Adamis Pharmaceuticals
Annual Report 2013

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one)☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the Fiscal Year Ended March 31, 2014OR☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934Commission File Number 000-26372 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 No.) 11682 El Camino Real, Suite 300, San Diego, CA 92130(Address of Principal Executive Offices) (zip code) Registrant’s telephone number, including area code: (858) 997-2400Securities registered pursuant to Section 12(b) of the Act:None None(Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.0001 par value(Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐NO ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐NO ☒ Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from theirobligations under those sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days. YES ☒NO ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). YES ☒NO ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of the chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐NO ☒ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2013, was $21,378,759.72. At June 16, 2014, the Company had 10,501,519 shares outstanding. Documents Incorporated by Reference: None.  ADAMIS PHARMACEUTICALS CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2014 TABLE OF CONTENTS PAGENO.PART IITEM 1.BUSINESS 1 ITEM 1A.RISK FACTORS 16 ITEM 1B.UNRESOLVED STAFF COMMENTS 29 ITEM 2.PROPERTIES 29 ITEM 3.LEGAL PROCEEDINGS 29 ITEM 4.MINE SAFETY DISCLOSURES 29 PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASESOF EQUITY SECURITIES 30 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 33 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 33 ITEM 9A.CONTROLS AND PROCEDURES 34 ITEM 9B.OTHER INFORMATION 35 PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 36 ITEM 11.EXECUTIVE COMPENSATION 41 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS 45 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 47 ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES 48 PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES 49 i Information Relating to Forward-Looking Statements This Annual Report on Form 10-K includes “forward-looking” statements. These forward-looking statements are not historical facts, but are basedon current expectations, estimates and projections about our industry, our beliefs and our assumptions. These forward-looking statements includestatements about our strategies, objectives and our future achievement. To the extent statements in this Annual Report on Form 10-K involve, withoutlimitation, our expectations for growth, estimates of future revenue, our sources and uses of cash, our liquidity needs, our current or planned clinical trialsor research and development activities, product development timelines, our future products, regulatory matters, expense, profits, cash flow balance sheetitems or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made throughthe use of word or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These forward-looking statementsare not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-lookingstatements. Actual events or results may differ materially from those discussed in this Annual Report on Form 10-K. Except as may be required by applicablelaw, we undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstancesarising after the date of this Report. Important factors that could cause actual results to differ materially from those in these forward-looking statements aredisclosed in this Annual Report on Form 10-K, including, without limitation, under the headings “Item 1A. Risk Factors,” “Item 1. Business” and “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other risks identified from time to time in our filingswith the Securities and Exchange Commission, press releases and other communications. In addition, many forward-looking statements in this Annual Report on Form 10-K, including statements concerning, among other matters, currentor planned clinical trials, anticipated research and development activities, anticipated dates for commencement of clinical trials, anticipated completiondates of clinical trials, anticipated dates for meetings with regulatory authorities and submissions to obtain required regulatory marketing approvals,anticipated dates for commercial introduction of products, and other statements concerning our future operations and activities, assume that we are able toobtain sufficient funding in the near term and thereafter to support such activities and continue our operations and planned activities. As discussed herein,including under “Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” werequire additional funding to continue operations, and there are no assurances that such funding will be available. Failure to timely obtain requiredfunding would adversely affect and could delay or prevent our ability to realize the results contemplated by such forward looking statements. The Adamis Pharmaceuticals logo and other trademarks or service marks of Adamis Pharmaceuticals Corporation appearing in this Annual Reporton Form 10-K are the property of Adamis Pharmaceuticals Corporation. All other brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective owners. Unless the context otherwise requires, the terms “we,” “our,” and “the Company” refer to AdamisPharmaceuticals Corporation, a Delaware corporation, and its subsidiaries. Unless otherwise indicated, share and per share amounts in this Annual Report on Form 10-K reflect a 1-for-17 reverse split of our outstandingcommon stock effected in December 2013. ii PART I ITEM 1.BUSINESS Company Overview We are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicinesfor patients and physicians. We are currently primarily focused on our specialty pharmaceutical products. We are currently developing four products in theallergy and respiratory markets, including a dry powder inhaler technology that we recently acquired from 3M Company. Our goal is to create low costtherapeutic alternatives to existing treatments. Consistent across all specialty pharmaceuticals product lines, we intend to pursue Section 505(b)(2) New DrugApplication, or NDA, regulatory approval filings with the U.S. Food and Drug Administration, or FDA, whenever applicable in order to reduce the timeneeded to get to market and to save on costs, compared to Section 505(b)(1) NDA filings for new drug products. We also have a number of biotechnologyproduct candidates and technologies including therapeutic vaccine and cancer product candidates and technologies for patients with unmet medical needs inthe global cancer market. To achieve our goals and support our overall strategy, we will need to raise a substantial amount of funding and make substantialinvestments in equipment, new product development and working capital. The current status of our development programs is as follows: Product Portfolio Specialty Pharmaceutical Products Target Indication Development StatusEpinephrine PFS Anaphylaxis Submitted NDAAPC-5000 DPI Asthma/COPD Phase 3 trial (1)(2)APC-1000 Asthma/COPD Phase 3 trial (1)(2)APC-3000 Allergic Rhinitis Phase 3 trial (1)(2) Biotechnology Products Target Indication Development StatusTeloB-VAX (vaccine) Prostate Cancer Phase 2 trial (1)APC-100 Prostate Cancer Phase 1 trial (3)APC-200 Prostate Cancer PreclinicalAPC-300 Prostate Cancer Preclinical (1)Represents the next development or regulatory stage that we intend to pursue, assuming that we have the financial resources to pursue one or more ofthese opportunities.(2)A single Phase 3 trial, without previous Phase 1 or Phase 2 trials, is anticipated.(3)Phase 1/2a clinical trial has commenced. We have not received regulatory approval for any drugs or products. Since our fiscal 2010 year, we have not generated commercial revenues frommarketing or selling any drugs or other products. Anaphylaxis American Academy of Allergy Asthma and Immunology, or AAAAI, defines anaphylaxis as a serious, life-threatening allergic reaction. The mostcommon anaphylactic reactions are to foods, insect stings, medications and latex. According to information published by AAAAI, up to 8% of U.S. childrenunder the age of 18 have a food allergy, and approximately 38% of those with a food allergy have a history of severe reactions. Anaphylaxis requires immediate medical treatment, including an injection of epinephrine. The number of prescriptions for epinephrine products hasgrown annually, as the risk of anaphylaxis has become more widely understood. We estimate that sales of prescription epinephrine products in 2013 were atleast $900 million, based on industry data. We cannot provide any assurances concerning any possible future rates of annual growth or whether annualprescriptions will decline or grow. Epinephrine Pre-Filled Syringe Our most advanced product candidate, Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe, or the Epinephrine PFS, is a simplesyringe designed to deliver a premeasured 0.3 mg dose of epinephrine for the treatment of anaphylaxis. The syringe is protected in a hard plastic carryingcase small enough to fit, for example, in a shirt pocket. We believe that there is an opportunity for a simple, low-cost, intuitive pre-filled syringe to compete in this market. We believe that our EpinephrinePFS has the potential to compete against other marketed products based on the following: 1 Lower Price. We expect to introduce the Epinephrine PFS product at a price point reflecting a discount to the price of the leading products. A lower-priced option may be attractive to individuals that pay cash for their epinephrine products, professional users such as hospitals and first responders, andmilitary and prison systems. Ease of Use. Auto-injectors, such as EpiPen, Twinject and Auvi-Q, are powerful spring-loaded auto-injector devices. If not administered properly,they can misfire or be misused. Our Epinephrine PFS product will allow users to administer a pre-measured epinephrine dose quickly with a simple syringethat we believe will be familiar to many potential users. We believe that the Epinephrine PFS product, if introduced, may acquire a share of the market based on the price differential between the expectedprice of the Epinephrine PFS product and the price at which the market-leading product is currently sold, which may motivate purchasers and reimbursingpayors to choose the lower cost alternative. We believe that the Epinephrine PFS product has the potential to compete successfully, although there can be noassurance that this will be the case. With the help of our contract manufacturer, on May 28, 2014, we submitted an NDA to the FDA pursuant to Section 505(b)(2) of the Section 505(b)(2) of the Food, Drug & Cosmetic Act, as amended, or FDCA, for approval for sale of the Epinephrine PFS product. Assuming no unexpected regulatorydelays, we hope to receive an approval by the end of the first calendar quarter of 2015. Under goals established in connection with the Prescription Drug UserFee Act, or PDUFA, the FDA’s guidance for the review and acting on standard NDA submissions that do not relate to new molecular entities, which webelieve will be the case with our Epinephrine PFS product, is ten months from the date of receipt of the submission. However, the FDA’s review processes canextend beyond, and in some cases significantly beyond, anticipated completion dates due to FDA requests for additional information or clarification,difficulties scheduling an advisory committee meeting, FDA workload issues or other reasons. See “Government Regulation—Regulation in the UnitedStates.” As a result, the dates of regulatory approval, if obtained, and commercial introduction of our product could be delayed beyond our expectations. Weestimate that approximately $2.0 million to $2.5 million, which includes the approximately $1.1 million FDA required regulatory filings fee that we paid tothe FDA in connection with the filing of our NDA for the Epinephrine PFS product, will be required over the next 12 months to support the regulatoryapplication up to a commercial launch of the Epinephrine PFS product following marketing approval, assuming no unexpected delays or expenses. Asthma and COPD According to the National Institute of Health, or NIH, asthma is a chronic lung disease that inflames and narrows the airways. Asthma causesrecurring periods of wheezing, chest tightness, shortness of breath, and coughing. Asthma affects people of all ages, but it most often starts during childhood.According to information published by AAAAI, the number of people in the U.S. with asthma is approximately 25 million and growing. COPD, or chronic obstructive pulmonary disease, is a progressive disease that makes it difficult to breathe. COPD can cause coughing that produceslarge amounts of mucus, wheezing, shortness of breath, chest tightness, and other symptoms. According to the NIH, cigarette smoking is the leading cause ofCOPD. Most people who have COPD smoke or used to smoke. However, long-term exposure to other lung irritants such as air pollution, chemical fumes, ordust may also contribute to COPD. We estimate that global sales of asthma and COPD prescription products were in excess of approximately $14 billion in 2013, based on industrydata. Within the global asthma and COPD market, we estimate that one product in particular, Advair Diskus® marketed by GlaxoSmithKine, generated morethan $4 billion in U.S. sales and $8 billion in global sales in 2013, based on GSK’s publicly announced results. The Advair Diskus is a dry powder inhaler, orDPI, product that combines fluticasone propionate, or fluticasone and salmeterol xinafoate, or salmeterol. Inhaled fluticasone belongs to the family ofmedicines known as corticosteroids or steroids. It works by preventing certain cells in the lungs and breathing passages from releasing substances that causeasthma symptoms. Inhaled salmeterol is a long-acting bronchodilator. Bronchodilators are medicines that are breathed in through the mouth to open up thebronchial tubes (air passages) in the lungs. It relieves cough, wheezing, shortness of breath, and troubled breathing by increasing the flow of air through thebronchial tubes. The combination of the two medicines, as in the Advair Diskus, is used when a patient’s asthma has not been controlled sufficiently on otherasthma medicines, or when a patient’s condition is so severe that more than one medicine is needed every day. APC-5000 DPI Adamis entered into an agreement dated as of August 1, 2013 with 3M Company to exclusively license and, upon final payment acquire, assetsrelating to 3M Company’s patented Taper dry powder inhaler, or DPI, technology under development by 3M for the treatment of asthma and COPD. Pursuantto the agreement, we made an initial payment of $3.0 million to 3M and acquired an exclusive license to the assets, and on December 27, 2013, we made afinal payment to 3M of $7.0 million and the assets were transferred to us. The technology was under development as a device designed to efficiently deliverdry powder by utilizing a 3M proprietary microstructured carrier tape. We believe that, once developed, the device can be utilized to deliver a variety ofdifferent drug compounds. We intend to utilize the assets initially to develop a pre-metered inhaler device, referred to as APC-5000 DPI, for the treatment ofasthma and COPD to deliver the same active ingredients as GlaxoSmithKline’s Advair Diskus®. The Advair Diskus® is a dry powder inhaler, or DPI, productthat combines fluticasone propionate, or fluticasone and salmeterol xinafoate, or salmeterol. Fluticasone belongs to the family of medicines known ascorticosteroids or steroids. Upon completion of product development and clinical trials and if required regulatory approvals are obtained, we intend tocommercially market the APC-5000 DPI product to compete for a share of the Advair Diskus market with a branded generic version utilizing the acquiredtechnology. Pursuant to our agreement, the microstructured carrier tape will be supplied by 3M under a separate supply agreement to be negotiated with 3M. 2 We believe that one advantage of the technology is that it can deliver drug particles without the need for lactose or formulation excipients. Themajority of current dry powder products use lactose carrier excipients to enhance flowability; however, they have the disadvantage of increased bulk andrequire a mechanism for detaching the drug from the surface of the lactose. Lactose carrier formulations require a complicated blending process and deliverythat is highly sensitive to excipient powder properties. There are currently no excipient-free dry powder inhalers in the U.S. market. Due to its design, the APC-5000 DPI product can efficiently deliver drug without the need for formulation excipients. As such, it enables consistentdose metering and delivery across a broad dosing range. In addition, high fine particle fractions are achievable, which could allow more active drug to bedelivered deep into the patient’s lungs. We are currently preparing an investigational new drug application, or IND, to be submitted to the FDA for approval to begin human testing of APC-5000 DPI. We intend to conduct a Phase 3 trial for APC-5000 DPI, but do not believe that Phase 1 or Phase 2 trials will be required. Assuming receipt ofsufficient funding and if clinical trials are initiated and successfully completed, we intend to pursue an NDA under Section 505(b)(2) of the FDCA to seekapproval for sale in the U.S. market. Assuming no unforeseen delays and if we successfully complete product development and trials and receive regulatoryapproval, we estimate that we could commence sales of the product in late 2016 or 2017, although there are no assurances that this will be the case. We alsointend to seek to identify opportunities to market APC-5000 DPI products outside of the U.S. Additional Allergy Products; APC-1000 an APC-3000 Additional product candidates in our allergy and respiratory product pipeline include a steroid hydrofluoroalkane, or HFA, metered dose inhalerproduct, referred to as APC-1000, for asthma and COPD and an HFA pressurized metered dose nasal steroid for the treatment of seasonal and perennialallergic rhinitis, referred to as APC-3000. We estimate that the market for inhaled oral steroids, and the market for inhaled nasal steroids, or INS, as estimatedby us based on industry data is approximately $3 billion and $1.3 billion annually, respectively. INS products are sold under prescription for seasonalallergic rhinitis. Our product candidates, if developed and approved for marketing, will target small niches within these markets. During fiscal 2011, we entered into a strategic manufacturing, supply, and product development agreement with Beximco Pharmaceuticals Ltd.Beximco is a leading manufacturer of pharmaceutical formulations and active pharmaceutical ingredients in Bangladesh. Beximco has a large number ofproducts covering broad therapeutic categories, including asthma and allergy inhalers, antibiotics, anti-hypertensives, anti-diabetics, and anti-retrovirals. Weintend to develop the APC-1000 product with Beximco. Once developed, we anticipate that we will transfer the specifications to Beximco for manufacturing.Adamis and Beximco intend to introduce a number of separate drugs into the U.S. over the next several years in the allergy and respiratory areas and may co-develop certain drugs. The anticipated dates of development and introduction of APC-1000 and APC-3000 will depend on a number of factors, including theavailability of adequate funding to support product development efforts. We believe that we will be required to submit data for an application for approval tomarket both products pursuant to Section 505(b)(2) of the FDCA, although there are no assurances that this will be the case. We intend to conduct a Phase 3pivotal trial for APC-1000 and APC-3000 but do not believe that Phase 1 or Phase 2 trials will be required. Total time to develop the APC-1000 and APC-3000 products, including manufacture of the products, clinical trials and FDA review, is expected to be approximately 24-30 months from inception of fullproduct development efforts, assuming no unforeseen regulatory or other delays. Factors that could affect the actual launch date for our allergy andrespiratory product candidates, as well as our other product candidates, include the outcome of discussions with the FDA concerning the number and kind ofclinical trials that the FDA will require before the FDA will consider regulatory approval of the applicable product, any unexpected difficulties in licensing orsublicensing intellectual property rights for other components of the product such as the inhaler, patent infringement lawsuits relating to Paragraph IVcertifications as part of any Section 505(b)(2) filings, see “Government Regulation—Regulation in the United States—Section 505(b)(2) New DrugApplications,” any unexpected difficulties in the ability of our suppliers to timely supply quantities for commercial launch of the product, any unexpecteddelays or difficulties in assembling and deploying an adequate sales force to market the product, unexpected events affecting Beximco’s participation indeveloping and manufacturing products, and receipt of adequate funding to support product development and sales and marketing efforts. Cancer Cancer is a group of diseases in which malignant cells grow out of control and spread to other parts of the body. Normally, your body forms newcells as you need them, replacing old cells that die. Sometimes this process goes afoul, new cells grow when you don’t need them, and old cells do not diewhen they should. Extra cells can form a mass called a tumor. Those tumors can be benign or malignant (cancerous). Cells from malignant tumors can invadenearby tissues and can spread to other parts of the body, called metastasis. Most treatment plans include surgery, radiation or chemotherapy. Some mayinvolve hormone therapy, biologic therapy, or stem cell transplantation. 3 We believe that there is a significant market opportunity for our product candidates, should they be successfully developed, approved andcommercialized. We believe that there is a significant need for new products and that there is growing interest in targeted therapies for the treatment ofcancer. However, our current intention is to focus primarily on development of our specialty pharmaceutical product candidates. In considering alternativesfor development of our cancer and vaccine technologies and product candidates, we may consider alternatives including seeking to sublicense, sell, enterinto strategic development agreements regarding, or enter into other kinds of transactions concerning, one or more of such technologies or productcandidates. TeloB-VAX In April 2011, we acquired exclusive rights to patented telomerase-based cancer vaccine technology from the Regents of the University of Californiaand the Dana-Farber/Harvard Cancer Center. We intend to pursue development of the technology initially for what we believe may be a novel cell-basedvaccine product candidate for cancer, tentatively named TeloB-VAX. The technology is intended to activate the body’s natural defense machinery tostimulate an immune response against one of nature’s most common tumor markers, telomerase reverse transcriptase, or telomerase. We believe that a vaccineproduct, if developed, will utilize the patient’s own B cells as antigen producing and antigen presenting cells. In a Phase 1 study completed at the University of California, San Diego, or UCSD in castrate resistant prostate cancer patients, the vaccine productcandidate was shown to be safe and well tolerated. The vaccine was found to be immunogenic, and was shown to induce a specific CD8 T cell response. Moreimportant, the T cells induced post-vaccination were shown to specifically kill prostate cancer cells. We believe that if future trials are successful and avaccine product is developed, such a vaccine product may have a number of competitively advantageous features, including: prolonged antigen presentationby B cells; induction of an immune response after a single injection; no need for complicated culture procedures; much fewer steps; and potentially lowercost than other competitive products. This vaccine product candidate is covered by what we believe is a unique patented platform technology using a cancerantigen marker, telomerase, that is increased in approximately 85% of all tumors. We believe that this technology may represent one of the first concreteopportunities to program the immune system to mobilize killer lymphocytes to combat cancer cells, including progenitor cancer stem cells that were shownto also express telomerase. Prostate Cancer According to the American Cancer Society, prostate cancer is the second-most common cancer in American men and the second leading cause ofcancer death in American men. The ACS estimated that for 2013 in the United States, approximately 238,000 new cases of prostate cancer will be diagnosedand about 29,700 men will die of prostate cancer in 2013. The Human Prostate and Prostate Cancer; Disease and Market Background The prostate is a walnut-sized gland located in front of the rectum and underneath the urinary bladder. It is found only in men. The prostate starts todevelop before birth and continues to grow until a man reaches adulthood. This growth is fueled by male hormones, the so-called androgens. The mainandrogen produced by men is the hormone testosterone. Testosterone can be converted by the body into dihydrotestosterone, which in turn signals theprostate to grow. The prostate stays at adult size in adult males as long as the male hormone is present at physiological levels. A prostate cancer develops when cells in the prostate begin to grow out of control, and a cancerous tumor can form. Several types of cells are foundin the prostate, but most prostate cancers develop from gland cells within the prostate. Prostate cancer, or PCa, is one of the most invasive malignancies and aleading cause of cancer related deaths in many countries. Metastatic prostate cancer is advanced prostate cancer that has spread beyond the prostate andsurrounding tissues into distant organs and tissues. The majority of men who die from prostate cancer die from the consequences of metastatic disease.According to the National Cancer Institute, the five-year survival rate of patients with prostate cancer that has metastasized to distant organs is only about28%. Metastatic prostate cancer is generally divided into two states: the androgen hormone-sensitive, androgen-dependent or castrate sensitive PCa state,referred to as CS-PCa; and the castrate-resistant PCa state, or CR-PCa, also referred to as the androgen hormone-refractory, androgen-independent, or theAndrogen Deprivation Therapy, or ADT, resistant state. Testosterone and other male sex hormones, known collectively as androgens, can fuel the growth of prostate cancer cells. Androgens exert theireffects on prostate cancer cells by binding to and activating the Androgen Receptor, which is expressed in prostate cancer and other cells. When they firstmetastasize to distant sites, most prostate cancers depend on androgen hormone for tumor growth. These prostate cancers are CS-PCa prostate cancers. For patients with advanced, metastatic CS-PCa prostate cancer, the standard of care is treatment with hormonal ablation therapy, also known as ADT.ADT is used to suppress production or block the action of androgens. Accordingly, the leading therapies currently used for the treatment of prostate cancer,after it recurs following radiation or surgery, are focused on diminishing the production of androgens, or antagonizing the effects of androgens by blockingthe Androgen Ligand Binding Domain on the Androgen Receptor inside prostate cancer cells with drugs known as anti-androgens. Thus, these two differenteffects are achieved through two separate therapeutic approaches. The first approach is often to reduce the amount of androgens produced in the body,primarily in the testes. This can be achieved by surgical castration by removal of both testicles, or alternatively through use of one or two different kinds ofADT drugs, called chemical castration. 4 Adamis, collaborators, and many others now commonly recognize that androgen deprivation therapy causes prostate cancer cell programmed celldeath, referred to as apoptosis, and can also contribute to pathophysiological chronic inflammation in men with CS-PCa. There is significant published datasupporting the important role of chronic inflammation in the change from CS-PCa to CR-PCa. In summary, the standard treatment for localized advanced, recurrent, and metastatic prostate cancer is ADT, which blocks the growth promotingeffects of androgens and activates apoptosis. After an initial favorable response, progression to androgen-independence or castration resistance is the usualoutcome for which there are currently no curative treatment options. Some survival extensions can sometimes be achieved using current Taxol-basedchemotherapy protocols, or recently approved therapies such as Provenge and ZYTIGA. In 2010, Adamis licensed patents and related intellectual property relating to three cancer drug candidates developed at the University of Wisconsin.We believe these drug candidates, named APC-100, -200 and -300, may offer significant new treatment opportunities for prostate cancer. APC-100 APC-100 is the most advanced of the three drug candidates. In animal studies conducted to date, APC-100 demonstrated anti-androgenic and anti-inflammatory activities against prostate tumors growing in animal models and showed a strong safety profile in preclinical safety studies. In 2006, APC-100was awarded the National Cancer Institute, or NCI, Rapid Award. The award is given for promising new drugs for the treatment of cancer and resulted insignificant funding for research and development of APC-100. APC-100 has demonstrated desirable pharmacological characteristics as an oral or injectableanti-inflammatory and anti-androgenic drug candidate with multiple mechanisms of action. APC-100 decreases secretion of human PSA by human prostatecancer cells growing in mice and also increases the time-to-tumor progression and survival of mice with prostate sensitive and castrate resistant tumors. Inanimal studies, APC-100 was found to be more effective than Casodex or Flutamide, which are leading prostate cancer treatments. In August 2011, we announced the enrollment of the first patient in a Phase 1/2a prostate cancer clinical study relating to the use of the APC-100product to treat men with castrate-resistant prostate cancer. The study began at the University of Wisconsin Carbone Cancer Center and was extended to theWayne State University Karmanos Cancer Institute. In the trial, each patient will be assessed for toxicity, biochemical responses (PSA), radiographic andclinical responses. After completion of the Phase 1/2a APC-100 trial, we expect that we would meet with the FDA to review the trial results and determine thecontinuation of the clinical development with Phase 2b studies. Additional Cancer Products APC-200 is a drug candidate for both castrate-sensitive and castrate resistant prostate cancer. In 2007, APC-200 was awarded the NCI Rapid Award.APC-200 blocks androgen-induced hydrogen peroxide production and inflammation and inhibits mouse prostate cancer. In animal studies conducted to date,APC-200 was an excellent inhibitor of chronic inflammation, also completely inhibiting oxidase mediated high rates of hydrogen peroxide production invivo, and delaying prostate cancer progression and death in the standard mouse prostate cancer model. If we conclude pre-clinical development activities,such as GMP manufacturing of drug substance and drug product, and the pre-clinical safety, pharmacology and toxicology studies, we anticipate that wewould file and open an Adamis-sponsored IND relating to the clinical investigation of oral APC-200 in PCa patients with castrate resistant prostate cancer,assuming adequate funding and no unexpected delays, although there are no assurances that we will file or open such an IND. APC-300 is a multi-targeted small molecule therapeutic drug that we believe has the potential to demonstrate anti-inflammatory, pro-apoptotic anti-cancer activities for prostate cancer patients, including men with advanced metastatic castrate resistance prostate cancer. In pre-clinical in vitro studiesconducted to date, APC-300 repeatedly demonstrated inhibition of human tumor cell growth and the ability to kill both castrate-sensitive and castrate-resistant human prostate cancer tumors. It also materially decreased tumor volumes and suppressed local metastasis in human to mouse xenograft models,where malignant human prostate, pancreas, or melanoma tumor tissue was grafted onto athymic immunosuppressed experimental mice. For several reasonsincluding funding limitations, we have not yet developed a clinical protocol and other materials for submission of an IND. Other Technologies STI Technology In addition, we have licensed patented vaccine technology that we believe has the potential to provide protection against a number of different viralinfectious agents. This novel vaccination strategy, which employs DNA plasmids, appears, based on preclinical studies conducted to date, to have the abilityto “train” a person’s immune system to recognize and mount a defense against particular aspects of a virus’s structure. If successfully developed, we believethis technology could give physicians a new tool in generating immunity against a number of viral infections that have been difficult to target in the past. 5 The first target indication for this technology has yet to be determined, but will be based on market, technology, and patent position considerations.Disease targets might include therapeutic vaccines for Influenza, Hepatitis B and C, which are known to be involved in hepatocellular carcinomas, HumanPapillomavirus, which is known to be involved in head and neck squamous cell carcinomas, and prostate cancer. There are no assurances that any suchvaccine product will be developed for these or any other indications. The licensed technology was developed by Dr. Maurizio Zanetti, M.D., a professor at the Department of Medicine at UCSD. Dr. Zanetti hasdeveloped and patented a method of DNA vaccination by somatic transgene immunization, or STI. We have entered into a worldwide exclusive license withDr. Zanetti, through a company of which he is the sole owner, Nevagen, LLC, to utilize the technology within the field of viral infectious agents. We believethat the technology may have broad applications and intend to target viral disease indications for its initial proof of concept. STI, also sometimes called TLI, has already been tested in Phase I studies in humans for other vaccine applications. An immune response was elicitedin the study, and the results suggested that the procedure was safe and well tolerated. We have conducted certain experiments in mice utilizing the STItechnology, but our testing is currently at the preclinical stage. As among our cancer and vaccine technologies, we currently intend to focus initially on the development of one or more of the other licensedprostate cancer product candidates and technologies, and as a result the timing of development of this viral vaccine technology is subject to uncertainty. Savvy/C31G We also have a microbicide product candidate, named Savvy (C31G). On December 7, 2010, we announced the successful completion of a Phase 3contraceptive trial of C31G. The study met its primary endpoint and was conducted by the Eunice Kennedy Shriver National Institute of Child Health andHuman Development (NICHD), National Institutes of Health (NIH), in the Contraceptive Clinical Trials Network at 14 sites in the United States. The clinicalinvestigators found that C31G was not inferior in contraceptive efficacy to the comparator drug Conceptrol. Moreover, the gel was well-tolerated and had ahigh degree of acceptability in women who completed the study. No drug-related serious adverse events were observed with C31G. Currently, to ourknowledge all spermicides commercially available in the U.S., including Conceptrol, contain the active ingredient nonoxynol-9, or N-9, in a carrier such as agel, film, cream, foam, suppository, or tablet. N-9 has been reported in some studies to cause irritant and allergic reactions in some users. C31G does notcontain N-9 and, if commercialized, may offer an alternative for women who seek a non-hormonal method of contraception. In addition, on September 9,2013, we announced that a recently published study conducted by university researchers at Louisiana State University Health Science Center found thatC31G was effective in treating Herpes Simplex Virus, or HSV, in an eye infection, ocular keratitis, animal model using live rabbits. The rabbit eye modelutilized for the study mimics the disease in humans. In the same study the researchers also reported that ocular administration of C31G was safe and welltolerated, confirming earlier clinical studies that established C31G safety and tolerability in other applications. HSV-1 is the same virus that causes cold soresand is common in humans. In the eye, it usually causes an infection of the cornea, and that infection is the most common cause of cornea-derived blindness.In previous animal studies, C31G was also active against HSV-2, the cause of genital herpes. Before considering any actions to seek regulatory approval for a C31G product, further meetings with the FDA would likely be required to discussthe regulatory pathways for submitting an NDA for marketing approval, including whether any additional trials will be required before an NDA is submitted.In considering commercialization alternatives, we would likely seek to enter into an out-licensing or similar transaction with organizations that have a focusor business unit in the area of antimicrobials or contraception, or in other fields where C31G may have potential as a product candidate. The C31G productcandidate is held by our Biosyn, Inc. subsidiary, which we acquired in 2004. Provisions in the agreement pursuant to which we acquired Biosyn, and/or incertain of the funding agreements and other agreements relating to the C31G product, provide for payments to the former Biosyn shareholders uponmarketing approval by the FDA (or, in certain circumstances, certain foreign regulatory authorities) of C31G for one or more indications, for payments tocertain other third parties in the event of sales or other revenues relating to C31G or certain other events, and include limitations on certain activities ofBiosyn including payment of dividends. In addition, sale or out-licensing of the C31G product candidate may require the consent of one or more such thirdparties. As a result, commercialization of the product may require renegotiation of the provisions relating to the former Biosyn shareholders and such thirdparties. Accordingly, there can be no assurances that we will be able to successfully conclude a transaction involving C31G or concerning the amounts thatwe might receive from any such transaction, or that any C31G product will be submitted for regulatory approval or will be approved or marketed. For our fiscal 2014 and fiscal 2013 years, we estimate that we have spent approximately $1.0 million and $1.2 million, respectively, on research anddevelopment activities. 6 Clinical Supplies and Manufacturing We have no in-house manufacturing capabilities. We rely on third-party contract manufacturers to make the material used to support thedevelopment of our product candidates. We purchase the material used in our clinical trial activities from various companies and suppliers. Sales and Marketing We do not currently have sales or marketing capabilities. In order to commercially market any pharmaceutical product that we successfully advancethrough preclinical and clinical development and for which we obtain regulatory approval, we must either develop a sales and marketing infrastructure orcollaborate with third parties with sales and marketing capabilities. We have not yet developed a sales and marketing strategy for any pharmaceuticalproducts that we may successfully develop. Customers and Distribution We do not currently sell or distribute pharmaceutical products. Competition The biotechnology and pharmaceutical industries are extremely competitive. Our potential competitors in the field are many in number and includemajor pharmaceutical and specialized biotechnology companies. Many of our potential competitors have significantly more financial, technical and otherresources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience in effecting strategiccombinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing products. We cannot give anyassurances that we can compete effectively with these other biotechnology and pharmaceutical companies. Our potential competitors in these markets maysucceed in developing products that could render our products and those of our collaborators obsolete or non-competitive. In addition, many of ourcompetitors have significantly greater experience than we do in the fields in which we compete. Our allergy and respiratory products and inhaled nasal steroid product, if developed and launched, will compete with numerous prescription andnon-prescription over-the-counter products targeting similar conditions, including, in the seasonal or perennial rhinitis areas, cough and cold, as well asprescription generic products, and with other inhaled nasal steroid products. In addition, a number of large pharmaceuticals companies producepharmaceutical products, such as antihistamines, corticosteroids and anti-leukotriene agents, which manage allergy and respiratory symptoms. TheEpinephrine PFS product, if commercialized, will compete against other self-administered epinephrine products, including EpiPen, EpiPen Jr., Auvi-Q andTwinject. Our APC-5000 DPI product, if developed and commercialized, is expected to compete with allergy inhaler products offered by several companies,including GlaxoSmithKline. The development and commercialization of new drugs for cancer, and of vaccine products for viral infections, is highlycompetitive. Most of the larger pharmaceutical companies, and many smaller public and private companies, have products or are engaged in research anddevelopment activities in these fields. Intellectual Property Our success will depend in large part on our ability to: •obtain and maintain international and domestic patent and other legal protections for the proprietary technology, inventions andimprovements we consider important to our business;•prosecute and defend our patents;•preserve our trade secrets; and•operate without infringing the patents and proprietary rights of other parties. We intend to continue to seek appropriate patent protection for product candidates in our research and development programs where applicable andtheir uses by filing patent applications in the United States and other selected countries. We intend for these patent applications to cover, where possible,claims for composition of matter, medical uses, processes for preparation and formulations. We own or are the licensees of a total of thirteen issued United States patents, and related U.S. applications and foreign patents and patentapplications, relating to our APC-100, APC-200, APC-300, telomerase, STI, APC-5000 DPI and C31G technologies and product candidates. Although we believe that our rights under patents and patent applications provide a competitive advantage, the patent positions of pharmaceuticaland biotechnology companies are highly uncertain and involve complex legal and factual questions. We may not be able to develop patentable products orprocesses, and may not be able to obtain patents from pending applications. Even if patent claims are allowed, the claims may not issue, or in the event ofissuance, may not be sufficient to protect the technology owned by or licensed to us. Any patents or patent rights that we obtain may be circumvented,challenged or invalidated by our competitors. 