 2014
Consultant Warrants	300,000	$	0.22		July 11, 2011	July 11, 2016
Total Warrants	2,473,245