STOCK OPTION PLANS, SHARES RESERVED AND WARRANTS

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK OPTION PLANS, SHARES RESERVED AND WARRANTS

NOTE 18: 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 issuance under the 2009 Plan increased by 1,000,000. On May 25, 2016, upon the approval of the Company’s stockholders at the annual meeting of stockholders, the number of shares reserved for issuance increased by 4,500,000. At December 31, 2016, the aggregate balance of shares reserved for issuance under the 2009 plan was 8,566,800. On January 1, 2017, pursuant to the provisions of the 2009 Plan, 1,099,577 shares were added to the shares reserved for issuance pursuant to awards under the 2009 Plan (see Note 20).

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. 

On May 25, 2016, the Company issued options to purchase 1,280,000 shares of common stock to the officers and employees of USC and the board of directors of the Company under the 2009 Plan with an exercise price of $8.46 per share. The options will vest with respect to the one-sixth (1/6) of the option shares on the date that is six (6) months after the vesting commencement date and one thirty-sixth (1/36) of the option shares thereafter on each subsequent monthly anniversary of the vesting commencement date, so that the option is exercisable in full over a period of three years. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 59%, the term was six years, the dividend rate was 0.0 % and the risk-free interest rate was approximately 1.69%, which resulted in a calculated fair value of $6,063,000.

On May 25, 2016, the Company issued options to purchase 155,000 shares of common stock to consultants of the Company with an exercise price of $8.46 per share. The options were exercisable in full as of the date of grant. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 56%, the term was five years, the dividend rate was 0.0 % and the risk-free interest rate was approximately 1.40%, which resulted in a calculated fair value of $643,250.

On May 25, 2016, the Company awarded Restricted Stock Units ("RSUs") covering 350,000 shares of common stock to the non-employee directors of the Company under the 2009 Plan; as of the date of grant, the market price of the common stock was $8.46 per share. These RSUs vest on the seventh anniversary from grant date, or earlier upon the occurrence of certain events including a change of control of the Company. The calculated fair value of the RSUs was $2,961,000.

On July 11, 2016, warrants previously issued to consultants to purchase 17,647 shares of common stock at an exercise price of $3.74 per share expired.

 On November 2, 2016, the Company granted options to purchase 40,000 shares of common stock to the new hires of the Company under the 2009 Equity Incentive Plan with exercise prices of $2.50 per share. The options will vest with respect to the one-sixth (1/6) of the option shares on the date that is six (6) months after the vesting commencement date and one thirty-sixth (1/36) of the option shares thereafter on each subsequent monthly anniversary of the vesting commencement date, so that the option is exercisable in full over a period of three years. These options were valued using the Black-Scholes option pricing; the expected volatility was approximately 59%, the term was six years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.57%. The calculated fair value of the options was $52,200.

 During the year ended December 31, 2016, previously granted and unvested options to purchase 266,709 shares of common stock were canceled following the holders’ termination of employment. 

 The following summarizes the stock option activity for the years ended December 31, 2016 and 2015 below:

	2009 Equity Incentive Plan			Weighted Average Exercise Price		Weighted Average Remaining Contract Life
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
Options Granted		2,520,697			6.58		8.80 years
Options Exercised		(46,379	)		5.07		—
Options Canceled		(266,709	)		7.44		—
Balance as of December 31, 2016		4,320,409		$	6.06		7.98 years
Exercisable at December 31, 2016		2,319,963		$	5.86		7.10 years

Stock based compensation expense for the years ended December 31, 2016 and 2015 were $4,699,122 and $2,485,961, respectively. As of December 31, 2016, unrecognized compensation expense related to these stock options was approximately $7.4 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 4,320,409 and 2,112,800 stock options outstanding at December 31, 2016 and 2015 was approximately $26,000 and $916,000, respectively. The aggregate intrinsic value of 2,319,963 and 1,173,443 stock options exercisable at December 31, 2016 and 2015 was approximately $1,000 and $681,000, respectively.

The Company has reserved shares of common stock for issuance upon conversion or exercise at December 31, 2016 as follows:

Convertible Preferred Stock	625,013
Warrants	9,194,044
RSU	350,000
2009 Equity Incentive Plan	4,320,409
Total Shares Reserved	14,489,466

The following table summarizes warrants outstanding at December 31, 2016:

	Warrant Shares			Exercise Price Per Share		Date Issued	Expiration Date
Old Adamis Warrants		58,824		$	8.50	November 15, 2007	November 15, 2017
2013 Private Placement		22,057		$	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
Preferred Stock Series A Warrants		1,418,439		$	3.40	August 19, 2014	August 19, 2019
Preferred Stock Series A-1 Warrants		1,183,432		$	4.10	January 26, 2016	January 26, 2021
Bear State Bank, Collateral to Line of Credit		1,000,000	*	$	0.0001	March 28, 2016
Preferred Stock Series A-2 Warrants		1,724,137		$	2.90	July 16, 2016	July 11, 2021
2016 Common Stock, Private Placement		3,573,255		$	2.98	August 3, 2016	August 3, 2021
Total Warrants		9,194,044

    *Exercisable upon default of Line of Credit at Bear State Bank, see Note 11.

On March 6, 2013, the Company issued restricted stock units (RSUs) covering 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 was $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 August 25, 2016, 5,590 RSUs vested and were issued as common stock. The Company recorded compensation expense, related to these RSU's, of $15,922 and $63,686 for the years ended December 31, 2016 and 2015, respectively. Unrecognized compensation expense related to these RSUs as of December 31, 2016 was zero.

On May 25, 2016, the Company issued RSUs covering of 350,000 shares of common stock to the non-employee directors of the Company under the 2009 Equity Incentive Plan. The value of the award per share is $8.46 and will vest 100% on the seventh year anniversary from grant date. The fair value of RSUs is $2,961,000. The Company recorded compensation expense, related to these RSU's, of $253,335 for the years ended December 31, 2016. Unrecognized compensation expense related to these RSUs as of December 31, 2016 was $2,707,665.