7 We also rely on trade secrets, proprietary know-how and continuing innovation to develop and maintain our competitive position, especially whenwe do not believe that patent protection is appropriate or can be obtained. We seek protection of these trade secrets, proprietary know-how and anycontinuing innovation, in part, through confidentiality and proprietary information agreements. However, these agreements may not provide meaningfulprotection for, or adequate remedies to protect, our technology in the event of unauthorized use or disclosure of information. Furthermore, our trade secretsmay otherwise become known to, or be independently developed by, our competitors. Government Regulation Pharmaceutical Regulation If and when we market any pharmaceutical products in the United States, they will be subject to extensive government regulation. Likewise, if weseek to market and distribute any such products abroad, they would also be subject to extensive foreign government regulation. In the United States, the FDA regulates pharmaceutical products. FDA regulations govern the testing, manufacturing, advertising, promotion,labeling, sale and distribution of pharmaceutical products, and generally require a rigorous process for the approval of new drugs. We also may be subject toforeign regulatory requirements governing clinical trials and drug product sales if products are tested or marketed abroad. The approval process outside theUnited States varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval. Regulation in the United States The FDA testing and approval process requires substantial time, effort and money. We cannot assure you that any of our products will ever obtainapproval. Our potential products will be regulated either as biological products or as drugs. In the United States, drugs are subject to regulation under theFDCA. Biological products, in addition to being subject to provisions of the FDCA, are regulated under the Public Health Service Act, or PHSA. Both statutesand related regulations govern, among other things, testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising, and otherpromotional practices. The FDA approval process for new drugs and biologics includes, without limitation: •preclinical studies;•submission of an Investigational New Drug application, or IND, for clinical trials;•adequate and well-controlled human clinical trials to establish safety and efficacy of the product;•review of a New Drug Application, or NDA, or review of a Biologics License Application, or BLA; and•inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s current Good Manufacturing Practices, orcGMP, regulations. Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and effectiveness of theproduct. Most of these studies must be performed according to good laboratory practices, a system of management controls for laboratories and researchorganizations to ensure the consistency and reliability of results. The results of the preclinical studies, existing clinical and/or human use data (if applicable),together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which we are required to file before we cancommence any clinical trials for our product candidates in the United States. Clinical trials may begin 30 days after an IND is received, unless the FDA raisesconcerns or questions about the conduct of the clinical trials. If concerns or questions are raised, an IND sponsor and the FDA must resolve any outstandingconcerns before clinical trials can proceed. We cannot assure you that submission of any additional IND for any of our preclinical product candidates willresult in authorization to commence clinical trials. Clinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under the supervision of aqualified principal investigator. Each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at each institutionat which the study will be conducted. The IRB will consider, among other things, ethical factors, safety of human subjects and the possible liability of theinstitution arising from the conduct of the proposed clinical trial. Also, clinical trials must be performed according to good clinical practices, which areenumerated in FDA regulations and guidance documents. Clinical trials typically are conducted in sequential phases: Phases 1, 2 and 3. The phases may overlap. The FDA may require that we suspendclinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are being exposed to anunacceptable health risk. In Phase 1 clinical trials, a drug is usually tested on patients to determine safety, any adverse effects, proper dosage, absorption, metabolism,distribution, excretion and other drug effects. In Phase 2 clinical trials, a drug is usually tested on a limited number of subjects to preliminarily evaluate the efficacy of the drug for specific,targeted indications, determine dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks. In Phase 3 clinical trials, a drug is usually tested on a larger number of subjects in an expanded patient population and at multiple clinical sites. 8 We cannot assure you that any of our current or future clinical trials will result in approval to market our products. A NDA or BLA must include comprehensive and complete descriptions of the preclinical testing, clinical trials and the chemical, manufacturing andcontrol requirements of a drug that enable the FDA to determine the drug’s or biologic’s safety and efficacy. A NDA or BLA must be submitted, filed andapproved by the FDA before any product that we may successfully develop can be marketed commercially in the United States. The facilities, procedures and operations for any of our contract manufacturers must be determined to be adequate by the FDA before productapproval. Manufacturing facilities are subject to inspections by the FDA for compliance with cGMP, licensing specifications and other FDA regulationsbefore and after an NDA or BLA has been approved. Foreign manufacturing facilities are also subject to periodic FDA inspections or inspections by foreignregulatory authorities. Among other things, the FDA may withhold approval of NDAs, BLAs or other product applications if deficiencies are found at thefacility. Vendors that may supply us with finished products or components used to manufacture, package and label products are also subject to similarregulations and periodic inspections. In addition, the FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals, including, butnot limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, andpromotional activities involving the Internet. Failure to comply with FDA and other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure ofproducts, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs or BLAs, injunctions and criminalprosecution. Any of these actions could have a material adverse effect on us. Some of our cancer and vaccine product candidates may involve biological products, which are subject to regulation under the PHSA. In addition tothe FDA requirements, the NIH has established guidelines for research involving human genetic materials, including recombinant DNA molecules. The FDAcooperates in the enforcement of these guidelines, which apply to all recombinant DNA research that is conducted at facilities supported by the NIH,including proposals to conduct clinical research involving gene therapies. The NIH review of clinical trial proposals and safety information is a publicprocess and often involves review and approval by the Recombinant DNA Advisory Committee, or RAC, of the NIH. Some of our cancer and vaccine productcandidates may be subject to NIH RAC review. The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests,proposed labeling and other relevant information are submitted to the FDA in the form of a BLA, requesting approval to market the product for one or morespecified indications. The submission of a BLA is subject to the payment of substantial user fees. Once the FDA receives an NDA or BLA, it has 60 days to review the application to determine if it is substantially complete and the data is readable,before it accepts the NDA or BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the submission to determine,among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordancewith cGMP to assure and preserve the product’s identity, strength, quality and purity. Under the goals and policies agreed to by the FDA under PDUFA, the FDA agrees to specific goals for NDA review time through a two-tieredclassification system, Priority Review and Standard Review. A Priority Review designation is given to drugs that offer major advances in treatment, orprovide a treatment where no adequate therapy exists. For a Priority Review application, the FDA aims to complete the initial review cycle for New MolecularEntities, or NMEs, within six months of the 60 day filing date, and for non-NMEs within six months of the date of receipt. Standard Review applies to allapplications that are not eligible for Priority Review. The FDA aims to complete Standard Review NDAs for NMEs within ten months of the 60 day filingdate, and for Non-NMEs within ten months of the date of receipt. Such dates are often referred to as the PDUFA dates. The FDA does not always meet itsPDUFA dates for either Standard Reviews or Priority Reviews of NDAs or BLAs. The review process and the PDUFA date may be extended by three months ifthe FDA requests or the sponsor otherwise provides additional information or clarification regarding information already provided in the submission withinthe last three months before the PDUFA date. In addition, the FDA’s review processes can extend beyond, and in some cases significantly beyond, anticipatedcompletion dates due to FDA requests for additional information or clarification, difficulties scheduling an advisory committee meeting, negotiationsregarding any required risk evaluation and mitigation strategies, FDA workload issues or other reasons. The FDA may refer the application to an advisorycommittee for review, evaluation and recommendation as to the application’s approval. The amount of time taken for the approval process is a function of anumber of variables, including whether the product has received priority review, the quality of the submission and studies presented, the potentialcontribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. 9 The FDA may, during its review of a NDA or BLA, ask for additional test data or the conducting of additional clinical trials. If the FDA doesultimately approve the product, it may require post-marketing testing to monitor the safety and effectiveness of the product. In addition, the FDA may insome circumstances impose restrictions on the use of the product, which may be difficult and expensive to administer and may require prior approval ofpromotional materials. Prior to regulatory approval, the FDA may elect to obtain advice from outside experts regarding scientific issues and/or marketing applicationsunder FDA review. These outside experts are convened through the FDA’s Advisory Committee process. An Advisory Committee will report to the FDA andmake recommendations. Views of the Advisory Committee may differ from those of the FDA, and the FDA is not bound by the recommendations of anAdvisory Committee. Before approving an NDA or BLA, the FDA can inspect the facilities at which the product is manufactured. The FDA will not approve thesubmission unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistentproduction of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinicalsites to assure that the clinical studies were conducted in compliance with GCP requirements. If the FDA determines that the processes and procedures usedare not acceptable, it will outline the deficiencies in the submission and often will request additional clinical testing or information before an NDA or BLAcan be approved. The FDA may also inspect one or more of the preclinical toxicology research sites to assure that the preclinical studies were conducted incompliance with GLP requirements. If the FDA determines that the studies were not performed in compliance with applicable GLP rules and regulations, theFDA may request additional preclinical testing or information before an NDA or BLA can be approved. The FDA will issue a complete response letter if the agency decides not to approve the NDA or BLA. The complete response letter describes all ofthe specific deficiencies in the submission identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, ormajor, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant mighttake to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA or BLA,addressing all of the deficiencies identified in the letter, or withdraw the application. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use mayotherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings orprecautions be included in the product labeling. In addition, the FDA may require post marketing studies, sometimes referred to as Phase 4 testing, whichinvolves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety ofapproved products that have been commercialized. After approval, certain changes to the approved drug or biologic, such as adding new indications,manufacturing changes or additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, anNDA or BLA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to an NDA or BLA,the FDA has up to 180 days to review the application. As with new NDAs or BLAs, the review process is often significantly extended by FDA requests foradditional information or clarification. Any drug or biologic products for which we or our collaborators receive FDA approvals are subject to continuing regulation by the FDA, including,among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacyinformation, product storage, sampling and distribution requirements, complying with certain electronic records and signature requirements and complyingwith FDA promotion and advertising requirements, which include, among others, restrictions on direct-to-consumer advertising, promoting biologics for usesor in patient populations that are not described in the product’s approved labeling, known as “off-label use, industry-sponsored scientific and educationalactivities and promotional activities involving the internet. The FDA closely regulates the post-approval marketing and promotion of biologics, andalthough physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. Failure to complywith these or other FDA requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing,seizure of product, injunctive action, mandated corrective advertising or communications with healthcare professionals, possible civil or criminal penalties orother negative consequences, including adverse publicity. We will rely, and expect to continue to rely, on third-parties for the production of clinical and commercial quantities of our products. Ourcollaborators may also utilize third-parties for some or all of a product we are developing with such collaborator. Manufacturers are required to comply withapplicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require among other things, quality control andquality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved in the manufactureand distribution of approved biologics are required to register their establishments with the FDA and certain state agencies and are subject to periodicinspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time,money and effort in the area of production and quality control to maintain cGMP compliance. 10 Section 505(b)(2) New Drug Applications Most drug products obtain FDA marketing approval pursuant to a Section 505(b)(1) NDA filing or an Abbreviated NDA, or ANDA. A thirdalternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s findings ofsafety and efficacy of an existing product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path toFDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at leastsome of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a rightof reference. The applicant may rely upon the FDA’s findings with respect to certain pre-clinical or clinical studies conducted for an approved product. TheFDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may thenapprove the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any newindication sought by the Section 505(b)(2) applicant. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s productor a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s ApprovedDrug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. For some drugs, the FDA may require risk evaluation andmitigation strategies, or REMS, which could include medication guides, physician communication plans, or restrictions on distribution and use, such aslimitations on who may prescribe the drug or where it may be dispensed or administered. To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings ofsafety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2)application with respect to any patents for the previously approved product on which the applicant’s application relies that are listed in the Orange Book.Specifically, the applicant must certify for each listed patent that, in relevant part, (1) the required patent information has not been filed; (2) the listed patenthas expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listedpatent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previouslyapproved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challengeone or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patentsclaiming the referenced product have expired. Further, the FDA will also not approve, as applicable, a Section 505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three year exclusivity for an approval based onnew clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired. If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IVcertification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2)NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2)applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certificationautomatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holderreceives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. Even if a patentinfringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invokethe 30-month stay. Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of apreviously approved drug’s five year exclusivity period and the patent holder brings suit within 45 days of notice of certification, the 30-month period isautomatically extended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of thepreviously approved reference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and one-half year period ifeither party is found not to be reasonably cooperating in expediting the litigation. As a result, we may invest a significant amount of time and expense in the development of a product and our Section 505(b)(2) applications only tobe subject to significant delay and patent litigation before our product may be commercialized. Alternatively, if the prior NDA applicant or relevant patentholder does not file a patent infringement lawsuit within the specified 45-day period, the FDA may approve the Section 505(b)(2) application at any time,assuming the application is otherwise approvable. Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companiesand others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’sinterpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit. 11 We intend to pursue a Section 505(b)(2) regulatory filing in connection with our Epinephrine PFS product, APC-1000, APC-3000, and APC-5000DPI products and product candidates. Accordingly, if we rely in our regulatory filing on clinical trials conducted, or the FDA’s prior findings of safety andeffectiveness, for a previously approved drug product that involves patents referenced in the Orange Book, then we will need to make the patent certificationsor the Paragraph IV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that wereferenced in our application initiates patent litigation within the time periods described above, then we will be subject to the risks of patent litigation, withthe accompanying delay described above and potentially material expense of patent litigation, before we could commercially market our product. In addition, even if we submit a 505(b)(2) application, such as we have submitted for the Epinephrine PFS product and as we may submit for otherfuture products, that relies on clinical trials conducted for a previously approved product where there are no patents for such other product with respect towhich we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on the particular previously approvedproduct that we chose to rely on, conclude that such previously approved product is not an acceptable reference product, and require us instead to referenceanother previously approved product that involves patents referenced in the Orange Book, requiring us to make the certifications described above andsubjecting us to the risks of delay and expense described above. Regulation Outside the United States If we market our products in foreign countries, we also will be subject to foreign regulatory requirements governing human clinical trials andmarketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product approval, pricing and reimbursementvary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities offoreign countries must be obtained before manufacturing or marketing the product in those countries. The approval process varies from country to countryand the time required for such approvals may differ substantially from that required for FDA approval. There is no assurance that any future FDA approval ofany of our clinical trials or drugs will result in similar foreign approvals or vice versa. Additional Regulation Third-Party Reimbursement In the United States, physicians, hospitals and other healthcare providers that purchase pharmaceutical products generally rely on third-party payors,principally private health insurance plans, Medicare and, to a lesser extent, Medicaid, to reimburse all or part of the cost of the product and procedure forwhich the product is being used. Even if a product is approved for marketing by the FDA, there is no assurance that third-party payors will cover the cost ofthe product and related medical procedures. If they do not, end-users of the drug would not be eligible for any reimbursement of the cost, and our ability tosuccessfully market any such drug would be materially and adversely impacted. Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursement approvalsmust be obtained on a country-by-country basis. In many foreign markets, including markets in which we hope to sell our products, the pricing ofprescription pharmaceuticals is subject to government pricing control. In these markets, once marketing approval is received, pricing negotiations could takesignificant additional time. As in the United States, the lack of satisfactory reimbursement or inadequate government pricing of any of our products wouldlimit their widespread use and lower potential product revenues. Fraud and Abuse Laws Federal and state anti-kickback and anti-fraud and abuse laws, as well as the federal Civil False Claims Act may apply to certain drug and deviceresearch and marketing practices. The Civil False Claims Act prohibits knowingly presenting or causing to be presented a false, fictitious or fraudulent claimfor payment to the United States. Actions under the Civil False Claims Act may be brought by the Attorney General or by a private individual acting as aninformer or whistleblower in the name of the government. Violations of the Civil False Claims Act can result in significant monetary penalties. The federalgovernment is using the Civil False Claims Act, and the threat of significant liability, in its investigations of healthcare providers, suppliers and drug anddevice manufacturers throughout the country for a wide variety of drug and device marketing and research practices, and has obtained multi-million dollarsettlements. The federal government may continue to devote substantial resources toward investigating healthcare providers’, suppliers’ and drug and devicemanufacturers’ compliance with the Civil False Claims Act and other fraud and abuse laws. We may have to expend significant financial resources andmanagement attention if we ever become the focus of such an investigation, even if we are not guilty of any wrong doings. HIPAA The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires the use of standard transactions, privacy and security standardsand other administrative simplification provisions, by covered entities which include many healthcare providers, health plans and healthcare clearinghouses.HIPAA instructs the Secretary of the Department of Health and Human Services to promulgate regulations implementing these standards in the United States. 12 Other Laws We are also subject to other federal, state and local laws of general applicability, such as laws regulating working conditions, and various federal,state and local environmental protection laws and regulations, including laws such as the Occupational Safety and Health Act, the Environmental ProtectionAct, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other similar federal and state laws regarding, among other things,occupational safety, the use and handling of radioisotopes, environmental protection and hazardous substance control. Although we believe that we havecomplied with these laws and regulations in all material respects and have not been required to take any action to correct any noncompliance, there can be noassurance that we will not be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our researchand development activities may involve the controlled use of hazardous materials, including chemicals that cause cancer, volatile solvents, radioactivematerials and biological materials that have the potential to transmit disease, and our operations may produce hazardous waste products. If we fail to complywith these laws and regulations we could be subjected to criminal sanctions and substantial financial liability or be required to suspend or modify ouroperations. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects with legallyprescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of contamination orinjury, we could be held liable for damages or penalized with fines in an amount exceeding our resources. License Agreements Agreement Relating to APC-5000 DPI On August 1, 2013, we entered into an agreement with 3M Company to exclusively license and, upon final payment acquire, assets relating to 3MCompany’s patented Taper dry powder inhaler, or DPI, technology under development by 3M for the treatment of asthma and COPD. Pursuant to theagreement, we made an initial payment of $3.0 million to 3M and acquired an exclusive license to the assets for all indications in the dry powder inhalationfield through December 31, 2013, and on December 27, 2013, we made a final payment to 3M of $7.0 million and the assets were transferred to us, withAdamis granting back to 3M a license to the intellectual property assets outside of the dry powder inhalation field. The intellectual property includes patents,patent applications and other intellectual property relating to the assets. Pursuant to the agreement, after full payment of the purchase price 3M has agreed to provide certain services to assist with transfer and transition ofthe assets to us. The agreement includes certain other customary provisions, including representations and warranties, warranty disclaimers andindemnification provisions. We intend to utilize the assets initially to develop a pre-metered inhaler device, referred to as APC-5000 DPI, for the treatment of asthma and COPDto deliver the same active ingredients as GlaxoSmithKline’s Advair Diskus. The design of the APC-5000 DPI uses proprietary 3M technology to store the active pharmaceutical ingredients on a microstructured carrier tape.Under the agreement, 3M and Adamis have agreed to work in good faith to negotiate and enter into a separate supply agreement providing for the supply ofthe drug delivery tape to be used with the product. License Agreements Relating to APC-100, APC-200 and APC-300 Pursuant to an agreement entered into in February 2010, a privately held company assigned to us all of its rights under exclusive license agreementsrelating to the APC-100, APC-200 and APC-300 product candidates, in return for consideration consisting of shares of our common stock. Under the licenseagreement, Wisconsin Alumni Research Foundation, or WARF, is the licensor of the patents, patent applications and related intellectual property relating tothe compounds. Under each separate agreement, WARF grants to us, as the licensee, an exclusive license, with rights of sublicense, under the patents andpatent applications identified in the agreement, for the fields of human nutraceuticals, preventatives, therapeutics and diagnostics and for all territoriesworldwide that are covered by any of the licensed patents. 13 The license agreements include milestones that we, as the licensee, agree to meet by certain dates, relating to obtaining cumulative funding bycertain dates, the filing of an IND relating to a covered product, enrollment of a first patient under a Phase II clinical trial by certain dates, and filing of anNDA with the FDA relating to a covered product by certain dates. WARF has the right to terminate the license agreement with advance notice if we fail tomeet any of the funding milestones or commercialization milestones. Under each agreement, we agree to pay WARF a milestone payment of $25,000 uponthe filing of the first IND or comparable regulatory filing for a covered product, and additional payments upon the achievement of the additional milestones,aggregating approximately $600,000. Under all of the agreements, we agree to pay product royalties to WARF based on net sales of covered products, at a rate of 5% of net sales. Theagreements include customary stacking provisions providing for a reduction in royalties if we become obligated to pay royalties to other third parties onsales of covered products, but in all events the rate will be not less than 2.5% of net sales. In addition, if we receive any fees or other payments inconsideration for any rights granted under a sublicense, and the fees or payments are not based directly on the amount or value of products sold by thesublicensee or provided as reimbursement for research and development costs incurred by us, then we are obligated to pay to WARF a percentage of suchpayments, ranging from 10% to 40% depending on what the stage of regulatory approval and clinical trial development at the time the payments arereceived. Each agreement provides that we will reimburse WARF for legal fees and other costs incurred in filing, prosecuting and maintaining the licensedpatents during the term of the agreement. These amounts will accrue for a period of four years after the date of the agreement, after which time the accruedamounts will be paid in four annual installments. The term of each agreement continues until the date that none of the licensed patents under the agreement remains an enforceable patent. We mayterminate the agreement at any time with 90 days prior notice to WARF. WARF may terminate the agreement if the date of first commercial sale of a coveredproduct does not occur by December 31, 2020 under the APC-100 and APC-200 agreements and December 31, 2021 under the APC-300 agreement. WARFmay also terminate the agreement following our failure to meet a funding or commercialization milestone, or if we fail to pay amounts when due or deliver adevelopment report or commits a material breach of the agreement and fail to cure the default within 90 days. Telomerase Vaccine Technology Our telomerase vaccine technology was licensed pursuant to exclusive license agreements entered into in April 2011 with the Regents of theUniversity of California and the Dana-Farber Cancer Institute, Inc. Pursuant to the agreement with the University of California, we acquired a license tocertain patents and related intellectual property rights relating to a telomerase-based cancer vaccine technology. We licensed a complementary patent basedon technology from the Dana-Farber Cancer Institute, Inc. Under the terms of the license agreement, we licensed the patents and related intellectual propertyfor a field that includes therapeutic and preventive cancer vaccines in humans, and for a territory that includes the United States. The term of the licenseextends through the expiration date of the longest-lived patent rights covered by the agreement. Under the agreement, we paid to the universities a smallupfront license issue fee in connection with the execution of the license agreement. We will pay the universities a small annual maintenance fee on the firstthree anniversaries of the date of the agreement, increasing in an immaterial amount thereafter, until we or a permitted sublicensee is commercially selling alicensed product. For the first indication of a licensed product, we will make payments upon reaching specified milestones in clinical development and obtaining U.S.regulatory approval for a licensed product, potentially aggregating approximately $1.87 million if all milestone payments are made, including obtaining U.S.regulatory approval for a licensed product. Similar payments apply to the second indication of a licensed product. The agreement also provides that we willpay the universities royalties, in the low single digits, payable on net sales of licensed products. The agreement includes customary provisions for adjustingthe royalty rate in the case of a combination product that includes a licensed product and other products or product components. The agreement includescustomary royalty stacking provisions providing for a reduction in the royalty rate if we are required to pay royalties to other third parties to acquire patentrights necessary to make, use or sell licensed products, up to one-half of the amounts otherwise due to the universities. If we enter into sublicenses of the licensed technology, then a portion of the sublicense fees received by us from the sublicensee is payable to theuniversities, with the exact percentage depending on the time during the product development, clinical trials and regulatory approval process that thesublicense is entered into. If we receive product royalty payments from sublicensees, we are obligated to pay a percentage of those fees to the universities,with the exact percentage depending on the status of product development and commercialization. Following commercial sales of a licensed product, theagreement provides for minimum annual royalties to the universities, with an increased amount starting with the third full year of sales. We are responsible forpayment of patent costs relating to the licensed patents, including patent costs previously incurred by the universities. In the agreement, we agree todiligently proceed with the development, manufacture and sale of licensed products, and to satisfy certain development and regulatory submissionmilestones by certain dates. Failure to satisfy these obligations permits the universities to either terminate the license agreement or convert the license to anon-exclusive license. The universities may terminate the agreement if we fail to perform or violate any term of the agreement and do not cure the defaultwithin 60 days of notice. We may terminate the agreement upon 90 days’ notice to the universities. 14 License Agreement Relating to Vaccine Technologies On July 28, 2006, for consideration consisting of shares of our common stock and a $55,000 initial license fee, we entered into a worldwideexclusive license agreement with Nevagen, LLC, an entity owned by Dr. Zanetti, to utilize technology held by Nevagen within the field of viral infectiousagents. The licensed intellectual property includes the use of the technology known as “Transgenic Lymphocyte Technology” covered by certain U.S. andforeign patents and patent applications. The license will terminate with the expiration of the U.S. patent for the intellectual property. For the first product, we will make payments upon reaching specified milestones in clinical development and submission of an applicationregulatory approval, potentially aggregating $900,000 if all milestone payments are made. As of the date of this Annual Report on Form 10-K, no milestoneshave been achieved and no milestone payments have been made. The agreement also provides that we will pay Nevagen royalties, in the low single digits,payable on net sales received by us of covered products. If additional technologies are required to be licensed to produce a functional product, the royaltyrate will be reduced by the amount of the royalty paid to the other licensor, but not more than one-half the specified royalty rate. Royalties and incrementalpayments with respect to influenza will continue until reaching a cumulative total of $10.0 million. Adamis and Nevagen have the right to sublicense with written permission of the other party. In the event that Nevagen sublicenses or sells theimproved technology to a third party, then a portion of the total payments, to be decided by mutual agreement, will be due to us. If we sublicense theintellectual property for use in influenza to a third party, Nevagen will be paid a fixed percentage of all license fees, royalties, and milestone payments, inaddition to royalties due and payable based on net sales. If we grant a sublicense to another company for any indication in the field covered by the license agreement other than with respect to influenza,Nevagen will be paid a portion of all license fees, royalties and milestone payments, with the percentage declining over time based on the year in which thesublicense is granted. Certain incremental non-flu virus related sublicensing payments described in the license agreement are specifically excluded from theroyalty cap. All improvements of the intellectual property conceived of, or reduced to practice by us, or made jointly by us and Nevagen, will be owned solelyby us. We granted Nevagen a royalty-free nonexclusive license to use any improvements made on the existing technology for research purposes only, but notfor any commercial purposes of any kind. We have agreed to grant to Nevagen a royalty-free license for any improvement needed for the commercializationof the intellectual property for Nevagen’s use outside the field licensed to us. If Nevagen sublicenses or sells the improved technology to a third party, then aportion of the total payments, to be decided by mutual agreement, will be due to us. We also have the right of first offer to license certain related technologiesfrom Nevagen, if and when it becomes available. We have the right to terminate the agreement if it is determined that no viable product can come from the licensed technology. Upon suchtermination, we would be required to transfer and assign to Nevagen all filings, rights and other information in our control. We would retain the same royaltyrights for license, or sublicense, agreements if the technology is later developed into a product. Either party may terminate the license agreement in the eventof a material breach of the agreement by the other party that has not been cured or corrected within 90 days of notice of the breach. Employees As of May 31, 2014, we had nine full-time employees and no part-time employees. None of our employees is subject to a collective bargainingagreement or represented by a labor or trade union, and we believe that our relations with our employees are good. Corporate Background Adamis Pharmaceuticals Corporation was founded in June 2006 as a Delaware corporation. Effective April 1, 2009, the company formerly namedAdamis Pharmaceuticals Corporation, or Old Adamis, completed a business combination transaction with Cellegy Pharmaceuticals, Inc., or Cellegy. Beforethe merger, Cellegy was a public company and Old Adamis was a private company. In connection with the consummation of the merger and pursuant to theterms of the definitive merger agreement relating to the transaction, Cellegy was the surviving corporation in the merger and changed its name from CellegyPharmaceuticals, Inc. to Adamis Pharmaceuticals Corporation, and Old Adamis survived as a wholly-owned subsidiary and changed its corporate name toAdamis Corporation. We have two wholly-owned subsidiaries: Adamis Corporation and Biosyn, Inc., which has rights to the C31G product. Adamis Corporation has twowholly-owned subsidiaries: Adamis Viral Therapies, Inc., or Adamis Viral, which was formed to focus on our cancer and vaccine technologies; and AdamisLaboratories, Inc., or Adamis Labs, which was formed to focus on our allergy and respiratory products. Our principal executive offices are located at 11682 El Camino Real, Suite 300, San Diego, CA 92130, and our telephone number is (858) 997-2400.Our website address is: www.adamispharmaceuticals.com. We have included our website address as a factual reference and do not intend it to be an activelink to our website. 15 ITEM 1A.RISK FACTORS You should consider carefully the following information about the risks described below, together with the other information contained in thisAnnual Report on Form 10-K and in our other public filings in evaluating our business. Our business, financial condition, results of operations and futureprospects could be materially and adversely affected by these risks if any of them actually occurs. In these circumstances, the market price of our commonstock would likely decline. The risks and uncertainties described below are not the only ones we face. Additional risks not currently known to us or otherfactors not perceived by us to present significant risks to our business at this time also may impair our business. Risks Related to Our Business, Industry and Financial Condition We may never commercialize any of our products or earn a profit. We have not received regulatory approval for any drugs or products. Since our fiscal 2010 year, we have not generated commercial revenues frommarketing or selling any drugs or other products. We currently have no revenues from product sales, have not generated any revenue from operations for thelast four fiscal years, and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our product candidates andtechnologies. We may never be able to commercialize any of our product candidates or be able to generate revenues from products sales. Because of the risksand uncertainties associated with developing and commercializing our specialty pharmaceuticals, cancer and other product candidates, we are unable topredict when we may commercially introduce products, the extent of any future losses or when we will become profitable, if ever. We may never successfullycommercialize our product candidates, and our business may fail. Our auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing. Our audited financial statements for the year ended March 31, 2014, were prepared under the assumption that we would continue our operations as agoing concern. Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our financialstatements for the years ended March 31, 2014 and 2013, indicating that we have sustained substantial losses from continuing operations and have used,rather than provided, cash in our continuing operations, and that these factors raise substantial doubt about our ability to continue as a going concern.Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability tocontinue as a going concern are dependent on our ability to obtain additional funding in the near future and thereafter, and there are no assurances that suchfunding will be available at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments thatmay result from the outcome of this uncertainty. Without additional funds from debt or equity financings, sales of assets, sales or out-licenses of intellectualproperty or technologies, or other transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a viableentity, our stockholders would likely lose most or all of their investment in us. We will require additional financing to continue as a going concern. We incurred a net loss of approximately $8.2 million for the year ended March 31, 2014, and a net loss of approximately $7.2 million for the yearended March 31, 2013. At March 31, 2014, we had cash and cash equivalents of approximately $5.4 million, no accounts receivable and liabilities ofapproximately $2.9 million. Absent additional funding, we believe that our cash and cash equivalents will be sufficient to fund our operations only for arelatively short period of time. The development of our business will require substantial additional capital in the future to commercialize our EpinephrinePFS product, proceed with development of the APC-5000 DPI product, and conduct research and develop our cancer and vaccine technologies and otherproduct candidates, as well as to fund our ongoing operations and satisfy our obligations and liabilities. We have historically relied upon private sales of ourequity or debt securities to fund our operations. We currently have no credit facility or committed sources of capital. Delays in obtaining funding couldadversely affect our ability to develop and commercially introduce products and cause us to be unable to comply with our obligations under outstandinginstruments. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance andinvestor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back ordiscontinue the development or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering intoagreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties withwhom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could berequired to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us. Statements in this Annual Report on Form 10-K concerning our future plans and operations are dependent on our ability to secure adequate funding andthe absence of unexpected delays or adverse developments. We may not be able to secure required funding. 16 The statements contained in this Annual Report on Form 10-K concerning future events or developments or our future activities, such as concerningcurrent or planned clinical trials, anticipated research and development activities, anticipated dates for commencement of clinical trials, anticipatedcompletion dates of clinical trials, anticipated meetings with the FDA or other regulatory authorities concerning our product candidates, anticipated dates forsubmissions to obtain required regulatory marketing approvals, anticipated dates for commercial introduction of products, and other statements concerningour future operations and activities, are forward-looking statements that in each instance assume that we are able to obtain sufficient funding in the near termand 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 thecase. 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 describedin any such statements from occurring which could adversely affect our business, financial condition and results of operations. We have incurred losses since our inception, and we anticipate that we will continue to incur losses. We may never achieve or sustain profitability. We incurred net losses of approximately $8.2 million for the year ended March 31, 2014, and a net loss of approximately $7.2 million for the yearended March 31, 2013. From inception through March 31, 2014, we have an accumulated deficit of approximately $46.1 million. These losses will increaseas we continue our research and development activities, seek regulatory approvals for our product candidates and commercialize any approved products.These losses will cause, among other things, our stockholders’ equity and working capital to decrease. Any future earnings and cash flow from operations ofour business are dependent on our ability to further develop our products and on revenues and profitability from sales of products. There can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis. Even if wegenerate revenues, we expect to have quarter-to-quarter fluctuations in revenues and expenses, some of which could be significant, due to research,development, clinical trial, marketing and manufacturing expenses and activities. If our product candidates fail in clinical trials or do not gain regulatoryapproval, or if our products do not achieve market acceptance, we may never become profitable. As we commercialize and market products, we will need toincur expenses for product marketing and brand awareness and conduct significant research, development, testing and regulatory compliance activities that,together with general and administrative expenses, could result in substantial operating losses for the foreseeable future. Even if we do achieve profitability,we may not be able to sustain or increase profitability on a quarterly or annual basis. Our limited operating history may make it difficult to evaluate our business and our future viability. We are in the relatively early stage of operations and development of current products and product candidates and have only a limited operatinghistory on which to base an evaluation of our business and prospects. Even if we successfully obtain additional funding, we are subject to the risks associatedwith early stage companies with a limited operating history, including: the need for additional financings; the uncertainty of research and developmentefforts resulting in successful commercial products, as well as the marketing and customer acceptance of such products; unexpected issues with the FDA orother federal or state regulatory authorities; regulatory setbacks and delays; competition from larger organizations; reliance on the proprietary technology ofothers; dependence on key personnel; uncertain patent protection; fluctuations in expenses; and dependence on corporate partners and collaborators. Anyfailure to successfully address these risks and uncertainties could seriously harm our business and prospects. We may not succeed given the technological,marketing, strategic and competitive challenges we will face. The likelihood of our success must be considered in light of the expenses, difficulties,complications, problems and delays frequently encountered in connection with the growth of a new business, the continuing development of new drugtechnology, and the competitive and regulatory environment in which we operate or may choose to operate in the future. Many of our potential products and technologies are in early stages of development. The development of new pharmaceutical products is a highly risky undertaking, and there can be no assurance that any future research anddevelopment efforts we might undertake will be successful. Our potential products in the cancer and viral fields will require extensive additional research anddevelopment before any commercial introduction, as will research and development work on our allergy and respiratory products. There can be no assurancethat any future research, development or clinical trial efforts will result in viable products or meet efficacy standards. Future clinical or preclinical results maybe negative or insufficient to allow us to successfully market our product candidates. Obtaining needed data and results may take longer than planned or maynot be obtained at all. Any such delays or setbacks could have a material adverse effect on our ability to achieve our financial goals. We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expecteddeadlines, we may be unable to obtain, or may experience delays in obtaining, regulatory approval, or may not be successful in commercializing ourplanned and future products. 17 Like many companies our size, we do not have the ability to conduct preclinical or clinical studies for our product candidates without the assistanceof third parties who conduct the studies on our behalf. These third parties are usually toxicology facilities and clinical research organizations, or CROs, thathave significant resources and experience in the conduct of pre-clinical and clinical studies. The toxicology facilities conduct the pre-clinical safety studiesas well as associated tasks connected with these studies. The CROs typically perform patient recruitment, project management, data management, statisticalanalysis, and other reporting functions. We intend to rely on third parties to conduct clinical trials of our product candidates and to use third party toxicologyfacilities and CROs for our pre-clinical and clinical studies. We may also rely on academic institutions or clinical research organizations to conduct,supervise or monitor some or all aspects of clinical trials involving our products. Our reliance on these third parties for development activities will reduce our control over these activities. If these third parties do not successfullycarry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised dueto the failure to adhere to our clinical protocols or for other reasons, we may be required to replace them, and our clinical trials may be extended, delayed orterminated. Although we believe there are a number of third-party contractors that we could engage to continue these activities, replacing a third-partycontractor may result in a delay of the affected trial. Delays in the commencement or completion of clinical testing of our product candidates could result in increased costs and delay our ability to generatesignificant revenues. The actual timing of commencement and completion of clinical trials can vary dramatically from our anticipated timing due to factors such asfunding limitations, scheduling conflicts with participating clinicians and clinical institutions, and the rate of patient enrollment. Clinical trials involvingour product candidates may not commence or be completed as forecast. Delays in the commencement or completion of clinical testing could significantlyimpact our product development costs. We do not know whether current or planned clinical trials will begin on time or be completed on schedule, if at all.The commencement of clinical trials can be delayed for a variety of reasons, including delays in: •obtaining required funding;•obtaining regulatory approval to commence a clinical trial;•reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;•obtaining sufficient quantities of clinical trial materials for product candidates;•obtaining institutional review board approval to conduct a clinical trial at a prospective site; and•recruiting participants for a clinical trial. In addition, once a clinical trial has begun, it may be suspended or terminated by us or the FDA or other regulatory authorities due to a number offactors, including: •failure to conduct the clinical trial in accordance with regulatory requirements;•inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinicalhold;•failure to achieve certain efficacy and/or safety standards; or•lack of adequate funding to continue the clinical trial. Clinical trials require sufficient participant enrollment, which is a function of many factors, including the size of the target patient population, thenature of the trial protocol, the proximity of participants to clinical trial sites, the availability of effective treatments for the relevant disease, the eligibilitycriteria for our clinical trials and competing trials. Delays in enrollment can result in increased costs and longer development times. Our failure to enrollparticipants in our clinical trials could delay the completion of the clinical trials beyond current expectations. In addition, the FDA could require us toconduct clinical trials with a larger number of participants than we may project for any of our product candidates. As a result of these factors, we may not beable to enroll a sufficient number of participants in a timely or cost-effective manner. Furthermore, enrolled participants may drop out of clinical trials, which could impair the validity or statistical significance of the clinical trials. Anumber of factors can influence the discontinuation rate, including, but not limited to: the inclusion of a placebo in a trial; possible lack of effect of theproduct candidate being tested at one or more of the dose levels being tested; adverse side effects experienced, whether or not related to the productcandidate; and the availability of numerous alternative treatment options that may induce participants to withdraw from the trial. We may be required to suspend, repeat or terminate our clinical trials if the trials are not well designed, do not meet regulatory requirements or the resultsare negative or inconclusive, which may result in significant negative repercussions on business and financial condition. Before regulatory approval for a potential product can be obtained, we must undertake clinical testing on humans to demonstrate the tolerability andefficacy of the product. We cannot assure you that we will obtain authorization to permit product candidates that are in the preclinical development phase toenter the human clinical testing phase. In addition, we cannot assure you that any authorized preclinical or clinical testing will be completed successfullywithin any specified time period by us, or without significant additional resources or expertise to those originally expected to be necessary. We cannot assureyou that such testing will show potential products to be safe and efficacious or that any such product will be approved for a specific indication. Further, theresults from preclinical studies and early clinical trials may not be indicative of the results that will be obtained in later-stage clinical trials. In addition, we orregulatory authorities may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks. 18 We are subject to the risk of clinical trial and product liability lawsuits. The testing of human health care product candidates entails an inherent risk of allegations of clinical trial liability, while the marketing and sale ofapproved products entails an inherent risk of allegations of product liability and associated adverse publicity. We currently maintain liability insurancecoverage of $1,000,000. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, or at all. As we conductadditional clinical trials and introduce products into the United States market, the risk of adverse events increases and our requirements for liability insurancecoverage are likely to increase. We are subject to the risk that substantial liability claims from the testing or marketing of pharmaceutical products could beasserted against us in the future. There can be no assurance that we will be able to obtain or maintain insurance on acceptable terms, particularly in overseaslocations, for clinical and commercial activities or that any insurance obtained will provide adequate protection against potential liabilities. An inability toobtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could inhibit our business. Moreover, our current and future coverages may not be adequate to protect us from all of the liabilities that we may incur. If losses from liabilityclaims exceed our insurance coverage, we may incur substantial liabilities that exceed our financial resources. In addition, a product or clinical trial liabilityaction against us would be expensive and time-consuming to defend, even if we ultimately prevailed. If we are required to pay a claim, we may not havesufficient financial resources and our business and results of operations may be harmed. A product liability claim brought against us in excess of ourinsurance coverage, if any, could have a material adverse effect upon our business, financial condition and results of operations. We do not have commercial-scale manufacturing capability, and we lack commercial manufacturing experience. We will likely rely on third parties tomanufacture and supply our product candidates. We do not own or operate manufacturing facilities for clinical or commercial production of product candidates. We do not have any experience indrug formulation or manufacturing, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercialscale. Accordingly, we expect to depend on third-party contract manufacturers for the foreseeable future. Any performance failure on the part of our contractmanufacturers could delay clinical development, regulatory approval or commercialization of our current or future product candidates, depriving us ofpotential product revenue and resulting in additional losses. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advancedmanufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scalingup initial production. These problems can include difficulties with production costs and yields, quality control (including stability of the product candidate and qualityassurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations. If our third-party contractmanufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations or under applicable regulations, our ability toprovide product candidates to patients in our clinical trials or commercially would be jeopardized. If we file an application for marketing approval of theproduct and the FDA grants marketing approval, any delay or interruption in the supply of product could delay the commercial launch of the product orimpair our ability to meet demand for the product. Difficulties in supplying products for clinical trials could increase the costs associated with our clinicaltrial programs and, depending upon the period of delay, require us to commence new trials or qualify new manufacturers at significant additional expense,possibly causing commercial delays or termination of the trials. Our products can only be manufactured in a facility that has undergone a satisfactory inspection by the FDA and other relevant regulatoryauthorities. For these reasons, we may not be able to replace manufacturing capacity for our products quickly if we or our contract manufacturer(s) wereunable to use manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure, or other difficulty, or if such facilitieswere deemed not in compliance with the regulatory requirements and such non-compliance could not be rapidly rectified. An inability or reduced capacity tomanufacture our products would have a material adverse effect on our business, financial condition, and results of operations. We are subject to substantial government regulation, which could materially adversely affect our business. If we do not receive regulatory approvals, wemay not be able to develop and commercialize our technologies. 19 We need FDA approval to market our proposed Epinephrine PFS product and other products in the United States, and similar approvals from foreignregulatory authorities to market products outside the United States. The production and marketing of our products and potential products and our ongoingresearch and development, pre-clinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmentalauthorities in the United States and will face similar regulation and review for overseas approval and sales from governmental authorities outside of theUnited States. The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of our products, as well asthe evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. We have limited experience in filingand pursuing applications necessary to gain regulatory approvals. Many of the product candidates that we are currently developing must undergo rigorouspre-clinical and clinical testing and an extensive regulatory approval process before they can be marketed. This process makes it longer, more difficult andmore costly to bring our potential products to market, and we cannot guarantee that any of our potential products will be approved. Many products for whichFDA approval has been sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensiveregulations also govern marketing, manufacturing, distribution, labeling, and record-keeping procedures. If we or our collaboration partners do not complywith applicable regulatory requirements, such violations could result in non-approval, suspensions of regulatory approvals, civil penalties and criminal fines,product seizures and recalls, operating restrictions, injunctions, and criminal prosecution. Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decideafter review of an application that the data submitted is insufficient to allow approval of the proposed product. If regulatory authorities do not accept orapprove our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatoryauthorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authoritiesbelieve is sufficient. Depending on the extent of these studies, approval of applications may be delayed by several years, or may require us to expend moreresources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomesoccur, we may be forced to abandon our applications for approval. Failure to obtain FDA or other required regulatory approvals, or withdrawal of previous approvals, would adversely affect our business. Even ifregulatory approval of a product is granted, this approval may entail limitations on uses for which the product may be labeled and promoted, or may preventus from broadening the uses of products for different applications. Following regulatory approval of any of our drug candidates, we will be subject to ongoing regulatory obligations and restrictions, which may result insignificant expense and limit our ability to commercialize our potential products. With regard to our drug candidates, if any, approved by the FDA or by another regulatory authority, we are held to extensive regulatory requirementsover product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. Regulatory approvals mayalso be subject to significant limitations on the indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing clinicalstudies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatoryauthority. Previously unknown problems with the drug candidate, including adverse events of unanticipated severity or frequency, may result in restrictionson the marketing of the drug, and could include withdrawal of the drug from the market. In addition, the law or regulatory policies governingpharmaceuticals may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatoryapproval of our drug candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation oradministrative action, either in the United States or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market ourdrugs and our business could suffer. We intend to pursue Section 505(b)(2) regulatory approval filings with the FDA for our products where applicable. Such filings involve significant costs,and we may also encounter difficulties or delays in obtaining regulatory approval for our products. We intend to pursue a Section 505(b)(2) regulatory filing with the FDA in connection with our Epinephrine PFS, APC-1000, APC-3000 and APC-5000 DPI products and product candidates. A Section 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA’sfindings of safety and efficacy of an existing previously approved product, or published literature, in support of its application. Section 505(b)(2) NDAs oftenprovide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Such filings involve significantfiling costs, including filing fees. To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings ofsafety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2)application with respect to any patents for the previously approved product on which the applicant’s application relies and that are listed in the FDA’sApproved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Specifically, the applicant must certify for eachlisted patent that, in relevant part, (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired,but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not beinfringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that suchpatent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a ParagraphIV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. 20 If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IVcertification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2)NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2)applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certificationautomatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holderreceives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. If we rely in our Section 505(b)(2) regulatory filings on clinical trials conducted, or the FDA’s prior findings of safety and effectiveness, for apreviously approved drug product that involves patents referenced in the Orange Book, then we will need to make the patent certifications or the ParagraphIV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that we referenced in ourapplication initiates patent litigation within the time periods described above, then any FDA approval of our 505(b)(2) application would be delayed untilthe earlier of 30 months, resolution of the lawsuit, or the other events described above. Accordingly, our anticipated dates of commercial introduction of ourEpinephrine PFS product and or other products would be delayed. In addition, we would incur the expenses, which could be material, involved with any suchpatent litigation. As a result, we may invest a significant amount of time and expense in the development of our product only to be subject to significantdelay and patent litigation before our product may be commercialized, if at all. In addition, even if we submit a Section 505(b)(2) application, such as we have submitted for the Epinephrine PFS product and as we may submit forother future products, that relies on clinical trials conducted for a previously approved product where there are no patents referenced in the Orange Book forsuch other product with respect to which we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on theparticular previously approved product that we chose to rely on, conclude that such previously approved product is not an acceptable reference product, andrequire us instead to rely as a reference product on another previously approved product that involves patents referenced in the Orange Book, requiring us tomake the certifications described above and subjecting us to additional delay, expense and the other risks described above. If we fail to obtain acceptable prices or appropriate reimbursement for our products, our ability to successfully commercialize our products will beimpaired. Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians andpharmaceutical companies such as Adamis, that plan to offer various products in the United States and other countries in the future. Physicians and patientsmay decide not to order our products unless third-party payors, such as managed care organizations as well as government payors such as Medicare andMedicaid, pay a substantial portion of the price of the products. Market acceptance and sales of our products and potential products will depend in part onthe extent to which reimbursement for the costs of such products will be available from government health administration authorities, private health coverageinsurers, managed care organizations, and other organizations. In the United States, our ability to have our products eligible for Medicare, Medicaid orprivate insurance reimbursement will be an important factor in determining the ultimate success of our products. If, for any reason, Medicare, Medicaid or theinsurance companies decline to provide reimbursement for our products, our ability to commercialize our products would be adversely affected. Third-party payors may challenge the price of medical and pharmaceutical products. Reimbursement by a third-party payor may depend on anumber of factors, including a payor’s determination that our product candidates are: •not experimental or investigational;•effective;•medically necessary;•appropriate for the specific patient;•cost-effective;•supported by peer-reviewed publications; and•included in clinical practice guidelines. If purchasers or users of our products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products,they may forego or reduce such use. Significant uncertainty exists as to the reimbursement status of newly approved pharmaceutical products, and there canbe no assurance that adequate third-party coverage will be available for any of our products. Even if our products are approved for reimbursement byMedicare, Medicaid and private insurers, of which there can be no assurance, the amount of reimbursement may be reduced at times or even eliminated. Thiswould have a material adverse effect on our business, financial condition and results of operations. 21 Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably. In both the United States and certain foreign jurisdictions, there have been and are expected to be a number of legislative and regulatory changes tothe healthcare system in ways that could impact our ability to sell our products profitably, including the Patient Protection and Affordable Care Act signedinto law in the United States in March 2010. Given the enactment of these laws and other federal and state legislation and regulations relating to thehealthcare system, it is still too early to determine their impact on the biotechnology and pharmaceutical industries and our business. The U.S. Congresscontinues to consider issues relating to the healthcare system, and future legislation or regulations may affect our ability to market and sell products onfavorable terms, which would affect our results of operations, as well as our ability to raise capital, obtain additional collaborators or profitably market ourproducts. Such legislation or regulation may reduce our revenues, increase our expenses or limit the markets for our products. In particular, we expect toexperience pricing pressures in connection with the sale of our products due to the influence of health maintenance and managed health care organizationsand additional legislative proposals. We have limited sales, marketing and distribution experience. We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that we will be able toestablish sales, marketing, and distribution capabilities or make arrangements with our current collaborators or others to perform such activities or that suchefforts will be successful. If we decide to market any products directly, we must either acquire or internally develop a marketing and sales force with technicalexpertise and with supporting distribution capabilities. The acquisition or development of a sales, marketing and distribution infrastructure would requiresubstantial resources, which may not be available to us or, even if available, could divert the attention of our management and key personnel and have anegative impact on further product development efforts. We may seek to enter into arrangements to develop and commercialize our products. These collaborations, if secured, may not be successful. We have entered into arrangements with third parties regarding development and commercialization of some of our products and may in the futureseek to enter into collaborative arrangements to develop and commercialize some of our potential products both in North America and international markets.There can be no assurance that we will be able to negotiate collaborative arrangements on favorable terms or at all or that our current or future collaborativearrangements will be successful. The amount and timing of resources such third parties will devote to these activities may not be within our control. Therecan be no assurance that such parties will perform their obligations as expected. There can be no assurance that our collaborators will devote adequateresources to our products. If our potential products are unable to compete effectively with current and future products targeting similar markets as our potential products, ourcommercial opportunities will be reduced or eliminated. The markets for epinephrine products, our proposed APC-5000 inhaler product and other allergy and respiratory products, and cancer and vaccineproducts, are intensely competitive and characterized by rapid technological progress. We face competition from numerous sources, including majorbiotechnology and pharmaceutical companies worldwide. Many of our competitors have substantially greater financial and technical resources, anddevelopment, production and marketing capabilities, than we do. Certain companies have established technologies that may be competitive with our productcandidates and any future products that we may develop or acquire. Some of these products may use different approaches or means to obtain results, whichcould be more effective or less expensive than our products for similar indications. In addition, many of these companies have more experience than we do inpre-clinical testing, clinical trials and manufacturing of compounds, obtaining FDA and foreign regulatory approvals, and brand name exposure and expertisein sales and marketing. We also compete with academic institutions, governmental agencies and private organizations that are conducting research in thesame fields. Competition among these entities to recruit and retain highly qualified scientific, technical and professional personnel and consultants is alsointense. As a result, there is a risk that one or more of our competitors will develop a more effective product for the same indications for which we aredeveloping a product or, alternatively, bring a similar product to market before we can do so. Failure to successfully compete will adversely impact theability to raise additional capital and ultimately achieve profitable operations. Our product candidates may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generaterevenues, which will undermine our future growth prospects. Even if our product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of anyapproved product candidate by physicians, health care professionals and third-party payors, and our profitability and growth will depend on a number offactors, including: •the ability to provide acceptable evidence of safety and efficacy;•pricing and cost effectiveness, which may be subject to regulatory control;•our ability to obtain sufficient third-party insurance coverage or reimbursement;•effectiveness of our or our collaborators’ sales and marketing strategy;•relative convenience and ease of administration;•the prevalence and severity of any adverse side effects; and•availability of alternative treatments. 22 If any product candidate that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care orotherwise does not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance and we will notgenerate sufficient revenues to achieve profitability. If we suffer negative publicity concerning the safety of our products in development, our sales may be harmed and we may be forced to withdraw suchproducts. If concerns should arise about the safety of any of our products that are marketed, regardless of whether or not such concerns have a basis ingenerally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for these products. Similarly, negativepublicity could result in an increased number of product liability claims, whether or not these claims are supported by applicable law. Our failure to adequately protect or to enforce our intellectual property rights or secure rights to third party patents could materially harm our proprietaryposition in the marketplace or prevent the commercialization of our products. Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual propertycovering or incorporated into our technologies and products. The patents and patent applications in our existing patent portfolio are either owned by us orlicensed to us. Our ability to protect our product candidates from unauthorized use or infringement by third parties depends substantially on our ability toobtain and maintain, or license, valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability ofpatents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain andinvolves complex legal and factual questions for which important legal principles are unresolved. There is a substantial backlog of patent applications at the United States Patent and Trademark Office, or USPTO. There can be no assurance that anypatent applications relating to our products or methods will be issued as patents, or, if issued, that the patents will not be challenged, invalidated orcircumvented or that the rights granted thereunder will provide a competitive advantage. We may not be able to obtain patent rights on products, treatmentmethods or manufacturing processes that we may develop or to which we may obtain license or other rights. Even if we do obtain patents, rights under anyissued patents may not provide us with sufficient protection for our product candidates or provide sufficient protection to afford us a commercial advantageagainst our competitors or their competitive products or processes. It is possible that no patents will be issued from any pending or future patent applicationsowned by us or licensed to us. Others may challenge, seek to invalidate, infringe or circumvent any patents we own or license. Alternatively, we may in thefuture be required to initiate litigation against third parties to enforce our intellectual property rights. The defense and prosecution of patent and intellectualproperty claims are both costly and time consuming, even if the outcome is favorable to us. Any adverse outcome could subject us to significant liabilities,require us to license disputed rights from others, or require us to cease selling our future products. In addition, many other organizations are engaged in research and product development efforts that may overlap with our products. Suchorganizations may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products ormethods under development or consideration by us. These rights may prevent us from commercializing technology, or may require us to obtain a license fromthe organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and wecannot be sure that the patents underlying any such licenses will be valid or enforceable. As with other companies in the pharmaceutical industry, we aresubject to the risk that persons located in other countries will engage in development, marketing or sales activities of products that would infringe our patentrights if such activities were conducted in the United States. Our patents also may not afford protection against competitors with similar technology. We may not have identified all patents, publishedapplications or published literature that affect our business either by blocking our ability to commercialize our product candidates, by preventing thepatentability of our products or by covering the same or similar technologies that may affect our ability to market or license our product candidates. Manycompanies have encountered difficulties in protecting and defending their intellectual property rights in foreign jurisdictions. If we encounter suchdifficulties or are otherwise precluded from effectively protecting our intellectual property rights in either the United States or foreign jurisdictions, ourbusiness prospects could be substantially harmed. In addition, because of funding limitations and our limited cash resources, we may not be able to devotethe resources that we might otherwise desire to prepare or pursue patent applications, either at all or in all jurisdictions in which we might desire to obtainpatents, or to maintain already-issued patents. We may become involved in patent litigations or other intellectual property proceedings relating to our future product approvals, which could result inliability for damages or delay or stop our development and commercialization efforts. The pharmaceutical industry has been characterized by significant litigation and other proceedings regarding patents, patent applications, and otherintellectual property rights. The situations in which we may become parties to such litigation or proceedings may include any third parties initiatinglitigation claiming that our products infringe their patent or other intellectual property rights; in such case, we will need to defend against such proceedings.For example, the field of generic pharmaceuticals is characterized by frequent litigation that occurs in connection with the regulatory filings under Section505(b)(2) of the FDCA and attempts to invalidate the patent of the reference drug. 23 The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial. Many of ourpotential competitors will be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greaterresources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a materialadverse effect on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significantmanagement time. In the event that a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be costly, difficult, and time-consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time-consuming and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend ourpatent or other intellectual property rights against a challenge. If we are unsuccessful in enforcing and protecting our intellectual property rights andprotecting our products, it could materially harm our business. We depend on our officers. If we are unable to retain our key employees or to attract additional qualified personnel, our product operations anddevelopment efforts may be seriously jeopardized. Our success will be dependent upon the efforts of a small management team and staff, including Dennis J. Carlo, Ph.D., our chief executive officer.The employment of Dr. Carlo may be terminated at any time by either us or Dr. Carlo. We currently do not have key man life insurance policies covering anyof our executive officers or key employees. If key individuals leave us, we could be adversely affected if suitable replacement personnel are not quicklyrecruited. There is competition for qualified personnel in all functional areas, which makes it difficult to attract and retain the qualified personnel necessaryfor the operation of our business. Our success also depends in part on our ability to attract and retain highly qualified scientific, commercial andadministrative personnel. If we are unable to attract new employees and retain existing key employees, the development and commercialization of ourproduct candidates could be delayed or negatively impacted. We may experience difficulties in managing growth. We are a small company. Future growth will impose significant added responsibilities on members of management, including the need to identify,attract, retain, motivate and integrate highly skilled personnel. We may increase the number of employees in the future depending on the progress of ourdevelopment of our products and technologies. Our future financial performance and our ability to compete effectively will depend, in part, on our ability tomanage any future growth effectively. To that end, we must be able to: •manage our clinical studies effectively;•integrate additional management, administrative, manufacturing and regulatory personnel;•maintain sufficient administrative, accounting and management information systems and controls; and•hire and train additional qualified personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results. There are significant limitations on our ability in the future to utilize any net operating loss carry forwards for federal and state income tax purposes. At March 31, 2014, we had net operating loss carry forwards of approximately $129 million and $58 million for federal and state purposes,respectively. The net operating loss carry forwards expire through the year 2031. At March 31, 2014, we also had research and development credit carryforwards of approximately $2.8 million and $200,000 for federal and state purposes, respectively. The federal credits expire through the year 2027 and thestate credits expire through the year 2019. The Tax Reform Act of 1986, as amended, or the TRA, provides for a limitation on the annual use of net operatingloss and research and development tax credit carry forwards following certain ownership changes that could limit our ability to utilize these carry forwards.We most likely have experienced various ownership changes, as defined by the TRA, as a result of past financings and merger transactions. Accordingly, ourability to utilize some of all of these carry forwards is likely limited. Additionally, U.S. tax laws limit the time during which these carry forwards may beapplied against future taxes, and as a result we may not be able to take full advantage of these carry forwards for federal income tax purposes. Risks Related to Our Common Stock Provisions of our charter documents could discourage an acquisition of our company that would benefit our stockholders and may have the effect ofentrenching, and making it difficult to remove, management. 24 Provisions of our restated certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us, even if achange of control would benefit our stockholders. For example, shares of our preferred stock may be issued in the future without further stockholder approval,and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine, including, for example,rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of theholders of any of our preferred stock that may be issued in the future. The issuance of our preferred stock could have the effect of making it more difficult for athird party to acquire control of us. This could limit the price that certain investors might be willing to pay in the future for shares of our common stock anddiscourage those investors from acquiring a majority of our common stock. Similarly, our bylaws require that any stockholder proposals or nominations forelection to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to makeproposals or director nominations. The existence of these charter provisions could have the effect of entrenching management and making it more difficult tochange our management. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware GeneralCorporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, frommerging or combining with us, unless one or more exemptions from such provisions apply. These provisions under Delaware law could discourage potentialtakeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future. The price of our common stock may be volatile. The market price of our common stock may fluctuate substantially. For example, from April 2012 to June 17, 2014, the market price of our commonstock, adjusted retroactively to give effect to our 1-for-17 reverse split of the common stock in December 2013, has fluctuated between $3.74 to $17.85.Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Someof the factors that may cause the market price of our common stock to fluctuate include: •relatively low trading volume, which can result in significant volatility in the market price of our common stock based on a relatively smallernumber of trades and dollar amount of transactions;•the timing and results of our current and any future preclinical or clinical trials of our product candidates;•the entry into or termination of key agreements, including, among others, key collaboration and license agreements;•the results and timing of regulatory reviews relating to the approval of our product candidates;•the initiation of, material developments in, or conclusion of, litigation to enforce or defend any of our intellectual property rights;•failure of any of our product candidates, if approved, to achieve commercial success;•general and industry-specific economic conditions that may affect our research and development expenditures;•the results of clinical trials conducted by others on products that would compete with our product candidates;•issues in manufacturing our product candidates or any approved products;•the loss of key employees;•the introduction of technological innovations or new commercial products by our competitors;•changes in estimates or recommendations by securities analysts, if any, who cover our common stock;•future sales of our common stock;•period-to-period fluctuations in our financial results;•publicity or announcements regarding regulatory developments relating to our products;•period-to-period fluctuations in our financial results, including our cash and cash equivalents balance, operating expenses, cash burn rate orrevenue levels;•common stock sales in the public market by one or more of our larger stockholders, officers or directors;•our filing for protection under federal bankruptcy laws;•a negative outcome in any litigation or potential legal proceeding; or•other potentially negative financial announcements, such as a review of any of our filings by the SEC, changes in accounting treatment orrestatement of previously reported financial results or delays in our filings with the SEC. The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individualcompanies. These broad market fluctuations may also adversely affect the trading price of our common stock. In the past, following periods of volatility inthe market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, ifinstituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability andreputation. Trading of our common stock is limited. Trading of our common stock is limited, and trading restrictions imposed on us by applicable regulations may further reduce our trading, making itdifficult for our stockholders to sell their shares. Prior to the listing of our common stock on the NASDAQ Capital Market, trading of our common stock was conducted on the OTCQB. The liquidityof our common stock is limited, not only in terms of the number of shares that can be bought and sold at a given price, but also as it may be adversely affectedby delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if at all. 25 The foregoing factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spreadbetween the bid and asked prices for our common stock. In addition, without a large public float, our common stock is less liquid than the stock of companieswith broader public ownership, and as a result, the trading price of our common stock may be more volatile. In the absence of an active public trading market,an investor may be unable to liquidate his or her investment in our common stock. Trading of a relatively small volume of our common stock may have agreater impact on the trading price of our stock than would be the case if our public float were larger. We cannot predict the price at which our common stockwill trade at any given time. Our common stock may become subject to additional trading restrictions as a “penny stock,” which could adversely affect the liquidity and price of suchstock. If our common stock becomes subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactionsand trading activity in our securities may be adversely affected. Prior to the listing of our common stock on the NASDAQ Capital Market, our common stock was traded on the OTCQB. The OTCQB, the OTCBulletin Board and Pink Sheets are viewed by most investors as a less desirable, and less liquid, marketplace. As a result, an investor may find it moredifficult to purchase, dispose of or obtain accurate quotations as to the value of our common stock. Unless our common stock is listed on a national securities exchange, such as the NASDAQ Capital Market, our common stock may also be subject tothe regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise exempted fromthe definition of a penny stock under other exemptions provided for in the applicable regulations. The following is a list of the general restrictions on the saleof penny stocks: •Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable toinvest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding thepurchaser’s financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser awritten statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement.•A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchaseuntil the purchaser becomes an “established customer.”•The Securities Exchange Act of 1934, or the Exchange Act, requires that before effecting any transaction in any penny stock, a broker-dealermust provide the purchaser with a “risk disclosure document” that contains, among other things, a description of the penny stock market andhow it functions and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.•A dealer that sells penny stock must send to the purchaser, within 10 days after the end of each calendar month, a written account statementincluding prescribed information relating to the security. These requirements can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing toundertake these compliance activities. If our common stock is not listed on a national securities exchange, the rules and restrictions regarding penny stocktransactions may limit an investor’s ability to sell to a third party and our ability to raise additional capital. We make no guarantee that market-makers willmake a market in our common stock, or that any market for our common stock will continue. Our principal stockholders have significant influence over us, they may have significant influence over actions requiring stockholder approval, and yourinterests as a stockholder may conflict with the interests of those persons. Based on the number of outstanding shares of our common stock held by our stockholders as of March 31, 2014, our directors, executive officers andtheir respective affiliates owned approximately 23% of our outstanding shares of common stock and our largest stockholder owned approximately 16% of theoutstanding shares of our common stock. As a result, those stockholders have the ability to exert a significant degree of influence with respect to the outcomeof matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all ofour assets. The interests of these persons may not always coincide with our interests or the interests of our other stockholders. This concentration of ownershipcould harm the market price of our common stock by (i) delaying, deferring or preventing a change in corporate control, (ii) impeding a merger,consolidation, takeover or other business combination involving us, or (iii) discouraging a potential acquirer from making a tender offer or otherwiseattempting to obtain control of us. The significant concentration of stock ownership may adversely affect the trading price of our common stock due toinvestors’ perception that conflicts of interest may exist or arise. In preparing our consolidated financial statements, our management determined that our disclosure controls and procedures, and that our internalcontrols over financial reporting, were ineffective as of March 31, 2014, which could result in material misstatements in our financial statements. If wecontinue to fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover additionalmaterial weaknesses and other deficiencies in our internal controls over financial reporting, our stock price could decline and raising capital could bemore difficult. 26 Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f)under the Exchange Act. As of March 31, 2014, our management determined that our disclosure controls and procedures were ineffective, and that there was amaterial weakness in our internal controls over financial reporting, due to insufficient segregation of duties in our finance and accounting function becauseof limited personnel, based on the absence of finance and accounting personnel other than the Chief Financial Officer. This resulted in not ensuringappropriate segregation of duties between incompatible functions, and made it more difficult to ensure review of financial reporting issues sufficiently inadvance of the dates on which filings are required to be made with the SEC and to ensure that financial information is adequately analyzed and reviewed on atimely basis to detect misstatements. These above deficiencies represent a material weakness in our internal control over financial reporting given that theyresult in a reasonable possibility that a material misstatement to the annual or interim financial statements would not have been prevented or detected. Inaddition, management determined that our disclosure controls and procedures, and that our internal controls over financial reporting, had several significantdeficiencies which did not rise to the level of material weaknesses. Because the material weaknesses and significant deficiencies identified by ourmanagement will require significant financial resources to address, we expect to continue to experience these material weaknesses and significantdeficiencies for the foreseeable future. We intend to address the weaknesses identified above by increasing the oversight and review procedures of the board of directors with regard tofinancial reporting, financial processes and procedures and internal control procedures; where possible preparing and reviewing SEC filings farther inadvance of required filing dates; and when funding is available, hiring additional finance and accounting personnel. Nevertheless, there can be no assurancesthat we will have enough financial resources to remedy our current material weaknesses and significant deficiencies. If remedial measures that we intend to take are insufficient to address the ineffectiveness of our disclosure controls and procedures and our internalcontrols over financial reporting, or if other material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future andthe ineffectiveness of our disclosure controls and procedures continues, we may fail to meet our future reporting obligations on a timely basis, ourconsolidated financial statements may contain material misstatements, we could be required to restate our prior period financial results, our operating resultsmay be harmed, and we could become subject to class action litigation. Internal control deficiencies and ineffective disclosure controls and procedures couldalso cause investors to lose confidence in our reported financial information. We can give no assurance that the measures we plan to take in the future willremediate the ineffectiveness of our disclosure controls and procedures or that any material weaknesses or restatements of financial results will not arise in thefuture due to a failure to implement and maintain adequate internal control over financial reporting or adequate disclosure controls and procedures orcircumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls andprocedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements. Ifwe cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in ourreported financial information, and the trading price of our common stock could decline. Our stockholders may experience significant dilution as a result of any additional financing using our securities, as the result of the exercise or conversionof our outstanding securities. We will need to raise significant additional capital in order to maintain and continue our operations. To the extent that we raise additional funds byissuing equity securities or securities convertible into or exercisable for equity securities, our stockholders may experience significant dilution. In addition,conversion or exercise of other outstanding options, warrants or convertible securities could result in there being a significant number of additional sharesoutstanding and dilution to our stockholders. Certain of our outstanding securities include anti-dilution provision providing that, with certain exceptions, ifwe issue shares of common stock or options, warrants, convertible securities or other common stock equivalents, at an effective price per share less than theconversion or exercise price of such securities, the conversion or exercise price of such securities (and, in certain circumstances, the number of shares issuableupon exercise or conversion of such securities) will be adjusted downward to equal the per share price of the securities issued in such transaction, entitlingthe holders to pay a lower per share exercise price and/or to acquire a larger number of shares upon exercise or conversion of such securities, which couldresult in dilution to our stockholders. As a result, sale of additional equity or convertible securities at prices below certain levels could trigger anti-dilutionprovisions with respect to certain securities we have previously sold. In addition, if additional funds are raised through the issuance of preferred stock,holders of preferred stock would likely have rights that are senior to the rights of holders of our common stock, and the agreements relating to any suchissuance could contain covenants that would restrict our operations. We have not paid cash dividends on our common stock in the past and do not expect to pay cash dividends on our common stock for the foreseeable future.Any return on investment may be limited to the value of our common stock. No cash dividends have been paid on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeablefuture. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directorsmay consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on a stockholder’s investment will only occur ifour stock price appreciates. 27 A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline and may impair our ability to raisecapital in the future. There have been and may continue to be periods when our common stock could be considered “thinly-traded,” meaning that the number of personsinterested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions resulting in alarge amount of newly issued shares that become readily tradable, conversion of outstanding convertible notes or exercise of outstanding warrants and sale ofthe shares issuable upon conversion of such notes or exercise of such warrants, or other events that cause stockholders to sell shares, could place downwardpressure on the trading price of our stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of sharesof common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholderssell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, themarket price of our common stock could decline. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equityor equity-related securities in the future at a time and price that we deem reasonable or appropriate. Sales of additional equity securities may adversely affect the market price of our common stock. We expect to incur research, development and selling, general and administrative costs, and to satisfy our funding requirements we will need to selladditional equity securities, which may be subject to registration rights, and warrants with anti-dilutive protective provisions. The sale or the proposed sale ofsubstantial amounts of our common stock or other equity securities in the public markets may adversely affect the market price of our common stock, and ourstock price may decline substantially. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon thesale of their shares. Also, new equity securities issued may have greater rights, preferences or privileges than our existing common stock. If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stockadversely, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or ourbusiness. We may never obtain substantial research coverage by industry or financial analysts. If no or few analysts commence or continue coverage of us, thetrading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, ourstock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could losevisibility in the financial markets, which in turn could cause our stock price or trading volume to decline. The rights of the holders of common stock may be impaired by the potential issuance of preferred stock. Our restated certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directorsmay, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect thevoting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, couldbe utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect theprice of our common stock. 28 ITEM 1B.UNRESOLVED STAFF COMMENTS None. ITEM 2.PROPERTIES The Company’s principal headquarters consisting of approximately 7,525 square feet of leased premises is located at 11682 El Camino Real, Suite300, San Diego, CA 92130. The Company occupies this space pursuant to a sublease agreement with a term that expires November 30, 2014; rent during theterm is $15,050 per month. The Company has entered into a lease agreement to lease the same space with a term commencing December 1, 2014. The leasehas a basic term expiring four years after the commencement date, and the Company has an option to extend the term of the lease for an additional threeyears. Rent during the term will be $24,080 per month, with a deposit of $170,000 due in November 2014. ITEM 3.LEGAL PROCEEDINGS We may become involved in or subject to routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. Anysuch litigation could divert management time and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses, orcould have a material adverse effect on our financial condition, cash flows or results of operations. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. 29 PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OFEQUITY SECURITIES Price Range of Common Stock Our common stock is traded on the Nasdaq Capital Market under the trading symbol “ADMP.” The following table sets forth the range of high andlow sales prices for the common stock as reported for the periods indicated below. Through December 12, 2013, our common stock was quoted on theOTCQB under the symbol “ADMP.” The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, may not representactual transactions, and reflect the 1-for-17 reverse stock split of our common stock that was effected in December 2013. High Low Fiscal 2013 First Quarter (April 2012 - June 2012) $13.09 $3.91 Second Quarter (July 2012 - September 2012) $11.90 $8.16 Third Quarter (October 2012 - December 2012) $17.85 $9.69 Fourth Quarter (January 2013 - March 2013) $16.15 $9.86 Fiscal 2014 First Quarter (April 2013 - June 2013) $12.92 $6.46 Second Quarter (July 2013 - September 2013) $11.39 $6.46 Third Quarter (October 2013 - December 2013) $11.90 $3.74 Fourth Quarter (January 2014 - March 2014) $6.81 $6.21 As of March 31, 2014, there were approximately 96 holders of record common stock. The number of record holders was determined from the recordsof our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names of various security brokers, dealers, andregistered clearing agencies. Dividend Policy We have never declared or paid any cash dividends on our common stock, and we do not intend to do so in the foreseeable future. Accordingly, ourstockholders will not receive a return on their investment unless the value of our shares increases, which may or may not occur. Any future determination topay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements,any applicable contractual restrictions and such other factors as our deems relevant. Equity Compensation Plan Information The following table sets forth, as of March 31, 2014, information with respect to our equity compensation plans, including our 1995 EquityIncentive Plan, the 1995 Directors’ Stock Option Plan, the 2005 Equity Incentive Plan and the 2009 Equity Incentive Plan, and with respect to certain otheroptions and warrants. Plan Category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights (a) Weighted averageexercise price ofoutstanding options,warrants and rights(1) (b) Number of securitiesremaining available forfuture issuance under equitycompensation plans(excluding securitiesreflected in column (a)) (2) (c) Equity compensation plans approved by securityholders 1,532,320 $6.49 330,299 (1)Excludes shares issuable upon exercise of restricted stock units, which do not have an exercise price. (2)Under the Company’s 2009 Equity Incentive Plan, the number of shares available for issuance under the plan increases automatically increase onJanuary 1st of each year in an amount equal to the lesser of (i) five percent of the total number of shares of Common Stock outstanding onDecember 31st of the preceding calendar year, or (ii) a lesser number of shares of Common Stock determined by the board of directors before the startof a calendar year for which an increase applies. 30 Recent Sales of Unregistered Securities Information concerning our sales of unregistered securities during our fiscal year ended March 31, 2014, has previously been reported in reports onForm 10-Q and reports on Form 8-K that we filed during that fiscal year. ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read together with the consolidated financialstatements and accompanying notes of the Company appearing elsewhere in this Report. This discussion of our financial condition and results of operationscontains certain statements that are not strictly historical and are “forward-looking” statements and involve a high degree of risk and uncertainty. Actualresults may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in our operations,development efforts and business environment, including those set forth in this Item 7, and in the sections entitled “1A. Risk Factors” and “1. Business” inthis Report and uncertainties described elsewhere in this Report. All forward-looking statements included in this Report are based on information available tothe Company as of the date hereof. General Company Overview We are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicinesfor patients and physicians. We are currently primarily focused on our specialty pharmaceutical products. We are currently developing four products in theallergy and respiratory markets, including a dry powder inhaler technology that we recently acquired from 3M Company. Our goal is to create low costtherapeutic alternatives to existing treatments. Consistent across all specialty pharmaceuticals product lines, we intend to pursue Section 505(b)(2) New DrugApplication, or NDA, regulatory approval filings with the U.S. Food and Drug Administration, or FDA, whenever applicable in order to reduce the timeneeded to get to market and to save on costs, compared to Section 505(b)(1) NDA filings for new drug products. We also have a number of biotechnologyproduct candidates and technologies, including therapeutic vaccine and cancer product candidates and technologies for patients with unmet medical needsin the global cancer market. Recent Developments On May 28, 2014, we submitted a Section 505(b)(2) NDA application to the FDA for approval for sale of our Epinephrine PFS product, for theemergency treatment of acute allergic reactions, including anaphylaxis. In connection with the filing of the application, we paid the required filing fee of$1,084,550. Going Concern and Management Plan Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our financial statementsfor the years ended March 31, 2014 and 2013 indicating that we have sustained substantial losses from continuing operations and have used, rather thanprovided, cash in its continuing operations, and incurred recurring losses from operations and have limited working capital to pursue our businessalternatives, and that these factors raise substantial doubt about our ability to continue as a going concern. As of March 31, 2014, we had cash and cashequivalents of approximately $5.4 million, an accumulated deficit of approximately $46.1 million, and liabilities of approximately $2.9 million. We willneed significant funding to continue operations, satisfy our obligations and fund the future expenditures that will be required to conduct the clinical andregulatory work to develop our product candidates. Such additional funding may not be available, may not be available on reasonable terms, and could resultin significant additional dilution to our stockholders. If we do not obtain required additional equity or debt funding, our cash resources will be depleted andwe could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and ourrelationships 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 hereinfor the year ended March 31, 2014, were prepared under the assumption that we would continue our operations as a going concern, which contemplates therealization of assets and the satisfaction of liabilities during the normal course of business. In preparing these consolidated 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 financialstatements do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of ourassets 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 soon exhaust our resources and will beunable to continue operations. Our management intends to attempt to secure additional required funding through equity or debt financings, sales or out-licensing of intellectualproperty assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, orsimilar 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 fromany of these sources, we will defer, reduce or eliminate certain planned expenditures and delay development or commercialization of some or all of ourproducts. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could resultin our stockholders losing some or all of their investment in us. 31 Funding that we may receive during fiscal 2015 is expected to be used to satisfy existing obligations and liabilities and working capital needs, tobegin building working capital reserves and to fund a number of projects, which may include, without limitation, some or all of the following: •continue development and commercialization of our Epinephrine PFS product;•continue development of our generic nasal steroid product candidate;•continue development of the APC-5000 DPI product candidate;•pursue the development of other product candidates that we may develop or acquire;•fund clinical trials and seek regulatory approvals;•expand research and development activities;•access manufacturing, commercialization and sales capabilities;•implement additional internal systems and infrastructure;•maintain, defend and expand the scope of our intellectual property portfolio; and•hire additional management, sales, research, development and clinical personnel. Results of Operations Our consolidated results of operations are presented for the fiscal year ending March 31, 2014 and for the fiscal year ending March 31, 2013. Year Ended March 31, 2014 and Year Ended March 31, 2013 Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2014 and 2013 were approximately $3.4million and $2.0 million, respectively. Selling, general and administrative expenses consist primarily of legal fees, accounting and audit fees, consultingexpenses, and employee salaries. Stock based compensation of approximately $670,000, expenses of approximately $113,000 associated with increasedheadcount, NASDAQ listing charges of approximately $85,000 and costs associated with rent, consulting, legal, accounting and miscellaneous fees primarilyaccounted for the increase in expenses during the year ended March 31, 2014 compared to the prior year. Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goodsand services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activitiesare performed. Research and development expenses were approximately $1.0 million and $1.2 million for the fiscal years ended March 31, 2014 and 2013,respectively, which were expensed. The decrease in research and development expenses for fiscal 2014 compared to fiscal 2013 was primarily due to thereduced trial expenses for our APC 100 product candidate. Other Income (Expenses). Other income (expense) for fiscal 2014 and 2013 was approximately $(3,800,000) and $(3,800,000), respectively. Otherincome (expense) consists primarily of changes in the value of derivative and conversion features of our convertible notes payable as well as interest expensepaid in connection with various notes payable. Liquidity and Capital Resources We have incurred net losses of approximately $8.2 million and $7.2 million for the years ended March 31, 2014 and 2013, respectively. Since ourinception, June 6, 2006, and through March 31, 2014, we have an accumulated deficit of approximately $46.1 million. Since inception and throughMarch 31, 2014, we have financed our operations principally through debt financing and through private issuances of common stock. Since inception, wehave raised a total of approximately $54.7 million in debt and equity financing transactions, consisting of approximately $15.8 million in debt financing andapproximately $38.9 million in equity financing transactions. We expect to finance future cash needs primarily through proceeds from equity or debtfinancings, loans, sales of assets, out-licensing transactions, and/or collaborative agreements with corporate partners. We have used the net proceeds fromdebt and equity financings for general corporate purposes, which have included funding for research and development, selling, general and administrativeexpenses, working capital, reducing indebtedness, pursuing and completing acquisitions or investments in other businesses, products or technologies, and forcapital expenditures. Net cash used in operating activities from continuing operations for fiscal 2014 and 2013 was approximately $6.8 million and $2.6 million,respectively. The increase in the use of cash was due primarily to a decrease in accounts payable, accrued other expenses, increased net loss and the change inour derivative liabilities. We expect net cash used in operating activities to increase going forward as we continue product development and other businessactivities, assuming that we are able to obtain sufficient funding. Net cash used in investing activities was $10 million in fiscal 2014 and $0 in 2013. During fiscal 2014 we completed the purchase of the APC-5000DPI assets from 3M Company for a purchase price of $10 million. Net cash provided by financing activities from continuing operations was approximately $22.2 million in fiscal 2014 and approximately $2.6million in fiscal 2013. Results for fiscal 2014 were affected by proceeds from the issuance and repayment of promissory notes and the proceeds from the saleof common stock. 32 On December 31, 2012, we issued a convertible promissory note in the principal amount of $600,000 and 35,294 shares of common stock to aprivate investor, and received gross proceeds of $600,000, excluding transaction costs and expenses. Interest on the outstanding principal balance of the noteaccrues at a rate of 10% per annum compounded monthly and is payable monthly commencing February 1, 2013. As amended, all unpaid and unconvertedprincipal and interest on the note is due and payable on June 30, 2014. At any time on or before the maturity date, the investor has the right to convert part orall of the principal and interest owed under the note into common stock at a conversion price, as amended, equal to $6.00 per share (subject to adjustment forstock dividends, stock splits, reverse stock splits, reclassifications or other similar events affecting the number of outstanding shares of common stock). AtMarch 31, 2014, the net carrying value of this note was $383,339. For additional information concerning the Company’s debt and equity financing transactions, see Notes 8, 9 and 13 accompanying our financialstatements included elsewhere herein. As noted above under the heading “Going Concern and Management’s Plan,” at March 31, 2014, Adamis had substantial liabilities and obligations.The availability of any required additional funding cannot be assured. Even taking into account the net proceeds from the transactions described above, if wedo not obtain additional equity or debt funding in the near future, our cash resources will rapidly be depleted and we will be required to materially reduce orsuspend operations. Even if are successful in obtaining additional funding to permit us to continue operations at the levels that we desire, substantial timewill pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales, and during this period Adamiswill 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 audited financial statements, which have beenprepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues, 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 reasonableunder the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following accounting policies and estimates are most critical to aid you in understanding and evaluating our reported financialresults. For further discussion of our accounting policies, see Note 3 in the accompanying notes to our financial statements appearing elsewhere in thisAnnual Report on Form 10-K. Stock-Based Compensation. We account for stock-based compensation transactions in which we receive employee services in exchange for optionsto purchase common stock. Stock-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of ourcommon stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value ascalculated by the Black-Scholes option-pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over therequisite service period. Derivative Financial Instruments. Derivatives are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fairvalue. The treatment of gains and losses resulting from changes in the fair values of derivative instruments is dependent on the use of the respectivederivative instrument and whether they qualify for hedge accounting. As of March 31, 2014, no derivative instruments qualified for hedge accounting. Accounting Standards Codification (ASC) 815 - Derivatives and Hedging provides guidance to determine what types of instruments, or embeddedfeatures in an instrument, are considered derivatives. This guidance can affect the accounting for convertible instruments that contain provisions to protectholders from a decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a convertible instrument if acompany either issues equity share for a price that is lower than the exercise price of those instruments, or issues new convertible instruments that have alower exercise price. The Company recognizes the derivative assets and liabilities at their respective fair values at inception and on each reporting date. The Companyutilized a binomial option pricing model (BOPM) to develop its assumptions for determining the fair value of the conversion and anti-dilution features of itsnotes. See Note 9 in the accompanying financial statements for further discussion of derivative instruments. Intangible Assets. Intangible assets, such as patents and unpatented technology, consist of legal fees and other costs needed to acquire theintellectual property. Acquired patents are recorded at their allocated fair value as of the date acquired. Patents are amortized on a straight line basis over theirestimated remaining useful life. Off Balance Sheet Arrangements At March 31, 2014, we did not have any off balance sheet arrangements. Recent Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-08 (“ASU 2014-08”), “Presentation of FinancialStatements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of an Entity.” Theamendments in ASU 2014-08 change the requirements for reporting discontinued operations. A discontinued operation may include a component of anentity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entityis required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operationsand financial results. The update is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periodsbeginning on or after December 15, 2014. In May 2014, the FASB ASU 2014-09, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and OtherAssets and Deferred Costs-Contracts with Customers (Subtopic 340-40.” The amendments in ASU 2014-09 supersede most current revenue recognitionrequirements. The core principal of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance iseffective for annual reporting periods beginning after December 15, 2016, including interim periods with that reporting period. Early application is notpermitted. The Company can apply the amendments using one of the following two methods: (1) retrospectively to each prior reporting period presented, or(2) retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. The Company is currentlyassessing the impact of adopting this guidance on its consolidated financial statements. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and financial information required by Item 8 are set forth below commencing on page F-1. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 33 ITEM 9A.CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures In connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation ofthe Principal Executive Officer and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of March 31, 2014. Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the timeperiods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Principal ExecutiveOfficer and Accounting Officer, to allow timely decisions regarding required disclosures. Based on their evaluation, our Principal Executive Officer and Accounting Officer concluded that disclosure controls and procedures were noteffective as of March 31, 2014, for reasons described below. Internal Control over Financial Reporting Management’s report on our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) in the Exchange Act),is included in this Annual Report on Form 10-K, under the heading “Management’s Annual Report on Internal Control Over Financial Reporting” and isincorporated herein by reference. This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to theliabilities of that section, unless we specifically state that the report is to be considered “filed” under the Exchange Act or incorporate it by reference into afiling under the Securities Act of 1933, as amended, or under the Exchange Act. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financialreporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company’sprincipal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accountingprinciples generally accepted in the United States of America and includes those policies and procedures that: •Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of thecompany;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assetsthat could have a material effect on the financial statements. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance thatthe objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within our company have been detected. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2014. In making this assessment, ourmanagement used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - IntegratedFramework and Internal Control over Financial Reporting-Guidance for Smaller Public Companies. As a result of this assessment, management identified amaterial weakness in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified a material weakness in our internal control over financial reporting as of March 31, 2014, based on the absence of finance andaccounting personnel other than the Chief Financial Officer. This resulted in not ensuring appropriate segregation of duties between incompatible functions,and made it more difficult to ensure review of financial reporting issues sufficiently in advance of the dates on which filings are required to be made with theSecurities and Exchange Commission and to ensure that financial information (both routine and non-routine) is adequately analyzed and reviewed on atimely basis to detect misstatements. These above deficiencies represent a material weakness in our internal control over financial reporting given that theyresult in a reasonable possibility that a material misstatement to the annual or interim financial statements would not have been prevented or detected. Based on the material weakness described above, management has concluded that as of March 31, 2014 our internal control over financial reportingwere not effective. 34 We intend to address the weaknesses identified above by increasing the oversight and review procedures of the board of directors with regard tofinancial reporting, financial processes and procedures and internal control procedures; where possible preparing and reviewing SEC filings farther inadvance of required filing dates; and when funding is available hiring additional finance and accounting personnel. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control overfinancial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules that permit us to provideonly management’s report in this Annual Report on Form 10-K. Changes in Internal Controls There has been no change in our internal control over financial reporting that occurred, during the quarter ended March 31, 2014, that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B.OTHER INFORMATION Not Applicable. 35 PART III ITEM 10:DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information Regarding Board of Directors Pursuant to our Bylaws, generally the number of directors is fixed and may be increased or decreased from time to time by resolution of our Board ofDirectors, or the Board. The Board has fixed the number of directors at five members. The ages, principal occupations, current directorships and anydirectorship held during the past five years, and certain other information with respect to the directors of the Company, are shown below as of May 31, 2014. NAME AGE DIRECTOR SINCE PRINCIPAL OCCUPATION/POSITION WITH ADAMISDennis J. Carlo, Ph.D. 70 2009 President, Chief Executive Officer and DirectorKenneth M. Cohen 59 2011 Consultant, DirectorCraig A. Johnson 52 2011 Consultant, DirectorDavid J. Marguglio 44 2009 Senior Vice President of Corporate Development, DirectorTina S. Nova, Ph.D. 60 2011 Consultant, Director Dennis J. Carlo, Ph.D. Dr. Carlo became President, Chief Executive Officer and a director of the Company in April 2009 in connection with theclosing of the merger transaction between Cellegy and Old Adamis, pursuant to the merger, Cellegy was the surviving corporation in the merger and changedits name to Adamis Pharmaceuticals Corporation. Dr. Carlo was a co-founder of Old Adamis and served as its President and Chief Executive Officer, and adirector, from October 2006 to April 2009. From 2003 to 2006, he served as president of Telos Pharmaceuticals, a private biotechnology company, from 2003to 2006. From 1982 to 1987, he served as Vice President of Research and Development and Therapeutic Manufacturing at Hybritech Inc., a pharmaceuticaland life science company which was acquired by Eli Lilly & Co in 1985. After the sale to Lilly, Dr. Carlo, along with Dr. Jonas Salk, James Glavin and KevinKimberland, founded Immune Response Corporation, a public biotechnology company, where he served as its President and Chief Executive Officer from1994 to 2002. Before then, he held various positions with life science companies, including Merck & Co. Dr. Carlo received a B.S. degree in microbiologyfrom Ohio State University and has a Ph.D. in Immunology and Medical Microbiology from Ohio State University. In 1991 Dr. Carlo received the Ernst &Young entrepreneur of the year award. Kenneth M. Cohen. Mr. Cohen has served as one of our directors since January 2011. Mr. Cohen is an advisor to companies, entrepreneurs andinvestors in the life sciences area. He was formerly chairman of Pier Pharmaceuticals, a privately held clinical stage biopharmaceutical company engaged inthe treatment of sleep-related breathing disorders. He was a co-founder of publicly held Somaxon Pharmaceuticals and served as its President and ChiefExecutive Officer from August 2003 through December 2007 and continued as a director until June 2008. He has held positions as chief executive officer ofSynbiotics Corporation, a diagnostics company, and has also held executive officer positions at Canji Incorporated, a human gene-therapy company whichwas acquired by Schering-Plough Corporation in February 1996, Argus Pharmaceuticals, Inc. and LifeCell Corporation. Mr. Cohen began his career at EliLilly and Company where, among many different responsibilities over 10 years, he directed business planning for the Medical Instrument Systems Divisionand managed the launch of Prozac. He received an A.B. in biology and chemistry from Dartmouth College and an M.B.A. from the Wharton School of TheUniversity of Pennsylvania. Craig A. Johnson. Mr. Johnson has served as one of our directors since February 2011. Mr. Johnson is currently a director of Mirati Therapeutics,Inc., a biopharmaceutical company; Heron Therapeutics, Inc., a specialty pharmaceuticals company; and La Jolla Pharmaceutical Company, abiopharmaceutical company. Mr. Johnson also served as a past director of Ardea Biosciences, Inc., a biotechnology company, from 2008 until the companywas acquired by AstraZeneca PLC in June 2012. In addition to his board service, Mr. Johnson has served as an advisor to Daisas Medical, LLC, a healthservices company, since 2012. From 2011 to 2012 he was Chief Financial Officer of PURE Bioscience, Inc., a developer of antimicrobial products, and from2010 to 2011 he was Senior Vice President and Chief Financial Officer of NovaDel Pharma Inc., a specialty pharmaceutical company. Mr. Johnson served asVice President and Chief Financial Officer of TorreyPines Therapeutics, Inc., a biopharmaceutical company, from 2004 until its sale to RaptorPharmaceuticals Corp., a biopharmaceutical company, in 2009, and then as Vice President of a wholly-owned subsidiary of Raptor Pharmaceutical Corp. from2009 to 2010. He held several positions, including Chief Financial Officer and Senior Vice President of Operations, at MitoKor, Inc., a biotechnologycompany, from 1994 to 2004. Prior to 1994, Mr. Johnson held senior financial positions with several early-stage technology companies, and also practiced asa Certified Public Accountant with Price Waterhouse. Mr. Johnson received his B.B.A. degree in accounting from the University of Michigan-Dearborn. 36 David J. Marguglio. Mr. Marguglio joined the Company as Vice President, Business Development and Investor Relations, and a director in April2009 in connection with the closing of the merger transaction between Cellegy and Old Adamis. Mr. Marguglio was a co-founder of Old Adamis and servedas its Vice President of Business Development and Investor Relations, and a director, since its inception in June 2006 until April 2009. From 1996 to 2006,he held various positions with Citigroup Global Markets, Smith Barney and Merrill Lynch. Before entering the financial industry, from 1994 to 1996, hefounded and ran two different startup companies, the latter of which was eventually acquired by a Fortune 100 company. From 1993 to 1994, he served asfinancial counsel for the commercial litigation division of a national law firm. He received a degree in finance and business management from the HankamerSchool of Business at Baylor University. Tina S. Nova, Ph.D. Dr. Nova has served as a member of our Board of Directors since February 2011. Dr. Nova was a co-founder of Genoptix, Inc., amedical laboratory diagnostics company and a subsidiary of Novartis Pharmaceuticals where she served as its President and Chief Executive Officer from2000 to April 2014. Dr. Nova was a co-founder of Nanogen, Inc., a provider of molecular diagnostic tests, and she served as its Chief Operating Officer andPresident from 1994 to 2000. Dr. Nova served as Chief Operating Officer of Selective Genetics, a targeted therapy, biotechnology company, from 1992 to1994, and in various director-level positions with Ligand Pharmaceuticals Incorporated, a drug discovery and development company, from 1988 to 1992,most recently as Executive Director of New Leads Discovery. Dr. Nova has also held various research and management positions with Hybritech, Inc., aformer subsidiary of Eli Lilly & Company, a pharmaceutical company. Dr. Nova also serves on the Board of Directors of Arena Pharmaceuticals andNanostring Technologies. Dr. Nova holds a B.S. in Biological Sciences from the University of California, Irvine and a Ph.D. in Biochemistry from theUniversity of California, Riverside. Director Experience, Qualifications, Attributes and Skills We believe that the backgrounds and qualifications of our directors, considered as a group, provide a broad mix of experience, knowledge andabilities that will allow the Board to fulfill its responsibilities. Our Board is composed of a diverse group of leaders in their respective fields. Many of thecurrent directors have executive experience at public companies, as well as experience serving on other companies’ boards, which provides an understandingof different business processes, challenges and strategies facing boards and other companies. Further, our directors also have other experience that makesthem valuable members and provides insight into issues relevant to the Company, such as prior experience with financing transactions, acquisitions andlicensing transactions. The following highlights the specific experience, qualification, attributes and skills of our individual Board members, that have led our Nominatingand Governance Committee and the Board to conclude that these individuals should serve on our Board: Dennis J. Carlo, Ph.D., brings his executive experience, including his experience in senior management positions at several companies in the lifescience industry including Immune Response Corporation, Hybritech Inc. and Merck & Co., his extensive knowledge of the markets in which we competeand intend to compete, and his deep knowledge of Adamis gained from his position as chief executive officer of the Company. Kenneth M. Cohen brings his extensive leadership, business and scientific knowledge of the life science industry, including his service as an officerand director of private and public biotechnology companies including Somaxon Pharmaceuticals and the knowledge gained from consulting to numerouscompanies in the biotechnology and pharmaceuticals industries and to entrepreneurs and investors in the life science area, as well as his previous experienceworking at large pharmaceutical companies. Craig A. Johnson brings his extensive public accounting, financial and executive management background and experience at many pharmaceuticaland life science companies, as well as his service on the board of directors and audit committee of many biotechnology companies. David J. Marguglio brings his executive experience, including his experience in business development of new companies and financial servicesbackground, and his deep knowledge of Adamis gained from his position as an officer of the Company. 37 Tina S. Nova, Ph.D., brings her extensive leadership, business and scientific expertise, including her background of founding, financing, developingand operating companies in the healthcare industry, her service in senior management positions at several public and private companies in the life scienceindustry including Genoptix, Inc., Nanogen and Selective Genetics, her experience in successfully developing, launching and commercializing medicalproducts, and her service on other public company boards of directors. Family Relationships There is no family relationship between any of our officers or directors. Involvement in Certain Legal Proceedings To our knowledge, during the last 10 years, none of our directors, executive officers (including those of our subsidiaries), promoters or controlpersons have: •had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at thetime of the bankruptcy or within two years prior to that time; •been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minoroffenses; •been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities orbanking activities; •been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the CommoditiesFutures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,suspended or vacated; or •been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatoryorganization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority overits members or persons associated with a member. Independence of Directors The Board annually determines the independence of each director, based on the independence criteria set forth in the listing standards of theMarketplace Rules of NASDAQ. In making its determinations, the Board considers all relevant facts and circumstances brought to its attention as well asinformation provided by the directors and a review of any relevant transactions or relationships between each director or any member of his or her family, andthe Company, its senior management or the Company’s independent registered public accounting firm. Based on its review, the Board determined that eachmember of the board of directors, other than Dr. Carlo and Mr. Marguglio who are executive officers of the Company, is independent under the NASDAQcriteria for independent board members, and that each member of the standing committees of the Board is independent under such criteria. Committees of the Board Our Board has the following three committees: (1) Audit Committee; (2) Compensation Committee; and (3) Nominating and GovernanceCommittee. The members of each committee are Kenneth M. Cohen, Craig A. Johnson and Tina S. Nova, Ph.D. Mr. Johnson is Chair of the Audit Committee;Dr. Nova is Chair of the Compensation Committee; and Mr. Cohen is Chair of the Nominating and Governance Committee. 38 Audit Committee The Audit Committee assists the full Board in its general oversight of our financial reporting, internal controls and audit functions, and is directlyresponsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm. The Board has determinedthat each member of the Audit Committee is “independent” as defined by the applicable NASDAQ rules and by the Sarbanes-Oxley Act of 2002 andregulations of the SEC, and that Mr. Johnson qualifies as an “audit committee financial expert” as defined in such regulations. Director Nomination Procedures The Nominating and Governance Committee is responsible for recommending to the Board the nominees for election as directors at any meeting ofstockholders and the persons to be elected by the Board to fill any vacancies on the Board. In making such recommendations, the committee will considercandidates proposed by stockholders. There have not been any material changes to the procedures by which stockholders of the Company may recommendnominees for election to the Board of Directors that have been implemented since the date of the description of those procedures in the Company’s definitiveproxy statement that was distributed to the stockholders in connection with the 2013 annual meeting of stockholders held on October 15, 2013. Code of Business Conduct and Ethics The Board has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principalaccounting officer or controller, or persons performing similar functions. The Company will provide any person, without charge, a copy of the Code.Requests for a copy of the Code may be made by writing to the Company at Adamis Pharmaceuticals Corporation, 11682 El Camino Real, Suite 300, SanDiego, California 92130; Attention: Chief Financial Officer. The Company intends to disclose any amendment to, or a waiver from, a provision of such codeof business conduct and ethics that relates to any element required to be included in the code of business conduct and ethics, through reports on Form 8-Kfiled with the SEC or by posting such information on its website, www.adamispharmaceuticals.com. Section 16(a) Beneficial Ownership Reporting Compliance Directors, named executive officers and beneficial owners of more than 10% of our Common Stock are required by Section 16(a) of the SecuritiesExchange Act of 1934 and related regulations to file ownership reports on Forms 3, 4 and 5 with the SEC and the principal exchange upon which suchsecurities are traded or quoted and to furnish us with copies of the reports. Based solely on a review of the copies of such forms furnished to us, we believethat from April 1, 2013 to March 31, 2014, all Section 16(a) filing requirements applicable to our named executive officers, directors and greater than 10%holders of our Common Stock were in compliance. 39 Information Regarding Executive Officers The names, ages, principal occupations during the past five years, and certain other information with respect to our executive officers are shownbelow as of May 31, 2014. To the extent that any named executive officer is also serving as a member of the Board, then such named executive officer’sbiography is set forth under “Information Regarding Board of Directors” above. Our executive officers are appointed by the Board. Name Age Principal OccupationDennis J. Carlo, Ph.D. 70 Chief Executive Officer of the Company and DirectorDavid J. Marguglio 44 Senior Vice President of Corporate Development and DirectorRobert O. Hopkins 54 Vice President, Finance and Chief Financial OfficerKaren K. Daniels 61 Vice President of OperationsThomas Moll, Ph.D. 49 Vice President of Research Robert O. Hopkins. Mr. Hopkins became Vice President, Finance and Chief Financial Officer of the Company in April 2009 in connection with theclosing of the merger transaction between Cellegy and Old Adamis. He joined Old Adamis in April 2007 as Vice President, Finance and Chief FinancialOfficer. From 2000 to 2004, he was an Executive Vice President and the Chief Financial Officer of Chatham Capital Corp. In that position he managedfinancial operations for a corporation that held several hospitals, an extensive life sciences operation and a number of other business units within itsportfolio. Mr. Hopkins served as Chief Financial Officer of Veritel Corp. from 1999 and 2000, a biometric software company. He has also served as ChiefOperating Officer for Circle Trust Company from 2004 to 2005, during which time he was responsible for corporate reorganization after acquiring a troubledtrust company. From 2005 until Mr. Hopkins joined Old Adamis in April 2007, he consulted for Acumen Enterprises providing analysis and business plansfor the various projects with which the company was involved. From 1997 to 1999, Mr. Hopkins was Senior Vice President for Finance for the Mariner Post-Acute Network, Atlanta, Georgia. In this position he was responsible for financial management of a division consisting of 12 long-term, acute care hospitals.Among his previous medical-related experience, he has served as Assistant Administrator of Finance for Kindred Hospitals; President and Chief ExecutiveOfficer of Doctors Hospital of Hyde Park; and Vice President of Accounting for Cancer Treatment Centers of America. Mr. Hopkins received a B.S. degree inFinance from Indiana State University and an M.B.A. from Lake Forest Graduate School of Management. Karen K. Daniels. Ms. Daniels joined Adamis in July 2009 as Vice President of Operations. She has over 30 years of experience in operational andengineering roles across diverse industries including electronics, medical devices, contract manufacturing and pharmaceutical manufacturing. Prior tojoining Adamis, Ms. Daniels served as President of Althea Technologies from 2007 to 2009. Althea Technologies is a contract manufacturer for thepharmaceutical industry. She also served as Senior Director of Operations and Logistics for Vidacare, a medical device manufacturer from 2006 to 2007. From2003 to 2006, she was President of Lambda Power. Ms. Daniels received a B.S. degree from the University of Arizona. Thomas Moll, Ph.D. Dr. Moll joined Adamis Pharmaceuticals in February 2008 Vice President of Research. He has close to 20 years of experience inboth academic and industrial preclinical research and development in the areas of inflammation, immunology and cancer biology. Prior to joining Adamis,Dr. Moll was Vice President of Research at privately held Telos Pharmaceuticals from 2003 to 2008. From 1998 to 2003 he was Vice President ofImmunology at Cardion AG, a privately held German biotech company. Dr. Moll holds a diploma in Biology II from the University of Basel, Switzerland, andreceived his doctorate degree in Genetics and Biochemistry from the University of Vienna, Austria. 40 ITEM 11:EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth all compensation awarded, earned or paid for services rendered in all capacities to Adamis during fiscal year 2014 and2013 to (i) each person who served as Adamis’ chief executive officer during fiscal 2014, (ii) the two most highly compensated officers other than the chiefexecutive officer who were serving as executive officers at the end of fiscal 2014 and whose total compensation for such year exceeded $100,000, and (iii) upto two additional individuals for whom disclosures would have been provided in this table but for the fact that such persons were not serving as executiveofficers as of the end of fiscal 2014, of which there were none (sometimes referred to collectively as the “named executive officers”). Name and Principal Position Year Salary($) Bonus($) StockAwards($) OptionAwards($) Non-EquityIncentive PlanCompensation($) All OtherCompensation($) Total($) Dennis J. Carlo, Ph.D. 2014 $500,000 125,204(2) — — $18,557(3) $643,761 President and Chief Executive Officer 2013 $500,000 158,258(4) 150,075(1) — $19,471(3) $827,804 Robert O. Hopkins 2014 $225,000 22,714(2) — — $14,737(3) $262,451 Vice President, Chief Financial Officer 2013 $225,000 63,724(4) 52,526(1) — $15,829(3) $357,079 David J. Marguglio 2014 $250,000 37,672(2) — — $15,509(3) $303,181 Senior Vice President, Corporate Development 2013 $250,000 79,129(4) 75,037(1) — $18,751(3) $422,918 (1)Reflects the grant date fair value for financial statement reporting purposes with respect to stock options granted during or with respect to the yearsended March 31, 2014 and 2013, respectively, calculated in accordance with applicable rules and regulations and authoritative guidance. For adiscussion of assumptions used to estimate fair value, please see Note 14 to the accompanying notes to our financial statements appearing elsewherein this Annual Report on Form 10-K. The actual amount ultimately realized from the equity awards will likely vary based on a number of factors,including, but not limited to Adamis’ actual performance, stock price fluctuations, differences from the valuation assumptions used and the timing ofexercise or applicable vesting. Each option is intended to be an incentive stock option. Each option has a term of ten years from the grant date,subject to earlier termination of the term as provided in the Plan. For options disclosed in the table with respect to the fiscal 2013 year, reflects stockoptions granted in fiscal 2013 to the named executive officers to purchase shares of common stock, as follows: Dr. Carlo, 31,528 shares; Mr. Hopkins,11,035 shares; and Mr. Marguglio, 15,764 shares. Each option vested and became exercisable immediately on the grant date with respect to one-thirdof the shares covered by the option, with the remaining two-thirds of the option shares vesting and becoming exercisable ratably monthly over aperiod of two years from the grant date. Each fiscal 2013 option had an exercise price equal to $11.39 per share.(2)Reflects stock options granted on April 1, 2014 to the named executive officers to purchase shares of common stock, as follows: Dr. Carlo, 45,200shares; Mr. Hopkins, 8,200 shares; and Mr. Marguglio, 13,600 shares. Each such option had an exercise price equal to $6.32 per share. For each suchaward, the option vests immediately on the grant date.(3)For fiscal 2014 and 2013, reflects premiums paid by the Company on behalf of each of Messrs. Carlo, Marguglio and Hopkins for health, dental, andvision insurance.(4)Reflects restricted stock unit awards granted on March 6, 2013, with respect to the following numbers of shares of common stock: Dr. Carlo, 13,894shares (7,316 vesting March 6, 2014 and 6,578 vesting in three equal annual installments from the award date); Mr. Hopkins, 5,594 shares (3,292vesting March 6, 2014 and 2,302 vesting in three equal annual installments from the award date); and Mr. Marguglio, 6,947 shares (3,658 vestingMarch 6, 2014 and 3,289 vesting in three equal annual installments on the anniversary of the award date). The fair market value of the shares at thetime of issuance was $11.39 per share. For a discussion of assumptions used to estimate fair value, please see Note 14 to our financial statementsincluded elsewhere in this Annual Report on Form 10-K. 41 Outstanding Equity Awards at Year-End The following table provides a summary of equity awards outstanding at March 31, 2014, for each of our named executive officers. Option Awards Stock Awards Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable (1) Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable EquityIncentive PlanAwards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions (#) OptionExercisePrice ($) OptionExpirationDate NumberofSharesor Unitsof StockThatHaveNotVested(#) MarketValue ofShares orUnits ofStock ThatHave NotVested ($) EquityIncentivePlanAwards:Number ofUnearnedShares,Units orOtherRightsThat HaveNot Vested(#) Equity IncentivePlan Awards:Market orPayout Value ofUnearnedShares, Units orOther RightsThat Have NotVested ($) Name Dennis J. Carlo, Ph.D. 14,888(2) $11.39 3/5/2023 35,294(4) — — $3.23 9/11/2021 — $— — $— 57,353(4) — $4.59 8/20/2020 4,386 (6)$27,895 Robert O. Hopkins 5,211(2) $11.39 3/5/2023 7,353(3) — — $3.23 9/11/2021 — $— — $— 29,412(4) — $4.59 8/20/2020 1,535 (6)$9,763 9,402(5) — $4.59 8/20/2020 David J. Marguglio 7,444(2) $11.39 3/5/2023 7,353(3) — — $3.23 9/11/2021 — $— — $— 32,353(4) — $4.59 8/20/2020 2,193(6) $13,947 (1)Does not include options granted on April 1, 2014, as described in note 2 to the Summary Compensation Table above.(2)The options vest with respect to 1/36 monthly of the shares subject to the option, and have a term of ten years (subject to earlier termination upon theevents described in the Plan such as termination of employment).(3)The options vest with respect to one-third of the shares immediately and monthly thereafter with respect to 1/24 of the shares subject to the option,and have a term of ten years (subject to earlier termination upon the events described in the Plan such as termination of employment).(4)The options vest with respect to one-sixth of the shares subject to the option on the six-month anniversary of the grant date and monthly thereafterwith respect to 1/36 of the shares subject to the option, and have a term of ten years (subject to earlier termination upon the events described in thePlan such as termination of employment).(5)The options are fully vested and have a term of ten years (subject to earlier termination upon the events described in the Plan such as termination ofemployment).(6)The RSUs vest as to one-third of the shares subject to the RSU in three equal annual installments on the anniversary of the award date (subject toearlier termination upon the events described in the Plan or the applicable award agreement, including termination of employment). There were no options or other derivative securities exercised in fiscal 2014 by our named executive officers. In addition, there were no sharesacquired by our named executive officers upon the vesting of restricted stock. 42 Employment Agreements and Potential Payments Upon Termination or Change in Control On November 9, 2010, the Company entered into employment agreements with its executive officers. The agreements provide for the employment ofthe following persons to the following positions: Dennis J. Carlo, Ph.D., President and Chief Executive Officer; David J. Marguglio, Vice President ofBusiness Development; and Robert O. Hopkins, Vice President of Finance and Chief Financial Officer. The agreements provide for base compensation at the following initial annual rates: Dr. Carlo, $500,000; Mr. Marguglio, $250,000; and Mr.Hopkins, $225,000. Under the agreements, the officers are eligible to participate in benefit programs that are routinely made available to executive officers,including any executive stock ownership plans, profit sharing plans, incentive compensation or bonus plans, retirement plans, Company-provided lifeinsurance, or similar executive benefit plans maintained or sponsored by the Company. Except with respect to titles, salary amounts, and severance and benefit periods following certain kinds of employment terminations or change ofcontrol events, the agreements are similar in all material respects. The agreements are terminable at any time by either party. If the Company terminates the officer’s employment at any time, the officer will beentitled to receive any unpaid prorated base salary for the actual number of days worked along with all benefits and expense reimbursements to which theofficer is entitled by virtue of the officer’s past employment with the Company. The agreements provide that if the officer’s employment is terminatedwithout cause (as defined in the employment agreements), the officer will be entitled to receive severance payments at the officer’s then-annual base salaryfor the following periods from the date of termination: Dr. Carlo, 18 months; and Messrs. Marguglio and Hopkins, nine months. These payments will beaccelerated in the event of a change of control transaction. The officers would also receive continued medical, dental and vision benefits pursuant to COBRAat the Company’s expense for such periods (or until the officer becomes employed full-time by another employer). In addition, in the event of a terminationwithout cause, a number of unvested stock options will accelerate, vest and be exercisable in full as if the officer had remained employed during theseverance periods described above, and all options will remain exercisable for a period of one year after the date of termination. The agreements also providethat if officer is terminated without cause or the officer terminates the officer’s employment for good reason (as defined in the employment agreements), ineach case within 90 days before a change in control or within 13 months after the date of a change in control, the officer will also be entitled to receive theseverance and medical benefits described above. Good reason is defined in the agreements to include events such as material reduction in base salary orresponsibilities and duties or required relocation out of the San Diego area. In addition, in the event of a change in control, all unvested options held by theofficer will accelerate and be exercisable in full and any unvested shares will vest in full. The Company’s obligation to pay the severance benefits describedabove is conditioned on the officer’s timely execution of a general release of claims. Upon termination of employment by reason of death or disability, anyoptions that are vested and exercisable on the termination date will remain exercisable for 12 months after the date of cessation of service. IRC Section 162(m) Compliance Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally disallows a tax deduction to public companies for certaincompensation in excess of $1 million paid to our named executive officers. Certain compensation, including qualified performance-based compensation, willnot be subject to the deduction limit if certain requirements are met. In general, our compensation program is designed to reward executives for theachievement of our performance objectives. Our equity incentive plan is designed in a manner intended to comply with the performance-based exception toSection 162(m). Nevertheless, compensation attributable to awards granted under our plans may not be treated as qualified performance-based compensationunder Section 162(m). In addition, the compensation committee and the Board consider it important to retain flexibility to design compensation programsthat are in the best interests of Adamis and its stockholders and, to this end, the committee and the Board reserve the right to use their judgment to authorizecompensation payments that may be subject to the limitations under Section 162(m) when the committee or the Board believe that compensation isappropriate and in the best interests of Adamis and our stockholders, after taking into consideration changing business conditions and performance of ouremployees. Compensation of Directors The general policy of the Board is that compensation for independent directors should be a mix of cash and equity-based compensation. Adamisdoes not pay employee directors for Board service in addition to their regular employee compensation. The Compensation Committee, which consists solelyof independent directors, has the primary responsibility for reviewing and considering any revisions to director compensation. The Board reviews theCompensation Committee’s recommendations and determines the amount of director compensation. Pursuant to its charter, the Compensation Committee may engage the services of outside advisors, experts, and others to assist them. During fiscal2014, the Compensation Committee did not engage the services of outside advisors, experts or others to assist in setting director compensation. 43 The following table shows amounts earned by each director during the fiscal year ended March 31, 2014, other than Dr. Carlo and Mr. Marguglio,who are named executive officers and received no additional compensation for their services as a director. Director FeesEarnedor Paid inCash ($)(1) StockAwards($) OptionAwards($)(2)(3) Non-EquityIncentive PlanCompensation($) NonqualifiedDeferredCompensationEarnings All OtherCompensation($) Total ($) Kenneth M. Cohen $46,500 — $12,250 — — — $58,750 Craig A. Johnson $51,500 — $12,250 — — — $63,750 Tina S. Nova, Ph.D. $46,500 — $12,250 — — — $58,750 (1)Reflects the amount of fees earned during the year ended March 31, 2014.(2)Amounts reflect the grant date fair value for financial statement reporting purposes with respect to stock options granted during the year ended March31, 2014, calculated in accordance with applicable rules and regulations and authoritative guidance. The assumptions used for these calculations areincluded in Note 14 to the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year endedMarch 31, 2014, represents options awarded to each of Mr. Cohen, Mr. Johnson and Dr. Nova to purchase 2,059 shares of common stock. The exerciseprice of the options is $6.12 per share. The options have a term of ten years and vest and become exercisable as to 1/36 of the option shares per monthover a period of three years.(3)The aggregate number of option awards outstanding at March 31, 2014, for each of Mr. Cohen, Mr. Johnson and Dr. Nova, was 9,118. Upon joining the Board, and pursuant to the provisions of the Plan regarding option awards to non-employee directors, each of Mr. Cohen, Mr.Johnson and Dr. Nova was granted an initial stock option to purchase 2,942 shares. The options have a term of ten years and an exercise price equal to the fairmarket value of the common stock on the date of grant. The initial option vests and becomes exercisable with respect to 1,471 of the shares subject to theoption on the grant date. The option vests and becomes exercisable with respect to the remaining 1,471 of the shares subject to the option monthly over aperiod of three years from the grant date at the rate of 1/36 of the option shares each month. Under the provisions of the Plan, each non-employee director alsoreceives a succeeding annual grant, on the first business day after the annual meeting of stockholders, to purchase 1,471 shares of common stock (pro rated ifthe director joined the Board within the preceding 12 months), with the annual grant vesting and becoming exercisable as to 1/36 of the total shares subjectto the annual grant on each monthly anniversary of the date of grant, such that Succeeding Grants are fully vested and exercisable on the third anniversary ofthe date of grant, so long as the non-employee director continuously remains a director, consultant or employee of the Company. Non-employee directors arealso eligible to receive additional option or other awards under the Plan. In general, under the Company’s policies concerning fees for non-employee directors, non-employee directors of the Company are entitled toreceive the following amounts of cash compensation for service as a director: each non-employee director is entitled to receive an annual fee of $25,000 peryear, paid quarterly in arrears; the Chair of the Audit Committee is entitled to receive $10,000 per year, paid quarterly in arrears; the Chair of theCompensation Committee and the Nominating and Governance Committee are each entitled to receive $5,000 per year, paid quarterly in arrears; and eachnon-employee director is entitled to receive $1,500 for each meeting attended in person, and $500 for each meeting attended telephonically so long as thetelephonic meeting is more than one hour. Each director is also entitled to reimbursement of reasonable expenses incurred in connection with board-relatedactivities. 44 ITEM 12:SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS The following table sets forth information, as of May 31, 2014 (the “Table Date”), regarding beneficial ownership of the Common Stock to theextent known to us, by (i) each person who is a director or a nominee for director; (ii) each named executive officer in the Summary Compensation Table; (iii)all directors and named executive officers as a group; and (iv) each person who is known by us to be the beneficial owner of 5% or more of the outstandingCommon Stock. Except as otherwise noted, each person has sole voting and investment power as to his or her shares. The share numbers and percentages in the table below are based on 105,501,519 shares of common stock outstanding. Directors Shares BeneficiallyOwned (1) Percent Dennis J. Carlo, Ph.D. 576,838(2) 5.4 Kenneth M. Cohen 10,763(3) * Craig A. Johnson 7,986(4) * David J. Marguglio 264,912(5) 2.5 Tina S. Nova, Ph.D. 7,821(6) * Other Named Officers Robert O. Hopkins 114,859(7) 1.1 Other Beneficial Owners (8) Eses Holdings (FZE) 1,741,973(8) 16.6 All Adamis directors and named officers as a group (6 persons)(9) 983,179 9.1 *Less than 1%.(1)Based upon information supplied by officers, directors and principal stockholders. Beneficial ownership is determined in accordance with rules of theSEC that deem shares to be beneficially owned by any person who has or shares voting or investment power with respect to such shares. Unlessotherwise indicated, the persons named in this table have sole voting and sole investing power with respect to all shares shown as beneficially owned,subject to community property laws where applicable. Shares of common stock subject to an option that is currently exercisable or exercisable within60 days of the date of the table are deemed to be outstanding and to be beneficially owned by the person holding such option for the purpose ofcomputing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of anyother person. Except as otherwise indicated, the address of each of the persons in this table is as follows: c/o Adamis Pharmaceuticals Corporation,11682 El Camino Real, Suite 300, San Diego, California 92130.(2)Includes 418,220 shares of Common Stock owned of record, 5,883 shares of Common Stock held of record by a family member and beneficiallyowned by Dr. Carlo, and 152,735 shares of Common Stock subject to options which were exercisable as of the Table Date or 60 days after such date.Excludes 16,640 shares of Common Stock underlying options, which become exercisable over time after such period.(3)Includes 2,941 shares of Common Stock owned of record by the Cohen-Salsitz family trust, 1,163 shares of Common Stock owned of record and6,659 shares of Common Stock subject to options which were exercisable as of the Table Date or 60 days after such date. Excludes 2,459 shares ofCommon Stock underlying options which become exercisable or vest over time after such period.(4)Includes 1,328 shares of Common Stock owned of record and 6,658 shares of Common Stock subject to options which were exercisable as of theTable Date or 60 days after such date. Excludes 2,459 shares of Common Stock underlying options, which become exercisable over time after suchperiod. 45 (5)Includes 198,279 shares of Common Stock owned of record, 5,883 shares of Common Stock held of record by a family member and beneficiallyowned by Mr. Marguglio and 60,750 shares of Common Stock subject to options which were exercisable as of the Table Date or 60 days after suchdate. Excludes 8,320 shares of Common Stock underlying options, which become exercisable or vest over time after such period.(6)Includes 1,163 shares of Common Stock owned of record and 6,658 shares of Common Stock subject to options which were exercisable as of theTable Date or 60 days after such date. Excludes 2,459 shares of Common Stock underlying options, which become exercisable over time after suchperiod.(7)Includes 55,282 shares of Common Stock owned of record and 59,578 shares of Common Stock subject to options which were exercisable as of theTable Date or 60 days after such date. Excludes 5,824 shares of Common Stock underlying options which become exercisable or vest over time aftersuch period.(8)Based on a Schedule 13D/A filed on behalf of Eses Holdings (FZE) with the SEC on December 26, 2013. The address for Eses Holdings (FZE) isSharjah Airport International Free Zone, Executive Suite, P.O. Box 9366, Sharjah, United Arab Emirates. Includes 1,741,973 shares held directly.(9)Includes 288,251 shares of Common Stock issuable upon the exercise of options as of or within 60 days after the Table Date. 46 ITEM 13:CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE In addition to the matters described below, and other than compensation to, and transactions with, our directors and executive officers as disclosedin Item 11 above entitled “Executive Compensation,” which disclosures are incorporated herein by reference, to our knowledge, other than as set forth below,there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we wereor were to be a party, in which the amount involved exceeded the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at the end of ourlast two completed fiscal years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficiallymore than 5% of any class of the Common Stock, or any member of the immediate family of any of the foregoing persons, has an interest. On November 10, 2010, we completed a private placement transaction with Eses Holdings (FZE), a foreign investor (the “Purchaser”), pursuant to aCommon Stock Purchase Agreement and a registration rights agreement. The purchase agreement provided for the sale of up to 2,352,942 million shares ofour common stock to the Purchaser at a price of $4.25 per share, for up to $10 million of gross proceeds. An initial closing was held on November 10, 2010,pursuant to which we received $5 million in gross proceeds and issued 1,176,471 million shares of common stock. At subsequent closings linked to theachievement of various milestones, the last of which occurred in February 2012, we received an additional $2.5 million and issued an additional 588,236million shares of common stock. On May 1, 2012, we exercised our option to terminate the Common Stock Purchase Agreement by sending notice to thePurchaser. Certain provisions of the Common Stock Purchase Agreement survive termination, including the Purchaser’s right to have an observer attendmeetings of the board of directors and to receive certain materials that are provided to the directors in connection with such meetings. On April 2, 2012, we completed the closing of a private placement financing transaction with Gemini Master Fund, Ltd. (“Gemini”) pursuant to asecurities purchase agreement. We issued a 10% Senior Convertible Note (the “Gemini April Note”) in the aggregate principal amount of $1.0 million and58,824 shares of our common stock, and received gross proceeds of $1.0 million, excluding transaction costs and expenses. Interest on the Gemini Notepayable at a rate of 10% per annum and was payable on the maturity date. During the third quarter of fiscal 2013 the Gemini April note and accrued interestof approximately $73,000 was converted at $4.25 per share into 252,552 shares of common stock before its maturity date and is no longer outstanding. 47 On June 11, 2012, we completed the closing of a private placement financing transaction with Gemini. We issued a 10% Senior Convertible Note inthe aggregate principal amount of $500,000 and 29,412 shares of common stock, and received gross proceeds of $500,000, excluding transaction costs andexpenses. As amended, the maturity date was July 11, 2013. As we have previously reported on a Form 8-K, on June 26, 2013, we completed a privateplacement financing transaction with a small number of accredited institutional investors, pursuant to which we issued Secured Convertible Promissory Notes(“Notes”) and common stock purchase warrants (the “Warrants”). The Notes were convertible into shares of Common Stock at an initial conversion price of$8.50 per share. The Warrants entitle the holder to purchase a number of shares equal to the number of shares into which the Note issued to the holder isinitially convertible, at an initial exercise price of $12.155 per share (as subsequently adjusted, $5.95 per share). In connection with the transaction, Geminipurchased Notes and Warrants in exchange for all amounts owed under its June 2012 Note, which is no longer outstanding, and received a Note with aprincipal amount of $613,271 and related Warrants. All unconverted principal and interest of the Notes was paid in December 2013 and the Notes are nolonger outstanding. Review, Approval and Ratification of Transactions with Related Persons The Audit Committee is responsible for reviewing, approving or ratifying all transactions between us and any related person. Related persons caninclude any of our directors or executive officers, certain of our stockholders, and any of their immediate family members. In evaluating related persontransactions, the members of the Audit Committee apply the same standards of good faith and fiduciary duty they apply to their general responsibilities as acommittee of the Board of Directors and as individual directors. The Audit Committee will approve a related person transaction when, in its good faithjudgment, the transaction is in the best interest of the Company. ITEM 14:PRINCIPAL ACCOUNTING FEES AND SERVICES Accounting Fees The following table sets forth fees billed to us by Mayer Hoffman McCann PC, our independent registered public accounting firm during the yearsended March 31, 2014 and 2013 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements;(ii) services by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financialstatements and that are not reported as Audit Fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all otherfees for services rendered, including review of registration statements that the Company filed with the SEC and similar matters. Fiscal 2014 Fiscal 2013 Audit Fees $149,311 $119,240 Audit Related Fees — — Tax Fees 11,000 13,915 All Other Fees 76,783 — Total Fees $237,094 $133,155 Mayer Hoffman McCann P.C. (MHM) leases substantially all its personnel, who work under the control of MHM shareholders, from wholly-ownedsubsidiaries of CBIZ, Inc., in an alternative practice structure. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm The Audit Committee has a policy for the pre-approval of all audit and permitted non-audit services that may be performed by our independentregistered public accounting firm. Under this policy, unless a type of service to be provided by our independent registered public accounting firm hasreceived general pre-approval, it will require specific pre-approval by the Audit Committee. The Audit Committee periodically will revise the list of pre-approved services, based on subsequent determinations. The Audit Committee delegates pre-approval authority to its chairperson and may delegate suchauthority to one or more of its members, whose activities are reported to the Audit Committee at each regularly scheduled meeting. All fees reported under theheadings Audit fees and expenses, Audit-related fees and expenses, Tax fees and All other fees above for fiscal 2014 and 2013 were approved by the AuditCommittee, or by the entire Board functioning as the audit committee, before the respective services were rendered, which concluded that the provision ofsuch services was compatible with the maintenance of the independence of the firm providing those services in the conduct of its auditing functions.Accordingly, none of the fees reported under the headings were approved by the Audit Committee pursuant to federal regulations that permit the AuditCommittee to waive its pre-approval requirement under certain circumstances. 48 PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibits The following exhibits are attached hereto or incorporated herein by reference. Incorporated by ReferenceExhibitNumber Exhibit Description FiledHerewith Form/ File No. Date 2.1 Agreement and Plan of Share Exchange dated as of October 7, 2004, by and between theCompany and Biosyn, Inc. 8-K 10/26/043.1 Restated Certificate of Incorporation of the Registrant S-8 03/17/144.1 Amended and Restated Bylaws of the Company S-4/A 333-155322 01/12/094.2 Specimen stock certificate for common stock 8-K 04/03/09*10.1 2005 Equity Incentive Plan 10-K 03/31/06*10.2 Form of Option Agreement under the 2005 Equity Incentive Plan 10-K 03/31/06*10.3 2009 Equity Incentive Plan S-8 03/17/14*10.4 Form of Stock Option Agreement for option awards 8-K 09/16/11*10.5 Form of Option Agreement for Non-Employee Directors* 8-K 01/13/11*10.6 Form of Indemnity Agreement with directors and executive officers 8-K 01/13/1110.7 Agreement dated as of October 8, 1996 by and among Biosyn, Inc., Edwin B. Michaels and E.B.Michaels Research Associates, Inc. (Confidential treatment has been requested with respect toportions of this agreement.) 10-K 03/31/0510.8 Patent License Agreement by and among Biosyn, Inc., and certain agencies of the United StatesPublic Health Service 10-K 03/31/0510.9 License Agreement dated as of May 22, 2001, by and between Crompton Corporation andBiosyn, Inc. (Confidential treatment has been requested for portions of this agreement.) 10-K 03/31/0510.10 License Agreement dated January 30, 2006, by and between CONRAD, Eastern Virginia MedicalSchool, and Biosyn, Inc. (Confidential treatment has been requested for portions of thisagreement.) 10-K 04/02/0710.11 Amendment to License Agreement dated as of March 15, 2006, by and between CromptonCorporation and Biosyn, Inc. S-4/A 333-155322 01/12/0910.12 Funding Agreement dated October 12, 1992, by and between Ben Franklin Technology Center ofSoutheastern Pennsylvania and Biosyn, Inc. S-4/A 333-155322 01/12/0910.13 License Agreement dated July 28, 2006, by and between Nevagen, LLC and AdamisPharmaceuticals Corporation S-4/A 333-155322 01/12/0910.14 Amendment to License Agreement dated December 29, 2008, by and between Nevagen, LLC andAdamis Pharmaceuticals Corporation S-4/A 333-155322 01/12/0910.15 Amendment to License Agreement dated October 18, 2007, by and between CONRAD, EasternVirginia Medical School, and Biosyn, Inc. S-4/A 333-155322 01/12/0910.16 Clinical Trial Agreement between Biosyn, Inc. and the National Institute of Child Health andHuman Development S-4/A 333-155322 01/12/0910.17 Common Stock Purchase Agreement dated as of November 10, 2010, by and between AdamisPharmaceuticals Corporation and the Purchaser named therein (Confidential treatment has beengranted for portions of this exhibit.) 8-K 11/12/1010.18 Registration Rights Agreement dated as of November 10, 2010, by and between AdamisPharmaceuticals Corporation and the Purchaser named therein 8-K 11/12/10 49 Incorporated by ReferenceExhibitNumber Exhibit Description FiledHerewith Form/File No. Date 10.19 Employment Agreement between the Company and Dennis J. Carlo* 8-K 11/12/1010.20 Employment Agreement between the Company and David J. Marguglio* 8-K 11/12/1010.21 Employment Agreement between the Company and Robert O. Hopkins* 8-K 11/12/1010.22 Product Development and Contract Manufacturing Agreement dated November 1, 2010, betweenAdamis and Beximco 10-Q 02/14/1110.23 Employment Agreement between the Company and Karen K. Daniels* 8-K 07/06/1210.24 Employment Agreement between the Company and Thomas H. Moll,Ph.D. 8-K 07/06/1210.25 License Agreement between Adamis, the Regents of the University of California and Dana-FarberCancer Institute, Inc. 10-K 07/07/1110.26 License Agreement dated January 26, 2007, with Wisconsin Alumni Research Foundation 10-K 07/07/1110.27 License Agreement dated January 26, 2007, with Wisconsin Alumni Research Foundation 10-K 07/07/1110.28 License Agreement dated January 2, 2008, with Wisconsin Alumni Research Foundation 10-K 07/07/1110.29 First Amendment to Common Stock Purchase Agreement dated as of June 30, 2011, by andbetween the Company and Eses Holdings (FZE) 10-K 07/07/1110.30 Second Amendment to Common Stock Purchase Agreement dated as of November 10, 2011, byand between the Company and Eses Holdings (FZE) 8-K 11/21/1110.31 Third Amendment to Common Stock Purchase Agreement dated as of January 31, 2012, by andbetween the Company and Eses Holdings (FZE) 10-Q 02/14/1210.32 Securities Purchase Agreement dated as of June 11, 2012 8-K 06/15/1210.33 10% Senior Convertible Note dated as of June 11, 2012 8-K 06/15/1210.34 Form of Subsidiary Guarantee dated as of June 11, 2012 8-K 06/15/1210.35 Convertible Promissory Note dated as of June 11, 2012 8-K 06/15/1210.36 Zero Coupon Secured Promissory Note dated October 25, 2012 10Q 02/19/1310.37 Convertible Promissory Note dated December 31, 2012 10-Q 02/19/1310.38 Amendment to Convertible Promissory Note dated March 26, 2014 8-K 04/01/1410.39 Securities Purchase Agreement dated as of April 5, 2013 8-K 04/08/1310.40 12% Convertible Debenture dated April 5, 2013 8-K 04/08/1310.41 Subscription Agreement dated as of June 26, 2013 8-K 07/01/1310.42 Form of Secured Convertible Notes dated June 26, 2013 8-K 07/01/1310.43 Form of Warrants dated June 26, 2013 8-K 07/01/1310.44 Security Agreement dated June 26, 2013 8-K 07/01/1310.45 Intercreditor Agreement dated June 26, 2013 8-K 07/01/1310.46 Consent and Waiver 8-K 10/31/1310.47 Exclusive License and Asset Purchase Agreement dated as of August 1, 2013, by and among theRegistrant, 3M Corp. and 3M Innovative Properties Company 8-K 08/06/1310.48 Sublease dated as of March 12, 2011 between the Registrant and Whitney, Bradley & Brown, Inc. S-1 333-192372 11/15/1310.49 Sublease Agreement between McDermott Will & Emery LLP and the Registrant dated February 1,2014 10-Q 02/14/1410.50Lease Agreement dated April 1, 2014, between the Registrant and Pacific North Court Holdings,L.P. X 21.1 Subsidiaries of the Registrant 10-K 07/03/1323.1 Consent of Mayer Hoffman McCann P.C., Independent Registered Public Accounting Firm X 24.1 Power of Attorney (See signature page) X 31.1 Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 50 Incorporated by ReferenceExhibitNumber Exhibit Description FiledHerewith Form/File No. Date 32.1 Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 32.2 Certification by CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Represents a compensatory plan or arrangement. 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California. ADAMIS PHARMACEUTICALS CORPORATION By:/s/ DENNIS J. CARLO Dennis J. CarloDated: June 23, 2014 Chief Executive Officer Power of Attorney Each person whose signature appears below constitutes and appoints each of Dennis J. Carlo and Robert O. Hopkins, true and lawful attorney-in-fact,with the power of substitution, for him in any and all capacities, to sign amendments to this Annual Report on Form 10-K, and to file the same, with allexhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that saidattorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in thecapacities and on the dates indicated: Name Title DatePrincipal Executive Officer: /s/ DENNIS J. CARLO Chief Executive Officer and Director June 23, 2014Dennis J. Carlo Principal Financial Officer and Principal Accounting Officer: /s/ ROBERT O. HOPKINS Vice President, Finance, June 23, 2014Robert O. Hopkins Chief Financial Officer and Secretary Directors: /s/ DAVID J. MARGUGLIO Director June 23, 2014David J. Marguglio /s/ KENNETH M. COHEN Director June 23, 2014 /s/ TINA S. NOVA, Ph.D. Director June 23, 2014 /s/ CRAIG A. JOHNSON Director June 23, 2014  ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS MARCH 31, 2014 AND 2013 PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM MAYER HOFFMAN MCCANN P.C. F-1 FINANCIAL STATEMENTS: Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) F-4 Consolidated Statements of Cash Flows F-5 - F-6 Notes to the Consolidated Financial Statements F-7 - F-23  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Adamis Pharmaceuticals Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of Adamis Pharmaceuticals Corporation and Subsidiaries (the “Company”) as of March 31,2014 and 2013, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the two years in theperiod ended March 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to expressan opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationof internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AdamisPharmaceuticals Corporation and Subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the two yearsin the period ended March 31, 2014, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 tothe consolidated financial statements, the Company has incurred recurring losses from operations and has limited working capital to pursue its businessalternatives. Management’s plans with regard to these matters are also described in Note 2. These conditions raise substantial doubt about the Company’sability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of theseuncertainties. /s/ Mayer Hoffman McCann P.C. Boca Raton, Florida June 23, 2014 F-1 ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS ASSETS March 31, 2014 March 31, 2013 CURRENT ASSETS Cash $5,403,235 $— Prepaid Expenses and Other Current Assets 14,504 64,347 Debt Issuance Cost — 286,582 5,417,739 350,929 LONG TERM ASSETS Intangible Assets, net 9,611,632 — Equipment, net 92,245 — Total Assets $15,121,616 $350,929 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) CURRENT LIABILITIES Accounts Payable $671,018 $2,431,919 Accrued Other Expenses 159,955 754,709 Accrued Bonuses 282,821 101,436 Conversion Feature Derivative, at fair value — 162,456 Down-round Protection Derivative, at fair value — 50,545 Warrant at fair value 1,019,539 — Warrant Down-round Protection Derivative, at fair value 378,502 — Convertible Notes Payable, net 383,339 982,997 Other Notes Payable 38,653 97,683 Notes Payable to Related Party — 97,122 Total Liabilities 2,933,827 4,678,867 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; 100,000,000 Shares Authorized; 10,809,059 and6,450,634 Issued, 10,501,519 and 6,143,094 Outstanding, Respectively 1,081 645 Additional Paid-in Capital 58,324,941 33,653,770 Accumulated Deficit (46,133,004) (37,977,124)Treasury Stock - 307,540 Shares, at cost (5,229) (5,229) Total Stockholders’ Equity (Deficit) 12,187,789 (4,327,938) $15,121,616 $350,929 The accompanying notes are an integral part of these Consolidated Financial Statements F-2 ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, 2014 2013 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,389,055 2,008,255 RESEARCH AND DEVELOPMENT 1,006,431 1,209,318 Loss from Operations (4,395,486) (3,217,573) OTHER INCOME (EXPENSE) Interest Expense (8,626,162) (2,333,982)Gain/Loss on Extinguishment of Debt 198,864 — Change in Fair Value of Derivative Liabilities 919,844 (122,945)Change in Fair Value of Conversion Feature Liability 2,985,007 (1,390,292)Change in Fair Value of Warrants Liability 762,053 — Total Other Income (Expense) (3,760,394) (3,847,219) (Loss) from Continuing Operations (8,155,880) (7,064,792) DISCONTINUED OPERATIONS Write-down of Discontinued Operations Receivable — (130,000) (Loss) from Discontinued Operations — (130,000) Net (Loss) $(8,155,880) $(7,194,792) Per Share Information: Loss from Continuing Operations-basic $(1.11) $(1.21) Loss from Discontinued Operations-basic $— $(0.02) Loss Per Common Share-basic $(1.11) $(1.23) Loss from Continuing Operations-diluted $(1.22) $(1.21) Loss from Discontinued Operations-diluted $— $(0.02) Loss Per Common Share-diluted $(1.22) $(1.23) Weighted Average Number of Common Shares Outstanding Basic 7,346,155 5,858,797Diluted 7,493,031 5,858,797 The accompanying notes are an integral part of these Consolidated Financial Statements F-3 ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock AdditionalPaid-In Treasury Stock Accumulated Shares Amount Capital Shares Amount Deficit Total Balance March 31, 2012 5,950,704 $596 $28,063,336 (307,540) $(5,229) $(30,782,332) $(2,723,629) Common Stock Issued for Note Conversions 306,280 30 3,415,674 — — — 3,415,704 Common Stock Issued for Exercised Warrants 24,204 2 (2) — — — — Common Stock Issued for Services 5,882 1 70,999 — — — 71,000 Common Stock Issued for Financings 163,294 16 1,591,984 — — — 1,592,000 . Note Payable Discount — — 347,272 — — — 347,272 Stock Based Compensation — — 164,507 — — — 164,507 Net (Loss) — — — — — (7,194,792) (7,194,792)Balance March 31, 2013 6,450,364 645 33,653,770 (307,540) (5,229) (37,977,124) (4,327,938) Common Stock Issued for Exercised Options 4,003 — — — — — — Common Stock Issued for Exercised Warrants 10,138 1 (1) — — — — Common Stock Issued for Note Conversions 35,022 4 297,683 — — — 297,687 Common Stock Issued from Public Offering, Net ofTransaction Costs of $1,923,773 4,278,000 428 23,529,899 — — — 23,530,327 Common Stock Issued for Employee Award 31,532 3 359,146 — — — 359,149 Warrants Issued — — 219,500 — — — 219,500 Stock Based Compensation — — 236,944 — — — 236,944 Beneficial Conversion Feature of Convertible Debt 28,000 — — — 28,000 Net (Loss) — — — — — (8,155,880) (8,155,880)Balance March 31, 2014 10,809,059 $1,081 $58,324,941 (307,540) $(5,229) $(46,133,004) $12,187,789 The accompanying notes are an integral part of these Consolidated Financial Statements F-4 ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) $(8,155,880) $(7,194,792)Adjustments to Reconcile Net (Loss) to Net Cash (Used in) Operating Activities: Stock Issued for Interest — 75,703 Stock Based Compensation Expense 596,093 164,507 Reduction in Notes Payable — (57,925)Gain on Extinguishment of Debt (198,864) — Change in Derivative Liabilities Fair Value (919,844) 122,945 Change in Conversion Feature Liability Fair Value (2,985,007) 1,390,292 Change in Warrant Liability Fair Value (762,053) — Amortization of Discount on Notes Payable 6,629,364 770,033 Amortization of Debt Issuance Costs 792,431 1,305,418 Amortization of Stock Issued for Services 47,333 36,792 Depreciation and Amortization Expense 296,123 — Write-down of Discontinued Operations Receivable — 130,000 Change in Assets and Liabilities: (Increase) Decrease in: Prepaid Expenses and Other Current Assets 2,510 1,381 Increase (Decrease) in: Accounts Payable (1,760,901) 411,207 Accrued Other Expenses and Bonuses (361,425) 285,430 Net Cash (Used in) Operating Activities (6,780,120) (2,559,009) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Intangibles (9,902,900) — Purchase of Equipment (97,100) — Net Cash (Used in) Investing Activities (10,000,000) — CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Notes Payable 5,875,000 3,099,800 Payment of Notes Payable (6,838,501) (539,800)Cash Paid for Debt Issuance Costs (286,349) — Paymemt of Notes Payable to Related Parties (97,122) (8,510)Proceeds from Issuance of Common Stock 25,454,100 — Cash Paid for Common Stock Issuance Costs (1,923,773) — Net Cash Provided by Financing Activities 22,183,355 2,551,490 Increase (Decrease) in Cash 5,403,235 (7,519) Cash: Beginning — 7,519 Ending $5,403,235 $— The accompanying notes are an integral part of these Consolidated Financial Statements F-5 ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 2014 2013 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid for Interest $1,179,940 $120,561 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES Common Stock issued for Exercised Warrants and Options $1 $41 Common Stock issued for Debt Issuance Cost $— $1,592,000 Note Payable Discounts from Deriviative and Convertible Feature Liabilities, and Warrants $5,962,763 $539,764 Additional Paid-In Capital from Notes Payable Discount $— $347,272 Accrued Interest Applied to Principal Balance $51,944 $— Notes Payable Converted to Common Stock $297,687 $1,500,000 Common Stock Issued for Interest $— $75,703 Stock Based Compensation Expense $596,093 $164,507 Common Stock Issued for Prepaid Services $— $71,000 Additional Paid-In Capital resulting from reduction in derivative and conversion featureliabilities $— $1,840,000 Warrants Issued for Debt Costs $219,500 $— Reduction in Notes Payable $— $57,925 Beneficial Conversion Feature of Convertible Debt $28,000 $— Settlement of Derivative Liability though Modification of Note $110,819 $— The accompanying notes are an integral part of these Consolidated Financial Statements F-6 NOTE 1:NATURE OF BUSINESS The company formerly named Adamis Pharmaceuticals Corporation, or Old Adamis, was founded in June 2006 as a Delaware corporation. Effective April 1,2009, Old Adamis completed a business combination transaction with Cellegy Pharmaceuticals, Inc., or Cellegy. Before the merger, Cellegy was a publiccompany and Old Adamis was a private company. In connection with the consummation of the merger and pursuant to the terms of the definitive mergeragreement relating to the transaction, Cellegy was the surviving corporation in the merger and changed its name from Cellegy Pharmaceuticals, Inc. toAdamis Pharmaceuticals Corporation (the “Company”, “Adamis Pharmaceuticals,” “Adamis,” “we” or “our”), and Old Adamis survived as a wholly-ownedsubsidiary and changed its corporate name to Adamis Corporation. The Company has two wholly-owned subsidiaries: Adamis Corporation; and Biosyn, Inc.,which has rights to the C31G product. Adamis Corporation has two wholly-owned subsidiaries: Adamis Viral Therapies, Inc., or Adamis Viral, which wasformed to focus on the Company’s cancer and vaccine technologies; and Adamis Laboratories, Inc., or Adamis Labs, which was formed to focus on theCompany’s allergy and respiratory products. Effective December 12, 2013, the Company effected a 1-for-17 reverse stock split of its issued and outstanding stock. On December 13, 2013, the Company’sCommon Stock began trading, on a post-reverse split adjusted basis, on the NASDAQ Capital Market under the symbol “ADMP.” In addition, the number ofauthorized shares was reduced from 200,000,000 to 100,000,000. NOTE 2:GOING CONCERN The Company’s consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, whichcontemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying consolidatedfinancial statements, the Company has sustained substantial losses from continuing operations. In addition, the Company has used, rather than provided, cashin its continuing operations. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. Managementintends to attempt to secure additional required funding through equity or debt financings, sales or out-licensing of intellectual property assets, seekingpartnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts andclassification of liabilities that might be necessary should the Company be unable to continue in existence. NOTE 3:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include Adamis Pharmaceuticals and its wholly-owned operating subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management tomake certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dateof the consolidated financial statements. Actual results could differ from those estimates, and the differences could be material. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities at the date ofpurchase of three months or less to be cash equivalents. Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued liabilities approximate their fair value due totheir short-term nature. The Company’s notes payable approximate fair value based upon current rates available to the Company for loans with similarmaturities. The convertible notes payable have fixed interest rates and conversion features which are based upon the conversion price specified in theagreements. Additionally, one of the convertible notes payable contains price anti-dilution features which are adjusted to fair value on a recurring basis.Furthermore, certain warrant obligation agreements contain anti-dilution features which are adjusted to fair value on a recurring basis. 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. F-7 Intangible Assets Intangible assets, such as patents and unpatented technology, consist of legal fees and other costs needed to acquire the intellectual property. Acquiredpatents are recorded at their allocated fair value as of the date acquired. Patents are amortized on a straight line basis over their estimated remaining usefullife. 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 assetsmay 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 cashflows 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 bywhich 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 of fairvalue less costs to sell. Derivative Instruments and Hedging Activities Derivatives are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair value. The treatment of gains and lossesresulting from changes in the fair values of derivative instruments is dependent on the use of the respective derivative instrument and whether they qualifyfor hedge accounting. As of March 31, 2014 and 2013, no derivative instruments qualified for hedge accounting. See Note 9 for further discussion ofderivative instruments. Revenue Recognition In accordance with our revenue recognition policy, revenue is recognized when title and risk of loss are transferred to the customer, the sales price to thecustomer is fixed and determinable, and collectability of the sales price is reasonably assured. Reported revenue is net of estimated customer returns and otherwholesaler fees. Our policy regarding sales to customers is that we do not recognize revenue from, or the cost of, such sales, where we believe the customerhas more than a demonstrably reasonable level of inventory. We make this assessment based on historical demand, historical customer ordering patterns forpurchases, business considerations for customer purchases and estimated inventory levels. If our actual experience proves to be different than ourassumptions, we would then adjust such allowances accordingly. Stock-Based Compensation The Company accounts for stock-based compensation transactions in which the Company receives employee services in exchange for options to purchasecommon stock. Stock-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’scommon stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value ascalculated by the Black-Scholes option-pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basisover the requisite service period. Research and Development Research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research anddevelopment activities are recorded as an asset and are expensed when the research and development activities are performed. Legal Expense Legal fees are expensed as incurred and are included in selling, general and administrative expenses on the consolidated statements of operations. Income Taxes The Company accounts for income taxes under the deferred income tax method. Under this method, deferred income taxes are determined based on theestimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets and liabilities from year to year. In providing for deferred taxes, the Companyconsiders tax regulations of the jurisdictions in which they operate, estimates of future taxable income, and available tax planning strategies. If taxregulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilitiesmay be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. The Company accounts for uncertain tax positions in accordance with accounting guidance which requires the Company to recognize the financial statementbenefit of a tax position only after determining that the relevant tax authority would, more likely than not, sustain the position following an audit. For taxpositions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied the guidance to alltax positions for which the statute of limitations remained open. Upon implementation, the Company did not recognize any additional liabilities forunrecognized tax benefits. Accordingly, the adoption of the guidance had no impact on the Company’s financial statements. There have been no materialchanges in unrecognized tax benefits since April 1, 2010. F-8 The Company is subject to income taxes in the United States Federal jurisdiction, California and Florida. The Company is no longer subject to the UnitedStates Federal, California or Florida income examinations by tax authorities for the years before the year ended March 31, 2010. The Company recognizesinterest and penalty accrued related to unrecognized tax benefits in its income tax expense, if any. No interest or penalties have been accrued for all presentedperiods. In fiscal 2014, the Company adopted accounting guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforwardexists which became effective for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Pursuant to this guidance, theCompany presents an unrecognized tax benefit, or portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for net operating losscarryforward. Adoption did not have an impact on the consolidated financial position, results of operations or cash flows of the Company. Stock Split Effective December 12, 2013, the Company effected a 1-for-17 reverse stock split of its issued and outstanding stock. The effects of the reverse split havebeen applied retrospectively, and all share and per share amounts are shown post reverse split, unless otherwise noted. Basic and Diluted Net 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 ofshares of common stock outstanding during the period. The diluted loss per share calculation is based on the treasury stock method and gives effect todilutive options, warrants, convertible notes, and other potential dilutive common stock. Except as noted below, the effect of common stock equivalents wasanti-dilutive and was excluded from the calculation of weighted average shares outstanding. Potential dilutive securities, which are not included in dilutiveweighted average shares for the years ended March 31, 2014 and March 31, 2013 consist of outstanding warrants (362,738 and 105,912, respectively),outstanding options (404,622 and 395,505, respectively), outstanding restricted stock units (11,184 and 42,716, respectively), and potential common stockto be issued upon conversion of convertible debt (100,000 and 64,171, 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 theexercise price of the warrants and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in thecalculation is required to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator isrequired to reflect the related dilutive shares, if any, under the treasury stock method. For the Years Ended March 31, 2014 2013Loss per Share - Basic Numerator for basic loss per share $(8,155,880) $(7,194,792)Denominator for basic loss per share 7,346,155 5,858,797 Loss per common share - basic $(1.11) $(1.23) Loss per Share - Diluted Numerator for basic loss per share $(8,155,880) $(7,194,792)Adjust: Fair value of dilutive warrants outstanding (1,000,239) — Numerator for dilutive loss per share $(9,156,119) $(7,194,792) Denominator for basic loss per share 7,346,155 5,858,797 Plus: Incremental shares underlying "in the money" warrants outstanding 146,876 — Denominator for dilutive loss per share 7,493,031 5,858,797 Loss per common share - diluted $(1.22) $(1.23) Recently Issued Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-08 (“ASU 2014-08”), “Presentation of Financial Statements (Topic205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of an Entity.” The amendments inASU 2014-08 change the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group ofcomponents of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to bereported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financialresults. The update is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning onor after December 15, 2014. In May 2014, the FASB ASU 2014-09, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets andDeferred Costs-Contracts with Customers (Subtopic 340-40).” The amendments in ASU 2014-09 supersede most current revenue recognition requirements.The core principal of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annualreporting periods beginning after December 15, 2016, including interim periods with that reporting period. Early application is not permitted. The Companycan apply the amendments using one of the following two methods: (1) retrospectively to each prior reporting period presented, or (2) retrospectively withthe cumulative effect of initially applying the amendments recognized at the date of initial application. The Company is currently assessing the impact ofadopting this guidance on its consolidated financial statements. NOTE 4:CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts payable. Cash The Company at times may have cash in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit. The Company maintains its cash with largerfinancial institutions. The Company has not experienced losses on these accounts and management believes that the Company is not exposed to significantrisks on such accounts. F-9 Purchases and Accounts Payable The Company had balances greater than 10% of trade accounts payable at March 31, 2014 with two vendors. Vendor A had a balance that accounted for 25%of total accounts payables and Vendor B had a balance of 16% at March 31, 2014. Comparatively, the Company had balances greater than 10% of tradeaccounts payable at March 31, 2013 with three vendors. Vendor A had a balance that accounted for 23% of total accounts payables Vendor B had a balanceof 14% and Vendor C had a balance of 10% at March 31, 2013. NOTE 5:PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets at March 31, 2014 and 2013: 2014 2013 Prepaid Insurance $2,985 $4,000 Prepaid Rent 10,827 10,827 Prepaid Consulting Fees — 47,333 Other Current Assets 692 2,187 $14,504 $64,347 NOTE 6:FIXED ASSETS Fixed assets at March 31, 2014 are summarized in the table below: Description Useful Life (Years) Equipment 5 $97,100 Less: Accumulated Depreciation (4,855)Fixed Assets, net $92,245 Depreciation expense was $4,855 for the year ended March 31, 2014. There were no fixed assets or depreciation expense as of or during the year endedMarch 31, 2013. NOTE 7:INTANGIBLE ASSETS Intangible assets at March 31, 2014 are summarized in the table below: Gross Carrying Accumulated Net Carrying Value Amortization AmountAmortizable assets: Patents & intellectual property $9,708,700 $(242,718) $9,465,982 Transition services agreement 194,200 (48,550) 145,650 $9,902,900 $ 291,268 $ 9,611,632 Amortization expense was $291,268 for the year ended March 31, 2014. There were no intangible assets or related amortization expense as of or during theyear ended March 31, 2013. Estimated amortization expense at March 31, 2014 for each of the five succeeding years is as follows: Year ending March 31, 2015 $1,116,522 2016 970,872 2017 970,872 2018 970,872 2019 970,872 NOTE 8:NOTES PAYABLE Ben Franklin Note Biosyn (a wholly owned subsidiary of the Company and previously a wholly owned subsidiary of Cellegy) issued a note payable to Ben FranklinTechnology Center of Southeastern Pennsylvania (“Ben Franklin Note”) in October 1992, in connection with funding the development of Savvy, acompound then under development to prevent the transmission of HIV/AIDS. The Ben Franklin Note was recorded at its estimated fair value of $205,000 and was assumed by Cellegy as an obligation in connection with its acquisitionof 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 futurerevenues of Biosyn, if any, until the principal balance of $777,902 (face amount) is satisfied. Under the terms of the obligation, revenues are defined toexclude the value of unrestricted research and development funding received by Biosyn from nonprofit sources. Absent a material breach of contract or otherevent of default, there is no obligation to repay the amounts in the absence of future Biosyn revenues. Cellegy accreted the discount of $572,902 againstearnings using the interest rate method (approximately 46%) over the discount period of five years, which was estimated in connection with the Ben FranklinNote’s valuation at the time of the acquisition. F-10 Accounting principles generally accepted in the United States emphasize market-based measurement through the use of valuation techniques that maximizethe use of observable or market-based inputs. The Ben Franklin Note’s peculiar repayment terms outlined above affects its comparability with main streammarket issues and also affects its transferability. The value of the Ben Franklin Note would also be impacted by the ability to estimate Biosyn’s expectedfuture revenues which in turn hinge largely upon future efforts to commercialize the product candidate, the results of which efforts are not known by theCompany. Given the above factors and therefore the lack of market comparability, the Ben Franklin Note would be valued based on Level 3 inputs (See Note9). 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 revenuestream in the future. As a result, the Note had no fair market value at the time of the merger between the Company and Cellegy (see Note 1). G-Max Trust Notes On June 11, 2012, the Company issued a convertible promissory note in the aggregate principal amount of $500,000 and 29,412 shares of common stock toThe G-Max Trust, and received gross proceeds of $500,000, excluding transaction costs and expenses. Interest on the outstanding principal balance of thenote accrued at a rate of 10% per annum compounded monthly and is payable monthly commencing July 1, 2012. All unpaid principal and interest on thenote was due and payable on April 1, 2013. At any time on or before the maturity date, the investor had the right to convert part or all of the principal andinterest owed under the note into common stock at a conversion price equal to $9.35 per share (subject to adjustment for stock dividends, stock splits, reversestock splits, reclassifications or other similar events affecting the number of outstanding shares of common stock). The market value of the common stock onthe date issued was $12.58 per share, for a total value of $370,000. Debt issuance cost of $370,000 was recorded as a result, and was being amortized over theterm of the G-Max Note. The stock is restricted for six months from the date issued. Amortization of the debt issuance cost, which is included in interestexpense, was $370,000 for the year ended March 31, 2013, and the remaining unamortized balance was $0. The conversion feature of the G-Max Note was considered beneficial to the investor due to the conversion price for the convertible note being lower than themarket value of the common stock on the date the note was issued. The estimated value of the beneficial conversion feature was $172,727. The beneficialconversion feature was being amortized over the term of the G-Max Note. The effective annual interest rate of the G-Max Note was 111.50% after consideringthe debt issuance cost and the beneficial conversion feature. In January 2013, the G-Max Note and accrued interest payable of approximately $2,000 was converted at $9.35 per share into 53,729 shares of commonstock. The entire value of the beneficial conversion feature was recorded as a charge to interest expense as a result. On October 25, 2012 the Company entered into a zero coupon secured promissory note with The G-Max Trust, evidencing a loan from G-Max to theCompany, and received gross proceeds of approximately $500,000. The note had a stated maturity date of six months after the date of the note, April 25,2013. At maturity, we agreed to repay G-Max the sum of $588,000. The note did not have a stated interest rate so long as we repaid the principal balance bythe maturity date and there was no other event of default. The note was also due and payable if we completed a financing transaction or series of transactionsafter the date of the note that result in proceeds to the Company of $2,000,000 or more. As additional consideration for the loan, we issued to G-Max 10,353shares of our common stock. Pursuant to the terms of a security agreement and a stock escrow agreement, we issued 41,177 shares of our common stock ascollateral for the timely repayment of the note, to be held by a third party escrow agent pursuant to the terms of the escrow agreement. When the loan wasrepaid, then the collateral shares were to be returned to the Company and cancelled. On December 31, 2012 the note was repaid and the shares held in escrowwere cancelled. Gemini Master Fund, Ltd. Notes On April 2, 2012, the Company completed the closing of a private placement financing transaction with Gemini Master Fund, Ltd. pursuant to a securitiespurchase agreement. The Company issued a 10% Senior Convertible Note (the “Gemini Note”) in the aggregate principal amount of $1.0 million and 58,824shares of our common stock, and received gross proceeds of $1.0 million, excluding transaction costs and expenses. Interest on the Gemini Note was payableat a rate of 10% per annum and was payable on the maturity date of the Gemini Note. Principal and accrued and unpaid interest was due and payable ninemonths after the date of the Gemini Note. The Gemini Note was convertible into shares of common stock at any time at the discretion of the investor at aninitial conversion price per share of $4.25, subject to adjustment for stock splits, stock dividends and other similar transactions and subject to the terms of theGemini Note. The conversion price was also subject to price anti-dilution adjustments providing that with the exception of certain excluded categories ofissuances and transactions, if we issue equity securities or securities convertible into equity securities at an effective price per share less than the conversionprice of the Gemini Note, the conversion price of the Gemini Note will be adjusted downward to equal the per share price of the new securities. The Companybifurcated the conversion option derivative from the debt. See Note 9. Our obligations under the Gemini Note and the other transaction agreements wereguaranteed by our principal subsidiaries, including Adamis Corporation, Adamis Laboratories, Inc. and Adamis Viral, Inc. The market value of the commonstock issued on April 2, 2012 was $4.25 per share, aggregated $250,000. Debt issuance cost of $250,000 was recorded as a result and amortized over the termof the Gemini Note, and is included in interest expense. The stock was restricted for six months from the date issued. Debt issuance costs have been fullyamortized as of March 31, 2013. F-11 During the quarter ended December 31, 2012, the Gemini Note and accrued interest payable of approximately $73,000 was converted at $4.25 per share into252,552 shares of common stock. Concurrent with the conversion, the Company settled the related derivative and conversion feature liabilities which had atotal fair value of $1,840,000. The fair value of the derivative and conversion feature liabilities on the day prior to conversion was determined using theintrinsic value. This resulted in an increase to the derivative and conversion feature liabilities of $354,800. On December 31, 2012, the balance of theadjusted fair value of the derivative and conversion feature liabilities totaling $1,840,000 was reclassified to additional paid in capital. For further details onthe conversion feature see Note 9. The effective annual interest of the Gemini Note was 46.1% after considering the debt issuance cost and the conversionfeature. On June 11, 2012, the Company completed the closing of a private placement financing transaction with Gemini. The Company issued a 10% SeniorConvertible Note in the aggregate principal amount of $500,000 (“Gemini Note II”) and 29,412 shares of common stock, and received gross proceeds of$500,000, excluding transaction costs and expenses. The maturity date was originally nine months after the date of the note, but was extended to July 11,2013 on the original maturity date. The Gemini Note II was convertible into shares of common stock at any time at the discretion of the investor at an initialconversion price per share of $9.35, subject to adjustment for stock splits, stock dividends and other similar transactions and subject to the terms of theGemini Note II. The conversion price was also subject to price anti-dilution adjustments (or down-round protection) providing that with the exception ofcertain excluded categories of issuances and transactions, if we issue equity securities or securities convertible into equity securities at an effective price pershare less than the conversion price of the Gemini Note II, the conversion price of the Gemini Note II will be adjusted downward to equal the per share priceof the new securities. The Company bifurcated the conversion option derivative from the debt. See Note 9. Our obligations under the Gemini Note II and theother transaction agreements were guaranteed by our principal subsidiaries, including Adamis Corporation, Adamis Laboratories, Inc. and Adamis Viral, Inc.The Gemini Note II, including accrued interest of $51,944, was exchanged for Secured Notes and Warrants as part of the Company’s June 26, 2013 privateplacement transaction, and is no longer outstanding. Secured Convertible Promissory Notes On June 26, 2013, the Company completed the closing of a private placement financing transaction (the “Transaction”) with a small number of accreditedinstitutional investors. Pursuant to a Subscription Agreement (the “Purchase Agreement”) and other transaction documents, we issued Secured ConvertiblePromissory Notes (“Secured Notes”) and common stock purchase warrants (“Warrants”) to purchase up to 764,960 shares of common stock (“WarrantShares”), and received gross cash proceeds of $5,300,000, of which $286,349 was used to pay for transaction costs, fees and expenses. The Secured Notes hadan aggregate principal amount of $6,502,158, including a $613,271 principal amount note issued to Gemini Master Fund Ltd. in exchange for its previouslyoutstanding Gemini Note II, which is no longer outstanding. The maturity date of the Secured Notes was December 26, 2013. Our obligations under theSecured Notes and the other transaction documents were guaranteed by our principal subsidiaries and, pursuant to a Security Agreement entered into with theinvestors, were secured by a security interest in substantially all of our assets and those of the subsidiaries. The Secured Notes were convertible into shares ofcommon stock at any time at the discretion of the investor at an initial conversion price per share of $8.50. The conversion prices of the Secured Notes andthe Warrants are subject to anti-dilution provisions providing that, with the exception of certain excluded categories of issuances and transactions, if we issueany shares of common stock or securities convertible into or exercisable for common stock, or if common stock equivalents are repriced, at an effective priceper share less than the conversion price of the Secured Notes or the exercise price of the Warrants (as applicable), without the consent of a majority in interestof the investors, the conversion price of the Secured Notes and Warrants will be adjusted downward to equal the per share price of the securities issued ordeemed issued in such transaction. The Company bifurcated the conversion feature derivative and down-round protection derivative from the debt, andrecorded a discount totaling $3,564,483 as a result. The Warrants are exercisable for a period of five years from the date of issuance. The exercise price of the Warrants was initially $12.155 per share, which was110% of the closing price of the common stock on the day before the closing. The Warrants provide for proportional adjustment of the number and kind ofsecurities purchasable upon exercise of the Warrants and the per share exercise price upon the occurrence of certain specified events, and include price anti-dilution provisions which provide for an adjustment to the per share exercise price of the Warrants and the number of shares issuable upon exercise of theWarrants, if the Company issues common stock or common stock equivalents at effective per share prices lower than the exercise price of the Warrants, onterms similar in material respects to the anti-dilution provisions relating to the Secured Notes. Provided (i) there is an effective registration statement that covers resale of all of the Warrant Shares, or (ii) all of the Warrant Shares may be sold pursuant toRule 144 upon cashless exercise without restrictions including without volume limitations or manner of sale requirements, each such event referred to as aTrigger Condition, the Company has the option to “call” the exercise of any or all of the Warrant, referred to as a Warrant Call, from time to time by giving aCall Notice to the holder, provided that the other conditions on the Company’s option to exercise a Warrant Call have been satisfied. The Company’s right toexercise a Warrant Call commences five trading days after either of the Trigger Conditions has been in effect continuously for 15 trading days. A holder hasthe right to cancel the Warrant Call up until the date the called Warrant Shares are actually delivered to the holder, such date referred to as the Warrant CallDelivery Date, if the Trigger Condition relied upon for the Warrant Call ceases to apply. A Call Notice may not be given within 30 days of the expiration ofthe term of the Warrants. In addition, a Call Notice may be given not sooner than 15 trading days after the Warrant Call Delivery Date of the immediatelypreceding Call Notice. F-12 We may give a Call Notice only within 10 trading days after any 20-consecutive trading day period during which the volume weighted average price(“VWAP”) of our common stock is not less than 250% of the exercise price for the Warrants in effect for 10 out of such 20-consecutive trading day period.The exercise price of the Warrants at December 31, 2013, is $5.95 per share, and accordingly 250% of such exercise price is $14.875 per share. The maximumamount of Warrant Shares that may be included in a Call Notice will be reduced for the holder to the extent necessary so as to prevent the holder fromexceeding the beneficial ownership limitation described in the warrants. In addition, a Call Notice may not be given after the occurrence of an event ofdefault. Subject to the foregoing, a holder must exercise the Warrant and purchase the called Warrant Shares within 14 trading days after the Call Date, or theWarrant will be cancelled with respect to the unexercised portion of the Warrant that was subject to the Call Notice. Call Notices generally must be given toall Warrant holders. The Warrants with the embedded call option at issuance were valued using the Binomial Option Pricing Model. The average fair value of a single Warrant,including the call option, was $2.329 per share and the average value of the Warrant anti-dilution reset feature was $1.2002 per share. As a result, theCompany recorded a discount to the Notes for the warrant derivative and warrant down-round protection derivative totaling $2,398,280. The Secured Notes had a stated interest rate of 0% and were issued with an original issue discount of $539,395. The effective annual interest rate of the noteis 199.6%. The total discount balance related to the Secured Notes resulting from anti-dilution provisions, the conversion features and warrants and original issuediscount was $6,502,158 as of June 30, 2013, is amortized to interest expense using the effective interest method, and was fully amortized at March 31, 2014. In December 2013, three of the investors converted principal of $193,687 into 22,787 shares of common stock. The Company repaid the remaining principalof $6,308,471 of the Secured Notes using the proceeds from the underwritten public offering (Note 13). Pursuant to the provisions of the Secured Notes anearly payment fee of 15% of the remaining principal was assessed, and $946,271 was recorded as interest expense as a result. The total amount disbursed toretire the Secured Notes was $7,254,742, and the Secured Notes are no longer outstanding. In conjunction with the private placement financing transaction, the Company issued warrants to private placement agents to purchase up to 49,673 shares ofcommon stock. The fair market value of the warrants at the time of issuance was $152,000 and was recorded as debt issuance costs. The costs are beingamortized to interest expense over the life of Secured Notes. Debt issuance costs have been fully amortized during the year ended March 31, 2014. December 2012 Convertible Notes On December 31, 2012, the Company issued a convertible promissory note in the principal amount of $600,000 and 35,294 shares of common stock to aprivate investor, and received gross proceeds of $600,000, excluding transaction costs and expenses. Interest on the outstanding principal balance of the noteaccrues at a rate of 10% per annum compounded monthly and is payable monthly commencing February 1, 2013. All unpaid principal and interest on thenote was due and payable on December 31, 2013. In connection with the June 26, 2013 private placement transaction, the maturity date of the note wasextended to March 26, 2014. At any time on or before the maturity date, the investor has the right to convert part or all of the principal and interest owedunder the note into common stock at a conversion price equal to $9.35 per share (subject to adjustment for stock dividends, stock splits, reverse stock splits,reclassifications or other similar events affecting the number of outstanding shares of common stock). The market value of the common stock on the dateissued was $12.07 per share, for a total value of $426,000. Debt issuance cost of $426,000 was recorded as a result, and is being amortized over the term of thenote. The stock is restricted for six months from the date issued. Additionally, in connection with the extension of the due date, the Company issued 22,058warrants to purchase common stock, and additional debt issuance cost of $67,500 was recorded. Amortization of the debt issuance cost, which is included ininterest expense, was $354,082 and $139,418 for the years ended March 31, 2014 and 2013, respectively. The conversion feature of the note is considered beneficial to the investor due to the conversion price for the convertible note being lower than the marketvalue of the common stock on the date the note was issued. The estimated value of the beneficial conversion feature was $174,545. The beneficial conversionfeature is being amortized over the term of the note. This resulted in a charge to interest expense of $117,003 and $57,542 for the years ended March 31,2014 and 2013, respectively. The effective annual interest rate of the note is 107% after considering the debt issuance cost and the beneficial conversionfeature. F-13 On March 26, 2014, the note was amended to extend the maturity date to June 26, 2014, as well as change the conversion price from $9.35 per share to $6.00per share (subject to adjustment for stock dividends, stock splits, reverse stock splits, reclassifications or other similar events affecting the number ofoutstanding shares of common stock). This amendment changed the present value of the note by greater than 10%, which led the Company to account for theamendment as an extinguishment of and reissuance of the note. The market value of the Company’s common stock the day before the amendment date was$6.28, and the conversion feature is considered beneficial as a result. The estimated value of the beneficial conversion feature was $28,000. In addition, theCompany recorded a gain on extinguishment of $198,864 which is equal to the difference in the present value between the original and the new note. Thebeneficial conversion feature and the gain are recorded as discounts to the note payable and are being amortized to interest expense over the term of the note.This resulted in a charge to interest expense of $10,203 during the year ended March 31, 2014. At March 31, 2014, the net carrying value of the note was$383,339. The effective annual interest rate of the amended note is 196% after considering the discounts. April 2013 Convertible Notes On April 5, 2013, we completed the closing of a private placement financing transaction with two investors pursuant to a Securities Purchase Agreement.Pursuant to the purchase agreement, we issued 12% Convertible Debentures in the aggregate principal amount of $575,000, and received gross proceeds of$575,000, of which $67,000 was used to pay for transaction costs, fees and expenses. Interest on the debentures was payable in the amount of 12% of theprincipal amount, regardless of how long the debentures remain outstanding. Principal and interest was due and payable October 5, 2013. The debentureswere convertible into shares of common stock at any time at the discretion of the investor at an initial conversion price per share of $8.50. In June 2013, thenote holders converted a portion of the notes into 12,235 shares of common stock, and $644,000 of the net proceeds from the Secured Note and warrantprivate placement transaction discussed above was used to redeem and pay the outstanding amounts due under the notes including $173,000 for interest. Asa result, the notes were no longer outstanding at March 31, 2014. Notes Payable On November 30, 2010, the Company entered into a note payable with a drug wholesaler related to sales returns in the amount of $132,741. The note bearsinterest at the prime rate, plus 2% (5.25% at March 31, 2013), and originally required monthly payments of $10,000. The balance of $22,725 was paid in fullduring the year ended March 31, 2014. The outstanding balance on this note at March 31, 2014 and 2013 was $0 and $22,725, respectively. On May 1, 2011, the Company entered into a non-interest bearing note payable with a drug wholesaler related to sales returns in the amount of $147,866.The note required monthly payments of $10,000 with a final payment of $7,866 due on July 15, 2012. The note is currently due on demand and now bearsinterest at 12% per annum. The outstanding balance on this note at March 31, 2014 and 2013 was $38,653 and $94,463, respectively. Notes Payable to Related Parties The Company had notes payable to a related party reflecting loans by related parties to the Company, amounting to $0 and $97,122 at March 31, 2014 and2013, respectively, which bore interest at 10%. The principal amount of $97,122 was repaid during the year ended March 31, 2014. Accrued interest, which isincluded in accrued expenses, in the consolidated balance sheets, related to the notes was $79,776 and $72,655 at March 31, 2014 and 2013, respectively. NOTE 9:DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS Accounting Standards Codification (ASC) 815 - Derivatives and Hedging provides guidance to determine what types of instruments, or embedded features inan instrument, are considered derivatives. This guidance can affect the accounting for convertible instruments that contain provisions to protect holders froma decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a convertible instrument if a company eitherissues equity shares for a price that is lower than the exercise price of those instruments, or issues new convertible instruments that have a lower exerciseprice. We have determined that the conversion feature with the down-round provision on the Gemini notes should be treated as a derivative liability. TheCompany is required to report the conversion feature liability and the derivative liability resulting from the down-round provision at fair value and record thefluctuation of the fair value in current operations. The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company values its financialassets and liabilities on a recurring basis and certain nonfinancial assets and nonfinancial liabilities on a nonrecurring basis based on the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increaseconsistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fairvalue into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair valuehierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs other that Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; ormodel-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated withobservable market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3inputs. F-14 In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservableinputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company utilized a binomialoption pricing model (“BOPM”) to develop its assumptions for determining the fair value of the conversion and anti-dilution features of the Gemini Note II,Secured Notes and Warrants. Key assumptions at June 26, 2013 for the Gemini Note II include a volatility factor of 50.0%, a dividend yield of 0%, expectedlife of .04 years and a risk free interest rate of 0.02%. The Company estimated the original fair values of the embedded conversion and anti-dilution features of the Gemini Note II dated June 11, 2012 note to be$169,455 and $23,909, respectfully. The fair value of the embedded conversion and anti-dilution features were $162,456 and $50,545 at March 31, 2013,respectively. The fair value of the conversion feature at the exchange date of June 26, 2013 of $100,819 and the fair value of the anti-dilution feature for thesame date of $10,000 were settled as part of the modification of the Gemini Note II in conjunction with the June 26, 2013 private placement financingtransaction. The gain on the conversion feature derivative is $61,637 and the gain on the down-round protection derivative is $40,545 for the year endedMarch 31, 2014. At December 31, 2013, all of the related principal had been converted to common stock or retired, and no remaining value associated with the conversionfeature derivative or down-round protection derivative are recorded as a result. Key assumptions at March 31, 2014 for the Warrants discussed in Note 8 include a volatility factor of 100%, a dividend yield of 0%, expected life of 4.25years and a risk free interest rate of 1.08%. The Company estimated the fair value of the Warrants, including call options, to be $1.3328 per share and the down-round protection derivative for the samewarrants is estimated at $0.4948. The number of Warrants issued was 764,960. The carrying value of the Warrants with call options at March 31, 2014 was$1,019,539 and the carrying value of the down-round protection derivative for the same date was $378,502. The table below provides a reconciliation of beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs(Level 3): Down-roundProtectionDerivative ConvertibleFeatureLiability Warrants Warrant Down-roundProtectionDerivative Total Balance, April 1, 2012 $— $— $— $— $— Fair Value at Issuance (82,709) (457,055) — — (539,764)Net Change in Fair Value (122,945) (1,390,292) — — (1,513,237)Conversion of Debt 155,109 1,684,891 — — 1,840,000 Balance, March 31, 2013 (50,545) (162,456) — — (213,001)Settlement Through Modification of GeminiNote II 10,000 100,819 — — 110,819 Fair Value at Issuance of New Debt (641,113) (2,923,370) (1,781,592) (616,688) (5,962,763)Net Change in Fair Value 681,658 2,985,007 762,053 238,186 (4,666,904)Balance, March 31, 2014 $— $— $(1,019,539) $(378,502) $(1,398,041) The derivative liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair values includes various assumptions aboutfuture activities and stock price and historical volatility inputs. F-15 The following table describes the valuation techniques used to calculate fair values for assets in Level 3. There were no changes in the valuation techniquesduring the year ended March 31, 2014. Fair Value atMarch 31, 2014 Valuation Technique Unobservable Input Range Warrants and Warrant Down-roundProtection Derivative (combined) $1,398,041 Binomial Option PricingModel Probability of common stockissuance at prices less thanexercise prices stated inagreements 30% Probability of reset provisionbeing waived 5% Significant unobservable inputs for the derivative liabilities include (1) the estimated probability of the occurrence of a down-round financing during theterm over which the related debt and warrants are convertible or exercisable, (2) the estimated magnitude of the down-round, and (3) the probability of thereset provision being waived. These estimates which are unobservable in the market were utilized to value the anti-dilution features of the convertible debtand warrants as of March 31, 2014. NOTE 10:LEGAL MATTERS We may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business, which in ouropinion will not have a material adverse effect on our financial condition, cash flows or results of operations. Any such litigation could divert managementtime and attention from Adamis, could involve significant amounts of legal fees and other fees and expenses. NOTE 11:LICENSING AGREEMENTS Viral Therapies On July 28, 2006, the Company entered into a nonexclusive, royalty free license agreement with an entity for the technology used to research and developnew viral therapies, and an exclusive royalty-bearing license requiring a small percentage of revenue received by the Company on future products developedand sold with a payment cap of $10,000,000. The Company paid the entity an initial license fee and granted one of the entity’s officers the right to purchase1,000,000 shares of common stock of the Company at price of $0.001 pursuant to a separate stock purchase agreement. The Company also granted the entitya royalty-free non-exclusive license to use any improvements made on the existing technology for research purposes only. The Company and the entity havethe right to sublicense with written permission of each party. In the event that the entity sublicenses or sells the improved technology to a third party, then aportion of the total payments, to be decided by mutual agreement, will be due to the Company. The Company is obligated to make the following milestone payments to the entity based on commencement of various clinical trials and submissions of anapplication to the FDA for regulatory approval: Amount Date due$50,000 Within 30 days of commencement of Phase I/II clinical trial. 50,000 Within 30 days of commencement of a separate Phase II trial as required by the FDA. 300,000 Within 30 days of commencement of a Phase III trial. 500,000 Within 30 days of submission of a biological license application or a new drug application with the FDA. Total milestone payments are not to exceed $900,000 and can only be paid one time and will not repeat for subsequent products. At March 31, 2014 and2013, no milestones have been achieved. The agreement will remain in effect as long as the patent rights remain in effect. Adamis has the right to terminate the agreement if it is determined that noviable product can come from the technology. Adamis would be required to transfer and assign all filings, rights and other information in its control iftermination occurs. Adamis would retain the same royalty rights for license, or sublicense, agreements if the technology is later developed into a product. Either party may terminate the license agreement in the event of a material breach of the agreement by the other party that has not been cured or correctedwithin 90 days of notice of the breach. Influenza Vaccine On September 22, 2006, the Company entered into an agreement with an entity to manufacture an influenza vaccine for the Company. The agreementrequires the Company to pay $70,000 upon commencement of the project, followed by monthly payments based upon services performed until the project iscomplete. No product has been manufactured and no payments have been made as of March 31, 2014. Once the project begins, the total payments willaggregate $283,420. The project has an open ended start time. Adamis may terminate the agreement upon notice to the other party, other than reimbursingthe other party for non-cancellable materials and supplies ordered, and work in progress, through the date of the termination. F-16 Colby Pharmaceuticals On February 24, 2010, the Company entered into an agreement with Colby Pharmaceutical Company (“Colby”) to acquire three separate exclusive licenseagreements, covering three small molecule anti-inflammatory compounds, named APC-100, APC-200 and APC-300, for the potential treatment of humanprostate cancer, or PCa, in exchange for shares of the Company’s common stock. Colby licensed the patents, patent applications and related intellectualproperty relating to the compounds pursuant to license agreements with a third party (“WARF”). Pursuant to the agreement as amended, on February 25,2010, the Company was assigned and transferred the license agreement relating to the APC-300 compound in consideration of the issuance of 47,059 sharesof common stock to Colby. The transfer of the license agreements relating to APC-100 and APC-200 occurred at a subsequent closing, pursuant to anamendment to the original agreement. Under the amendment, Colby assigned and transferred to the Company the license agreements relating to APC-100 andAPC-200 in consideration for the issuance to Colby of 294,118 shares of the Company’s common stock. Additionally, the Company issued 73,529 shares toeach of two parties related to Colby, for consulting services rendered to the Company in connection with the intellectual property covered by the licenseagreements. Under the agreements, with respect to sublicenses granted by the Company, the Company is to pay WARF according to the following schedule: 1.Forty percent (40%) of amounts received under each agreement entered into before an Investigational New Drug (“IND”) application is filedby the Company with the Federal Drug Administration (“FDA”) for a Product made a subject of the sublicense. 2.Thirty percent (30%) of amounts received under each agreement entered into after the filing of an IND under item (1) above untilcompletion of a Phase 1 clinical trial by the Company for that Product. 3.Twenty-five percent (25%) of amounts received under each agreement entered into after completion of item (2) above until completion of aPhase II clinical trial by the Company for that Product. 4.Twenty percent (20%) of amounts received under each agreement entered into after completion of item (3) above until a New DrugApplication (“NDA”) has been approved by the FDA for that Product. 5.Ten percent (10%) of amounts received under each agreement entered into after the NDA has been approved by the FDA for that Product. Milestone Payments are outlined below: 1.$25,000 upon the filing of the first IND or comparable regulatory filing for a human therapeutic Product. 2.$150,000 upon the enrollment of its first patient under a Phase II clinical trial for the first human therapeutic Product. 3.$200,000 upon the enrollment of its first patient under a Phase III clinical trial for the first human therapeutic Product. 4.$250,000 for the first NDA or comparable regulatory approval for a human therapeutic Product. These milestone payments occur only once for each of the compounds. Regents of the University of California and Dana-Farber Cancer Institute On April 18, 2011, the Company entered into an agreement with The Regents of the University of California (University) and the Dana-Farber CancerInstitute, Inc. (DFCI) to acquire the Telomerase Reverse Transcriptase as Antigen for Immunization in Cancer. The term of the agreement expires with the lastexpiration of the last patent covered by the license. Under the agreement, with respect to sublicenses granted by the Company, the Company is to pay the University and DFCI according to the followingschedule: 1.A license issue fee of $10,000, within thirty (30) days after the effective date. 2.License maintenance fees of $10,000 per year and payable on the first through third anniversary of the effective date and $20,000 annuallythereafter on each anniversary until commercially selling a licensed product. 3.Milestone payments in the amounts payable according to the following schedule or events: (i)$25,000 upon dosing of 50% of the patients expected to be enrolled for a Phase I clinical trial for the first indication (if such a trialis needed) of a licensed product; (ii)$25,000 upon the filing of an IND for the second indication of a licensed product; (iii)$100,000 upon dosing of the first patient and $150,000 upon dosing of the 40th patient in a Phase II clinical trial for the firstindication of a licensed product; F-17 (iv)$250,000 upon dosing of the first patient for a Phase II clinical trial for the second indication of a licensed product; (v)$600,000 upon dosing of the first patient for a Phase III clinical trial for the first indication of a licensed product; (vi)$600,000 upon dosing of the first patient for a Phase III clinical trial for the second indication of a licensed product; (vii)$1,000,000 upon receipt of US regulatory approval for each indication of a licensed product. 4.An earned royalty of two percent (2%) on net sales of licensed products as defined in the agreement. In addition, the Company will reimburse the University and DFCI for past and future patent costs as outlined in the agreement. During the years ended March 31, 2014 and 2013, the Company paid license fees and reimbursed patent defense costs related to this agreement ofapproximately $100,000 and $7,900, respectively. 3M License and Asset Acquisition Agreement On August 1, 2013, we entered into an agreement to initially license and, with an additional closing payment fully acquire from 3M Company and 3MInnovative Properties Company (“3M”), certain intellectual property and assets relating to 3M’s Taper Dry Powder Inhaler (DPI) technology underdevelopment for the treatment of asthma and chronic obstructive pulmonary disease (“COPD”). The intellectual property includes patents, patentapplications and other intellectual property relating to the Taper assets. Pursuant to the terms of the agreement, we made an initial non-refundable payment to 3M of $3 million and obtained an exclusive worldwide license to theassets and intellectual property in all indications in the dry powder inhalation field. Upon a subsequent closing payment of $7 million made by Adamis onDecember 27, 2013, ownership of the assets and intellectual property were transferred to the Company, with the Company granting back to 3M a license tothe intellectual property assets outside of the dry powder inhalation field. The Company hired an independent valuation specialist to assist management with its determination of the fair value of the tangible and intangible assetsacquired to be used in research and development. Management is responsible for the estimates and valuations. The work performed by the independentvaluation specialist has been considered in management’s estimates of fair value reflected below. In addition to the patents and intellectual property, the Company also acquired a transition services agreement outlined in the asset purchase agreement,which provides the buyer certain knowledge transfer rights related to the Taper technology. 3M will provide up to five hundred (500) hours of services to theCompany as set forth in the letter agreement. The following table summarizes the fair values of the identifiable assets acquired on December 27, 2013: Description Taper DPI Intellectual Property $9,708,700 Equipment 97,100 3M Transition Services Agreement 194,200 $10,000,000 The values listed above were determined using the cost savings and discounted cash flow methods. Value is estimated based on the cost savings attributableto the asset being appraised which in this case was the transition service agreement. As with most income-based valuation methods, the cost (or royalty)savings method are generally estimated on an after tax basis and discounted using an after tax discount rate. The cost savings method was used to value thetransition services agreement. Discounted cash flow analysis involves projecting monetary benefits directly associated with an asset and factoring them toreflect present value at a rate that considers the risk and rate of return associated with the subject asset. In the application of this approach, the value of theasset is considered to be the sum of the present values of the future cash flows received over the expected life of the asset. We applied the discounted cashflow method to estimate the fair value of the acquired intellectual property (patents and unpatented technology associated with the taper dry powder inhalerIP). In regards to the Taper DPI, we calculated the after-tax net income, or cash flow related to the technology and discounted the future income with adiscount rate of 26.5%, a 5.0% premium over the weighted average cost of capital. F-18 NOTE 12:COMMITMENTS AND CONTINGENCIES In addition to the matters described in Note 10, the Company may become involved in or subject to, routine litigation, claims, disputes, proceedings andinvestigations in the ordinary course of business, which in our opinion will not have a material adverse effect on our financial condition, cash flows or resultsof operations. Office Lease In April 2011, the Company leased approximately 2,400 square feet of office space in San Diego, California. The term of the lease is three years. There are nooptions to extend the lease term. On February 1, 2014, The Company entered into a sublease agreement in connection with the relocation of the Company’s principal headquarters. The newsublease covers approximately 7,525 square feet and has a term that expires November 30, 2014. Rent during the term is $15,050 per month. Total rent expense for the years ending March 31, 2014 and 2013, was $85,383 and $64,948, respectively. Rent expense under the lease for the year endingMarch 31, 2015 is expected to be $120,400. NOTE 13:CAPITAL STRUCTURE The Company is authorized to issue 100,000,000 shares of common stock and 10,000,000 shares of preferred stock with a par value of $0.0001 per share. On April 2, 2012, the Company issued 58,824 shares of common stock to Gemini as part of the $1,000,000 Gemini Note transaction as described in Note 8above. On June 11, 2012, the Company issued 29,412 shares of common stock to G-Max as part of the $500,000 note transaction described in Note 8 above. On June 11, 2012, the Company issued 29,412 shares of common stock to Gemini as part of the $500,000 note transaction described in Note 8 above. On October 25, 2012, the Company issued 10,353 shares of common stock to G-Max as part of the $588,000 note transaction described in Note 8 above. During the quarter ended December 31, 2012, Gemini converted its April 2012 note into common stock, and the Company issued 252,551 shares inconversion of the $1,000,000 principal and interest of $73,343. On December 28, 2012, the Company issued 5,882 shares of common stock to a consultant for services to be provided through December 2013. F-19 On December 31, 2012, the Company issued 35,294 shares of common stock to a private investor as part of the $600,000 note transaction as described inNote 8 above. On January 18, 2013, G-Max converted its June 2012 note into common stock, and the Company issued 53,729 shares in conversion of the $500,000principal and interest of $2,361. During the year ended March 31, 2013, the Company issued 24,204 shares of common stock to warrant holders for various strike prices ranging from $3.40 to$5.10. The exercised warrants were cashless conversions. On May 30, 2013, the Company issued common stock upon exercise of an employee stock option. The employee utilized a cashless conversion of 5,555options with a strike price of $3.23 and received 4,003 shares of common stock. On June 21, 2013, the Company issued common stock upon exercise of an investor warrant. The investor utilized a cashless conversion of 12,388 warrantswith a strike price of $3.40 and received 8,576 shares of common stock. On June 26, 2013, the Company issued 12,235 shares of common stock in conversion of $104,000 of principal of the notes issued on April 5, 2013. On July 3, 2013, the Company issued common stock upon exercise of an investor warrant. The investor utilized a cashless conversion of 2,941 warrants witha strike price of $5.10 and received 1,562 shares of common stock. In December 2013, the Company issued 22,787 shares of common stock in conversion of $193,687 of principal of the Secured Notes. On December 18, 2013, the Company issued 3,720,000 shares of common stock in an underwritten public offering at a public offering price of $5.95 pershare. On January 13, 2014, the underwriters exercised in full their over-allotment option to purchase an additional 558,000 shares of common stock at apublic offering price of $5.95 per share, bringing the total gross proceeds from the offering to approximately $25,454,100, before underwriting discounts andcommissions and other offering expenses and before any use of the proceeds by the Company. The sale of the additional shares was completed on January 16,2014. Costs of the transaction were $1,923,773 and are recorded as a reduction of additional paid in capital. On March 6, 2014, the Company issued 31,532 shares of common stock upon the vesting of restricted stock units with a total value of $359,149. NOTE 14: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 stockoptions, 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 ofcommon 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 reservedfor 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 stockdetermined by the Company’s board of directors before the start of a calendar year for which an increase applies. On January 1, 2014 and 2013, the number ofshares reserved for this issuance increased by 495,599 and 304,455 respectively, aggregating to 1,862,620 at March 31, 2014. On October 11, 2012, the Company issued options to purchase 6,176 shares of common stock to the independent directors of the Company under the 2009Equity Incentive Plan with an exercise price of $12.75 per share. The options become exercisable with respect to 1/36 of the shares monthly over a period ofthree years. These options were valued using the Black-Scholes option pricing model during the quarter ended December 31, 2012; the expected volatilitywas approximately 29% and the risk-free interest rate was approximately 2%, which resulted in a calculated fair value of $32,550. On March 6, 2013, the Company issued options to purchase 81,658 shares of common stock to directors, officers and employees of the Company under the2009 Equity Incentive Plan with an exercise price of $11.39 per share. The options vest monthly in equal amounts over 36 months. These options werevalued using the Black-Scholes option pricing model during the quarter ended March 31, 2013; the expected volatility was approximately 29% and the risk-free interest rate was approximately 2%, which resulted in a calculated fair value of $388,691. During the year ended March 31, 2014, 327 options were cancelled due to expiration. The options had an exercise price of $3.23. On July 31, 2013, the Company issued a stock option to a new employee under the Company’s equity incentive plan to purchase up to 8,823 shares ofcommon stock. The option has a ten-year term. The exercise price of the option is $8.67 per share. The option was valued using a Black Scholes model; theexpected volatility was approximately 28% and the risk-free interest rate was approximately 2%. The calculated fair value of the options was $73,500. F-20 On October 16, 2013, in connection with the Company’s annual meeting of stockholders, the Company issued stock options to the non-employee directorsunder the Company’s equity incentive plan to purchase up to 6,177 shares of common stock. The options have a ten-year term. The exercise price of theoptions is $6.12 per share. The options were valued using a Black Scholes model; the expected volatility was approximately 28% and the risk-free interestrate was approximately 1%. The calculated fair value of the options was $36,750. During the year ended March 31, 2014, 5,924 non-plan stock options were cancelled due to expiration. The warrants had exercise prices ranging from$487.82 - $843.97. The following summarizes the stock option activity for the years ended March 31, 2014 and 2013 below: 2009 EquityIncentivePlan WeightedAverageExercisePrice WeightedAverageRemainingContractLife Non-PlanStockOptions WeightedAverageExercisePrice WeightedAverageRemainingContractLife Balance as of April 1, 2012 307,670 $4.08 8.69 years 5,924 $701.59 1.60 years Options Granted 87,834 $11.56 9.91 years — — Options Exercised — — — — Options Canceled — — — — Balance as of March 31, 2013 395,504 $5.78 8.18 years 5,924 $701.59 0.60 years Options Granted 15,000 $7.62 9.19 years — — Options Exercised (5,555) 3.23 — — — Options Canceled (327) 3.23 — (5,924) 701.59 — Balance as of March 31, 2014 404,622 $5.83 7.26 years — $— — Exercisable at March 31, 2014 336,398 $2.40 8.72 years — $— — Stock based compensation expense for the years ended March 31, 2014 and 2013 were $236,944 and $164,507, respectively. The Company has reserved shares of common stock for issuance upon exercise at March 31, 2014 as follows: Warrants 1,127,698 2009 Equity Incentive Plan 1,862,620 Total Shares Reserved 2,990,318 Effective June 26, 2013, the Company issued warrants to purchase up to 764,960 shares of common stock to the holders of the Secured Notes. The warrantshave a five-year term. The exercise price of the warrants, as adjusted, is $5.95 per share. The warrants were valued using a binomial option pricing model. Thecalculated fair value of the warrants was $1,781,592. Effective June 26, 2013, the Company issued warrants to purchase up to 49,673 shares of common stock to the private placements agents involved in theJune 26, 2013 private placement transaction. The exercise price of the warrants is $12.16 per share. The warrants were valued using the Black-Scholes optionpricing model; the expected volatility was approximately 32% and the risk-free interest rate was approximately 1%, which resulted in a calculated fair valueof $152,000. Effective June 26, 2013, the Company issued a warrant to purchase 22,058 shares of common stock to the holder of the Company’s convertible promissorynote dated December 31, 2012, in connection with the June 26, 2013 private placement transaction. The warrant has a five-year term. The exercise price ofthe warrant is $12.16 per share. The warrant was valued using the Black-Scholes option pricing model; the expected volatility was approximately 32% andthe risk-free interest rate was approximately 1%, which resulted in a calculated fair value of $67,500. Effective December 18, 2013, the Company issued warrants to purchase up to 186,000 shares of common stock to the underwriters involved in theunderwritten public offering. The exercise price of the warrants is $7.44 per share. The warrants were valued using the Black-Scholes option pricing model;the expected volatility was approximately 25% and the risk-free interest rate was approximately 2%, which resulted in a calculated fair value of $399,900. Effective January 16, 2014, the Company issued warrants to purchase up to 27,900 shares of common stock to the underwriters involved in underwrittenpublic offering. The exercise price of the warrants is $7.44 per share. The warrants were valued using the Black-Scholes option pricing model; the expectedvolatility was approximately 25% and the risk-free interest rate was approximately 2%, which resulted in a calculated fair value of $39,618. F-21 The expiration date of the Old Adamis Warrants was extended three years to November 15, 2015. The following table summarizes warrants outstanding atMarch 31, 2014: WarrantShares ExercisePrice PerShare Date Issued Expiration DateOld Adamis Warrants 58,824 $8.50 November 15, 2007 November 15, 2015Consultant Warrants 635 $3.40 January 29, 2010 January 25, 2015Consultant Warrants 17,647 $3.74 July 11, 2011 July 11, 20162013 Private Placement 836,692 $5.95-12.16 June 26, 2013 June 25, 2018Underwriter Warrants 186,000 $7.44 December 12, 2013 December 12, 2018Underwriter Warrants 27,900 $7.44 January 16, 2014 January 16, 2019 Total Warrants 1,127,698 During the year ended March 31, 2014, 13,477 warrants expired. The strike price of the warrants were between $5.10 and $2,956.65. On March 6, 2013, the Company issued restricted stock units (RSUs) of 42,707 shares of common stock to directors, officers and employees of the Companyunder the 2009 Equity Incentive Plan. The value of the award per share is $11.39. A portion of the award vests on the first anniversary date of issuance withthe remaining vesting monthly in equal amounts over 36 months. The fair value of RSUs is $486,433. On March 6, 2014, 31,532 RSUs vested and wereissued as common stock. The Company recorded compensation expense of $359,149 and $0 for the years ended March 31, 2014 and 2013, respectively.Unrecognized compensation expense related to these RSUs was $127,284, and will be recorded as compensation expense over the next two years. NOTE 15:INCOME TAXES At March 31, 2014, the Company had net operating loss carry forwards of approximately $129 million and $58 million for federal and state purposes,respectively. The net operating loss carry forwards expire through the year 2031. At March 31, 2014, the Company also had research and development creditcarry forwards of approximately $2.8 million and $200,000 for federal and state purposes, respectively. The federal credits expire through the year 2027 andthe state credits expire through the year 2019. The Tax Reform Act of 1986 (the “Act”) provides for a limitation on the annual use of net operating loss andresearch and development tax credit carry forwards following certain ownership changes that could that could limit the Company’s ability to utilize thesecarry forwards. The Company most likely has experienced various ownership changes, as defined by the Act, as a result of past financings. Accordingly, theCompany’s ability to utilize the aforementioned carry forwards may be limited. Cellegy’s merger with Adamis as described in Note 1, may also impact theability for the Company to utilize certain of its net operating loss carry forwards. Additionally, U.S. tax laws limit the time during which these carry forwardsmay be applied against future taxes, therefore, the Company may not be able to take full advantage of these carry forwards for federal income tax purposes.The Company determined that the net operating loss carry forwards relating to Cellegy and Biosyn are limited due to the acquisitions, in 2009 and 2004 andhas reflected the estimated amount of usable net operating loss carry forwards in its deferred tax assets below. The benefit for income taxes from continuing operations consists of the following for the years ended March 31, 2014 and 2013: 2014 2013 Current $— $— Deferred (859,000) (2,707,000) Total (859,000) (2,707,000)Change in Valuation Allowance 859,000 2,707,000 Tax Benefit, net $— $— At March 31, 2014 and 2013 the significant components of the deferred tax assets from continuing operations are summarized below: 2014 2013 Net Operating Loss Carry forwards $44,198,000 $43,458,000 Deferred Tax Assets 698,000 579,000 Net Deferred Tax Assets 44,896,000 44,037,000 Less Valuation Allowance (44,896,000) (44,037,000) Net Deferred Tax Assets $— $— F-22 Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets andliabilities. In addition to net operating loss carry forwards, differences are primarily attributable to stock compensation expense, depreciation of assets, andaccruals. We have determined at March 31, 2014 and 2013 that a full valuation allowance would be required against all of our operating loss carry forwards anddeferred tax assets that we do not expect to be utilized by deferred tax liabilities. The following table reconciles our losses from continuing operations before income taxes for the years ended March 31, 2014 and 2013. 2014 2013 Federal Statutory Rate $(2,773,000)34.00% $(2,446,000) 34.00%State Income Tax, net of Federal Tax (264,000) 3.63% (261,000) 3.63% Permanent Differences 880,000 (10.78%) — 0.00%Change in Valuation Allowance 2,157,000 (26.85%) 2,707,000 (37.63%) Expected Tax Benefit $— — $— NOTE 16:SUBSEQUENT EVENTS On April 1, 2014, the Company entered into a modification of its current lease agreement described in Note 12. The terms of the modification beginDecember 1, 2014 and extend the expiration date to November 30, 2018. Base rent during the first year of the lease will be approximately $24,000 permonth, with a deposit of $170,000 due in November 2014. The base rent expense over the life of the lease is approximately $1,209,000.On April 1, 2014, the Company issued options to purchase 86,300 shares of common stock to officers and employees of the Company under the 2009 EquityIncentive Plan with an exercise price of $6.32 per share. The options were granted as a discretionary bonus for performance during the year ended March 31,2014 and vested immediately. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 28% andthe risk-free interest rate was approximately 3%, which resulted in a calculated fair value of $239,051 which was accrued as compensation during the yearended March 31, 2014.On May 29, 2014 the Company announced the submission of a New Drug Application (NDA) to the U.S. Food and Drug Administration for its epinephrinepre-filled single dose syringe (PFS) product. The cost to file the application was $1,084,550. F-23 Adamis Pharmaceuticals Corporation 10-K Exhibit 10.50 OFFICE LEASE AGREEMENT BETWEEN PACIFIC NORTH COURT HOLDINGS, L.P.,AS LANDLORD AND ADAMIS PHARMACEUTICALS CORPORATION AS TENANT  TABLE OF CONTENTS 1.Agreement to Let.12.Principal Lease Provisions13.Term33.1.Description of Term33.2.Extension Rights33.2.1.Restrictions on Transferability of Option43.2.2.Conditions Terminating Tenant’s Rights to Exercise Option43.2.3.Conditions Terminating Tenant’s Option Rights43.2.4.Terms and Conditions of Extension of Term43.2.5.Determination of Then-Prevailing Rate44.Delivery of Possession44.1.Delivery Requirements44.2.Definition of Substantial Completion44.3.Final Completion45.Use of Premises and Common Areas45.1.Permitted Use of Premises45.2.Compliance with Laws45.3.Condition During Periods of Non-Use; Recapture45.4.Use of Common Areas45.5.General Covenants and Limitations on Use45.6.Access Rights55.7.Remedies for Breach56.Security Deposit57.Rent and Rent Adjustments77.1.Initial Monthly Rent77.2.Rental Adjustments77.3.Additional Rent.77.4.General Rental Provisions.78.Additional Rent88.1.Definitions88.1.1.Operating Expenses88.1.2.Excluded Costs98.1.3.Expense Year98.1.4.Tenant's Share98.2.Adjustment of Operating Expenses98.2.1.Gross Up Adjustment When a Project is Less Than Fully Occupied98.2.2.Adjustment When Landlord Adds Additional Buildings to the Project108.2.3.Adjustment When Landlord Does Not Furnish a Service to All Tenants108.2.4.Additional Costs108.2.5.Common Areas.108.3.Tax Expenses108.4.Calculation and Payment of Operating Expenses108.4.1.Calculation of Excess108.4.2.Statement/Payment of Operating Expenses108.5.Landlord's Books and Records119.Utilities and Services129.1.Tenant’s Utility Costs129.2.Standard Tenant Services129.3.Over-Standard Tenant Use129.4.Conduit and Wiring129.5.Utilities Generally1210.Maintenance1410.1.Tenant's Duties1410.2.Landlord's Duties1411.Parking1411.1.General Parking Rights1411.2.Parking Ratios1411.3.Parking Ratios1412.Signs1412.1.General Signage Conditions1512.2.Tenant's Individual Signage Rights1512.2.1. Directory/Suite Signage1512.2.2. Exterior Monument Signage1513.Rules, Regulations, and Covenants16 - i - 14.Early Access/Insurance1615.Tenant’s Liability Insurance1616.Tenant’s Property Damage Insurance1617.Tenant’s Additional Insurance1618.Form of Tenant’s Insurance Policies1619.Waiver of Subrogation1720.Landlord's Insurance1821.Personal Property Taxes1822.Alterations1822.1.Request for Consent1822.2.Minor Alterations1822.3.Additional Requirements1922.4.Ownership of Alterations1923.Surrender of Premises and Holding Over2024.Default2025.Landlord's Remedies2125.1.Continuation of Lease2125.2.Rent from Reletting2125.3.Termination of Tenant's Right to Possession2125.4.Landlord's Right to Cure Default2125.5.Enforcement Costs2126.Interest and Late Charges2227.Landlord Default – Tenant’s Remedies2328.Quarterly Payments2329.Destruction2330.Condemnation2431.Assignment and Other Transfers2431.1.Restriction on Transfer2431.2.Transfer Provisions Generally2431.3.Excess Rent and Recapture2431.4.Permitted Transferee2432.Landlord’s Reserved Rights2732.1.General Rights Reserved2732.2.Future Construction2732.3.Relocation2733.Easements2834.Access by Landlord2835.Indemnity2836.Exemption of Landlord from Liability.2937.Hazardous Substances2937.1.Landlord’s Covenants2937.2.Tenant’s Covenants2937.3.Definition of Hazardous Materials.2938.Prohibition Against Mold, Lead-Based Paint, and Asbestos-Containing Materials3039.Security Measures3140.Subordination and Attornment3141.Estoppel Certificate3242.Waiver3243.Brokers3344.Limitations on Landlord's Liability3345.Sale or Transfer of Premises3346.Quitclaim Deed3347.No Merger3348.Confidentiality3349.Miscellaneous34 - ii - STANDARD FORMMODIFIED GROSS OFFICE LEASE This Standard Form Modified Gross Office Lease ("Lease") is entered into effective as of April 1, 2014, between PACIFIC NORTH COURTHOLDINGS, L.P., a California limited partnership ("Landlord"), and ADAMIS PHARMACEUTICALS CORPORATION, a Delaware corporation ("Tenant"),who agree as follows: 1. Agreement to Let. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the terms, provisions, andconditions contained in this Lease, (i) those certain premises described in the Principal Lease Provisions below (the “Premises”), consisting of a portion ofthat certain building described in the Principal Lease Provisions below (the “Building”), which is in turn a part of the Project (as described in the PrincipalLease Provisions below), along with (ii) the non-exclusive right to use, in common with Landlord, Landlord's invitees and licensees, and the other tenantsand users of space within the Project, those portions of the Project intended for use by, or benefiting, tenants of the Project in common including, withoutlimitation, the landscaped areas, passageways, walkways, hallways, elevators, parking areas, and driveways of the Building and the Project, but excluding allinterior areas of the other buildings in the Project other than the Building (collectively, the “Common Areas”). This Lease confers no rights, however, to theroof, exterior walls, or utility raceways of the Building, nor rights to any other building in the Project, nor with regard to either the subsurface of the landbelow the ground level of the Project or with regard to the air space above the ceiling of the Premises; provided, however, that Tenant shall have the limitedright to access systems and equipment exclusively serving the Premises (for which Tenant has maintenance and repair responsibilities pursuant to Paragraph10.1, below) that may be located on the roof, in exterior or demising walls, in utility raceways, in the airspaces above the ceiling of the Premises, or in anyother portion of the Building or the Common Areas for the sole purpose of maintaining, repairing, and replacing such systems and equipment. 2. Principal Lease Provisions. The following are the Principal Lease Provisions of this Lease. Other portions of this Lease explain anddescribe these Principal Lease Provisions in more detail and should be read in conjunction with this Paragraph. In the event of any conflict between thePrincipal Lease Provisions and the other portions of this Lease, the Principal Lease Provisions will control. (Terms shown in quotations are defined terms usedelsewhere in this Lease) 2.1. “Project”: That certain office project, commonly referred to as Torrey Reserve North Court, in San Diego, California, as moreparticularly depicted on the attached Exhibit “A.” 2.2. “Building”: That certain building within the Project as designated on the attached Exhibit “A”, sometimes referred to as TorreyReserve – North Court Building I, whose mailing address is 11682 El Camino Real, San Diego, California 92130. 2.3. ”Premises”: Suite 300; consisting of a portion of the third (3rd) floor of the Building, as more particularly described on theattached Exhibit “B.” 2.4. Area of the Premises: Approximately 7,525 Rentable Square Feet of space in accordance with the Building Ownwers andManagers method of measuring Net Usuable Square Feet, (USF) and Net Rentable Square Feet (RSF) . The term “Rentable Square Feet”, “Usable SquareFootage,” and similar terms dealing with Rentable or Usable means of describing measurements of square footages, will have the meanings of such termadopted by the Building Owners and Managers Association International (relative to multi-tenant floors). 2.5. “Initial Lease Term”: Four (4) years plus any additional days required for the Initial Expiration Date to occur on the last day of amonth as set forth in Paragraph 2.5.2, below, beginning as of the Lease Commencement Date and ending as of the Initial Expiration Date. 2.5.1. “Lease Commencement Date:” December 1, 2014. 1 2.5.2. “Initial Expiration Date”: That date which is four (4) years (plus, if such date is not the final day of a calendar month,however many days are left in the final calendar month of the Term) after the Lease Commencement Date. 2.5.3. Extension Rights: One (1) option to extend (Paragraph 3.2). 2.6. “Basic Monthly Rent”: $3.20 per Rentable Square Foot, net of electricity and other utilities, subject to adjustment pursuant toattached Addendum No. 1. Basic Monthly Rent will always be due and payable on or before the first day of the applicable month, except that the firstmonth’s Basic Monthly Rent will be due and payable upon the date of Landlord’s execution of this Lease. 2.7. “Rent Commencement Date”: The earlier of (i) the Lease Commencement Date, or (ii) the date that the Lease CommencementDate would have occurred, but for the occurrence of Tenant Delays (as defined in Exhibit ”C”). 2.8. ‘Security Deposit”: $170,000.00 Tenant's Security Deposit—which is due and payable on or before November 1, 2014—does notconstitute last month's rent. Last month's rent must be separately paid by Tenant on or before the first day of the last month of the Lease Term. If Tenantexercises any Option to Extend (as defined below) contained herein, then as a condition precedent to the effectiveness of Tenant's exercise of such Option toExtend, Tenant shall pay to Landlord an amount equal to the difference between the Base Monthly Rent for the last year of such Extension Term (as definedbelow) and the amount of the Security Deposit then held by Landlord; which additional amount will be added to, and constitute a part of, the SecurityDeposit from that point forward. 2.9. “Base Year”: Calendar year 2014. 2.10. Guarantor: None. 2.11. Address for Landlord: Pacific North Court Holdings, L.P.c/o American Assets Trust Management, LLC11455 El Camino Real, Suite 200San Diego, CA 92130Attn: Property Management (Office) 2.12. Addresses for Tenant: Legal Notices Addresses (Prior to Occupancy) Adamis Pharmaceuticals Corporation11682 El Camino Real, Suite 300San Diego, CA 92130Attn: Dennis J. Carlo (Following Occupancy) At the Premises 2.13. “Permitted Use”: The Premises shall be used for general office purposes, in accordance with all applicable laws, statutes,ordinances, and regulations and the provisions of this Lease, and for no other use. 2.14. Building Standard Operating Hours: Monday through Friday: 7:00 a.m.-7:00 p.m.Saturday: 9:00 a.m.-1:00 p.m.(excluding Sundays and any local, state, and federal holidays) 2 2.15. Participating Brokers: Landlord’s: CBRE, Inc. – Richard Balestri Tenant’s: Ashcraft Investments, Inc. – William P. Driscoll 2.16. Initial Payment Amounts: $170,000.00, representing the Security Deposit, which amount is payable on or before November 1,2014, and $24,080.00, representing the first month’s Basic Monthly Rent, which amount is payable on the date Tenant executes this Lease (to be adjusted onthe Lease Commencement Date to reflect the actual first month’s Basic Monthly Rent based upon the actual Rentable Square Footage of the Premises ifdetermined to be different than stated above pursuant to Paragraph 7.4, below). 3. Term. 3.1. Description of Term. The term of this Lease (“Term”) shall commence on the “Lease Commencement Date”, and shall expire onthe “Initial Expiration Date”, subject to (i) any extension rights described in Paragraph 3.2, below, and (ii) earlier termination by Landlord, as provided in thisLease. The term “Expiration Date”, as used in this Lease, shall mean the Initial Expiration Date, any earlier date upon which this Lease is terminated byLandlord, as provided below, or if the Term is extended pursuant to Paragraph 3.2, below, then the expiration date of any exercised Extension Term. 3.2. Extension Rights. Tenant shall, subject to all of the provisions of this Paragraph 3.2 (including all subparagraphs hereof), havethe option to extend the Term (the “Option to Extend”) for one (1) additional term of three (3) years (the “Extension Term”), provided Tenant is in occupancyof not less than 50% of the Premises at the time of exercise of the Option to Extend and Tenant gives Landlord written notice via overnight nationally-recognized courier (such as FedEx or UPS), with signature acknowledgement by recipient required, of its election to exercise the Option to Extend no lessthan nine (9) months and no more than twelve (12) months prior to the then applicable Expiration Date of the Term. Such notice will constitute Tenant'sirrevocable election to extend the Term and may not subsequently be revoked by Tenant except as provided below. Time is of the essence with respect to thetiming of such requirement to give notice to Landlord. 3.2.1. Restrictions on Transferability of Option. The Option to Extend is personal to the Tenant originally named in this Leaseor any Permitted Transferee (as defined below) and may not be exercised by anyone other than such originally named Tenant or a Permitted Transferee. 3.2.2. Conditions Terminating Tenant’s Rights to Exercise Option. Tenant shall not have the right to exercise the Option toExtend, notwithstanding anything set forth above to the contrary: (a) during any period of time commencing from the date Landlord gives to Tenant a writtennotice that Tenant is in default under any provision of this Lease and continuing until the default alleged in said notice is cured; (b) during the period of timecommencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid (without any necessity for notice thereof to Tenant) andcontinuing until the obligation is paid; or (c) in the event that Landlord has given to Tenant two or more notices of default or two or more late charges havebecome payable under this Lease during the 12-month period prior to the time that Tenant attempts to exercise the Option to Extend. The period of timewithin which the Option to Extend may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Option to Extendbecause of the foregoing provisions of this Paragraph 3.2.2, even if the effect thereof is to eliminate Tenant’s right to exercise the Option to Extend. 3.2.3. Conditions Terminating Tenant’s Option Rights. All rights with respect to the Option to Extend (including rights as tosubsequent Extension Terms, if any) shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Option to Extend, if,after such exercise, but prior to the commencement of the Extension Term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period often days after such obligation became due (without imposing any obligation on the part of Landlord to give notice thereof to Tenant); (b) Tenant fails to curea non-monetary default within 30 days after the date the Landlord gives notice to Tenant of such default or (c) Landlord gives to Tenant two or more noticesof default or two or more late charges become payable for any monetary defaults, whether or not such defaults are cured. 3 3.2.4. Terms and Conditions of Extension of Term. If Tenant duly and timely exercises the Option to Extend, then this Leaseshall remain in full force and effect for such additional three (3) year period, except that the Basic Monthly Rent will adjust as of the first day of theExtension Term such that for the first year of the Extension Term the Basic Monthly Rent shall be equal to the then prevailing base rental rate (ignoringtenant improvement and similar refurbishment or construction allowances, free rent, and other similar concessions—it being acknowledged that the Option toExtend reflects Tenant's negotiated right to defer its decision whether to initially lease the Premises for such longer period of time, as opposed to Tenant'sright to enter into a new lease) for new leases of comparable Class A office space in the Solana Beach, as projected for the first day of the applicableExtension Term and determined pursuant to Paragraph 3.2.5, below (the "Then-Prevailing Rate"). The Basic Monthly Rent will thereafter increase inaccordance with the provisions of attached Addendum No. 1 3.2.5. Determination of Then-Prevailing Rate. If Tenant exercises the Option to Extend, then Landlord shall, within 15business days of receipt of Tenant's written notice of exercise, provide Tenant with written notice of the Then-Prevailing Rate and the calculation of the newBasic Monthly Rent to be effective during the first year of the Extension Term. Tenant shall have ten business days from the date of Landlord's notice inwhich to (a) accept the Landlord’s determination of the Then-Prevailing Rate, (b) revoke Tenant’s election to exercise the Option to Extend, in which caseTenant’s Option to Extend shall be null and void, or (c) dispute Landlord's determination of the Then-Prevailing Rate. If Tenant fails to notify Landlord, inwriting, of its disagreement with Landlord's determination of the Then-Prevailing Rate within such ten-business day period, then Tenant will be deemed tohave accepted Landlord's determination and Landlord's determination shall be binding on both parties. If Tenant disputes such determination, then its noticeto Landlord disputing such determination must set forth Tenant's determination of the Then-Prevailing Rate. Upon receipt of Tenant's notice, Landlord andTenant shall promptly meet and, in good faith, attempt to agree upon the Then-Prevailing Rate. If Landlord and Tenant are unable to reach agreement uponthe Then-Prevailing Rate within 30 days of the date of Landlord's receipt of Tenant's dispute notice, then the parties shall promptly submit such dispute tothe San Diego office of the American Arbitration Association (the "AAA"), or its successor, for resolution before a single arbitrator (who must have at least tenyears experience in the San Diego County commercial real estate market as a real estate broker or MAI appraiser) in accordance with Real Estate IndustryArbitration Rules of the AAA. Within ten days of the commencement of the arbitration, Landlord and Tenant shall each provide the arbitrator with theirrespective written determination of the Then-Prevailing Rate—which determination will not be disclosed by the arbitrator until both parties have submittedtheir respective written determinations. The arbitrator's sole authority will be to select between the Landlord's and the Tenant's respective writtendeterminations of the Then-Prevailing Rate, as set forth in the notices described above, as provided to the arbitrator in accordance with the precedingsentence; provided, however, if either party fails to timely submit such a written determination to the arbitrator, then the arbitrator shall use the writtendetermination of such party as set forth in the notices described above as part of the initiation of the subject process. In no event may such arbitrator selectany other amount as the Then-Prevailing Rate. The decision of the arbitrator shall be binding upon all parties and the cost of the arbitration shall be splitequally between Landlord and Tenant. 4. Delivery of Possession. 4.1. Delivery Requirements. Tenant is currently in possession of the Premises pursuant to the terms of a sublease (“Sublease”) of thelease between Landlord and McDermott, Will & Emery (“MWE Lease”). On the Lease Commencement Date, the MWE Lease and Sublease shall terminate,and Landlord shall tender and Tenant shall accept possession of the Premises pursuant to the terms of this Lease. . 5. Use of Premises and Common Areas. 5.1. Permitted Use of Premises. Tenant may use the Premises for the Permitted Use specified in the Principal Lease Provisions and forno other use without Landlord’s consent. Any change in the Permitted Use will require Landlord's prior written consent, which consent may be granted orwithheld in Landlord's reasonable discretion. 4 5.2. Compliance with Laws. Landlord covenants that the Premises will comply with all applicable laws as of the LeaseCommencement Date. Thereafter, Tenant shall comply with all laws concerning the Premises and/or Tenant's use of the Premises, including withoutlimitation the obligation at Tenant's sole cost to alter, maintain, or restore the Premises in compliance with all applicable laws, even if such laws are enactedafter the date of this Lease, and even if compliance entails costs to Tenant of a substantial nature. Such obligation to comply with laws shall include withoutlimitation compliance with Title III of the Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the “ADA”). In addition to the foregoingobligations of Tenant relative to the Premises, if Tenant's particular use of the Premises (including the commencement of any Alterations, as defined below)results in the need for modifications or alterations to any other portion of the Project in order to comply with the ADA or other applicable laws, then Tenantshall additionally be responsible, upon demand, for the cost of such modifications and alterations plus a supervisory fee of ten percent of such cost payable toLandlord. Furthermore, pursuant to Section 1938 of the California Civil Code, Landlord confirms to the best of its knowledge that the entire Project has notundergone inspection by a Certified Access Specialist (CASp). Tenant shall indemnify, defend (with counsel satisfactory to Landlord), and hold Landlord(and its partners, members, shareholders, directors, officers, employees, agents, assigns, and any successors to Landlord's interest in the Project) harmless fromand against any and all losses, costs, demands, damages, expenses (including reasonable attorneys' fees), claims, causes of action, judgments, penalties, fines,or liabilities, arising from Tenant's failure to satisfy its obligations under this Paragraph including, without limitation, (i) any costs, expenses, and liabilitiesincurred by Landlord in connection with responding to any demand by any governmental authority that Landlord undertake any modifications or alterationswhich are Tenant's responsibility pursuant to this Paragraph 5.2 or for which Tenant is obligated to reimburse Landlord hereunder, as well as (ii) anyattorneys' fees, costs, expenses, and liabilities incurred by Landlord in responding to, defending, pursuing, or otherwise being involved with any action, suit,or proceeding arising out of any claim relating to the non-compliance of the Premises or the Project with the ADA or any similar law where such action, suit,or proceeding relates to, or arises from, Tenant's use of the Premises or any Alterations, except to the extent caused by Landlord’s willful misconduct ornegligent acts. Landlord shall comply with all applicable laws relating to the structural portions of the Building (including the foundation, structural roof,load bearing walls, structural columns and structural floor) and base building systems that serve the entire Building (including elevator, domestic water andcondenser water distribution systems; and electrical distribution systems), provided that compliance with such applicable laws is not the responsibility ofTenant under this Lease. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Paragraph 5.2to the extent consistent with the terms of Paragraph 8.1.1 below. 5.3. Condition During Periods of Non-Use; Recapture. During any period of time in which Tenant is not continuously using andoccupying the Premises for the operation of its business, Tenant shall take such measures as may be necessary or desirable, in Landlord's reasonable opinion,to secure the Premises from break-ins and use by unauthorized persons, to minimize the appearance of non-use, and to otherwise maintain the interior andexterior portions of Tenant's Premises, including all windows and doors, in first class condition. Additionally, during any period of time in excess of 90 daysin which Tenant is not continuously using and occupying the Premises during normal business hours. Landlord may, at its election, by giving written notice(the “Non-Use Recapture Notice”) to Tenant, recapture the Premises and terminate this Lease. If Landlord elects to exercise such right and delivers a Non-UseRecapture Notice to Tenant, and Tenant fails to cure such condition to Landlord’s reasonable satisfaction within five days of such Non-Use Recapture Notice,this Lease will automatically be deemed terminated as of the effective date stated in the Non-Use Recapture Notice, and Tenant shall surrender possession ofthe Premises and all improvements therein to Landlord as of such date (and any failure to do so shall constitute an immediate Event of Default hereunder). 5.4. Use of Common Areas. Tenant's use of the Common Areas shall at all times comply with the provisions of all Rules (as definedbelow) regarding such use as Landlord may from time to time adopt. In no event shall the rights granted to Tenant to use the Common Areas include the rightto store any property in the Common Areas, whether temporarily or permanently. Any property stored in the Common Areas may be removed by Landlordand disposed of, and the cost of such removal and disposal shall be payable by Tenant to Landlord upon demand. Additionally, in no event may Tenant useany portion of the Common Areas for loading, unloading, or parking, except in those areas specifically designated by Landlord for such purposes, nor for anygroup social event, sidewalk sale, employment fair or similar commercial or unauthorized purpose. 5 5.5. General Covenants and Limitations on Use. In addition to the Rules, Tenant and Tenant's Invitees (as defined below) use of thePremises and the Project, will be subject to the following additional general covenants and limitations on use. 5.5.1. Tenant shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurancecovering the Premises. If the rate of any insurance carried by Landlord is increased as a result of Tenant's use other than for the Permitted Use or Tenant’sfailure to continuously use and occupy the Premises, Tenant shall pay the amount of such increase to Landlord, within ten days after Landlord delivers toTenant a written notice of such increase. 5.5.2. No noxious or unreasonably offensive activity shall be carried on, in or upon the Premises by Tenant or Tenant'sInvitees, nor shall anything be done or kept in the Premises which may be or become a public nuisance or which may cause unreasonable embarrassment,disturbance, or annoyance to others in the Project, or on adjacent or nearby property. To that end, Tenant additionally covenants and agrees that no lightshall be emitted from the Premises which is unreasonably bright or causes unreasonable glare; no sounds shall be emitted from the Premises which areunreasonably loud or annoying; and no odor shall be emitted from the Premises which is or might be noxious or offensive to others in the Building, on theProject, or on adjacent or near-by property. 5.5.3. No unsightliness shall be permitted in the Premises which is visible from the Common Areas. Without limiting thegenerality of the foregoing, all equipment, objects, and materials shall be kept enclosed within the Premises and screened from view or in Common Areastrash enclosures; no refuse, scraps, debris, garbage, trash, bulk materials, or waste shall be kept, stored, or allowed to accumulate except as may be properlyenclosed within appropriate containers in the Premises and promptly and properly disposed of. 5.5.4. The Premises shall not be used for sleeping or washing clothes, nor shall the Premises be used for cooking or thepreparation, manufacture, or mixing of anything that might emit any offensive odor or objectionable noises or lights onto the Project or nearby properties.Additionally, Tenant shall be responsible for damage to the Project caused by any deliverymen who are at the Project to deliver goods to Tenant. 5.5.5. All pipes, wires, conduit, cabling, poles, antennas, and other equipment/facilities for or relating to utilities,telecommunications, computer equipment, or the transmission or reception of audio or visual signals must be kept and maintained enclosed within thePremises (except to the extent included as part of Landlord's Work, Tenant's Work, or otherwise approved by Landlord). 5.5.6. Tenant shall not keep or permit to be kept any bicycle, motorcycle, or other vehicle, nor any animal (excluding seeing-eye dogs), bird, reptile, or other exotic creature in the Premises. 5.5.7. Neither Tenant nor Tenant's Invitees shall do anything that will cause damage or waste to the Project. Neither the floornor any other portion of the Premises shall be overloaded. Tenant shall be responsible for all structural engineering required to determine structural load foritems placed in the Premises by Tenant. Tenant shall fasten all files, bookcases, and like furnishings to walls in a manner to prevent tipping over in the eventof earth movements. Landlord shall not be responsible for any damage or liability for such events. No machinery, equipment, apparatus, or other applianceshall be used or operated in or on the Premises that will in any manner injure, vibrate, or shake all or any part of the Project or be allowed to interfere with theequipment of any other tenant within the Project (or other property owned by Landlord or its affiliates), including, without limitation, interference withtransmission and reception of telephone, telecommunications, television, radio, or similar signals. 5.6. Access Rights. Tenant will have 24 hour-a-day, seven day-a-week access to the Building and the Premises. Notwithstanding theforegoing, no failure of such access rights will constitute an eviction or a disturbance of Tenant’s use and possession of the Premises or relieve Tenant frompaying Rent or performing any of its obligations under this Lease; except that Tenant shall be entitled to equitable abatement of its Rent (as defined below)obligations hereunder to the extent such lack of access is due to Landlord's gross negligence or intentional misconduct and continues for a period in excessof three business days. Landlord will not be liable, under any circumstances, for a loss of or injury to property or for injury to or interference with Tenant’sbusiness, including loss of profits through, in connection with, or incidental to a failure to furnish access under this Paragraph. Notwithstanding theforegoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of access. 6 5.7. Remedies for Breach. In the event of any breach of this Paragraph 5 by Tenant or Tenant's Invitees, Landlord, at its election and inaddition to its other rights and remedies under this Lease, may pay the cost of correcting such breach and Tenant shall immediately, upon demand, payLandlord the cost thereof 6. Security Deposit. Upon Tenant’s execution of this Lease, Tenant shall deposit with Landlord good funds in the amount of the SecurityDeposit (if any) set forth in the Principal Lease Provisions, to secure the performance by Tenant of its obligations under this Lease, including Tenant'sobligations (i) to pay Basic Monthly Rent and Additional Rent (as defined below), (ii) to repair damages to the Premises and/or the Project caused by Tenantor Tenant's agents, employees, contractors, licensees, and invitees (collectively, “Tenant's Invitees”), (iii) to surrender the Premises in the condition requiredby Paragraph 24, below, and (iv) to remedy any other defaults by Tenant in the performance of any of its obligations under this Lease. If Tenant commits anydefault under this Lease, Landlord may, at its election, use the Security Deposit to cure such default, and to compensate Landlord for all damages actuallysuffered by Landlord which are directly attributable to such default, including, reasonable attorneys' fees and costs incurred by Landlord. Upon demand byLandlord, Tenant shall promptly pay to Landlord a sum equal to any portion of the Security Deposit so used by Landlord, in order to maintain the SecurityDeposit in the amount set forth in the Principal Lease Provisions above (subject to increase as set forth below). Within 45 days following the Expiration Dateor earlier termination of this Lease, Landlord shall deliver to Tenant, at Tenant's last known address, any portion of the Security Deposit not used byLandlord, as provided in this Paragraph (less reductions of same pursuant to Section 6.1 below). Landlord may commingle the Security Deposit (and anyadvance Rent received by Landlord) with Landlord's other funds and Landlord shall not pay interest on such Security Deposit to Tenant. Tenant waives theprovisions of California Civil Code Section 1950.7 (or any successor statute), and any similar principals of law with respect to Landlord’s ability to apply theSecurity Deposit against future rent damages. Furthermore, upon lawful termination of the Lease as a result of Tenant’s default, Landlord shall be entitled toimmediately apply the Security Deposit against damages computed under California Civil Code Section 1951.2, without the requirement that Tenant first begiven notice and an opportunity to cure, and notwithstanding that the damages have not been finally adjudicated by a court. 6.1 Reduction of Security Deposit. Provided Tenant is not in default of any terms of this Lease at the time the Security Deposit is to be reduced, after thegiving of any required notice and the expiration of any cure periods set forth in this Lease, such Security Deposit will be subject to annual reductions equalto Forty-Two Thousand Five Hundred and No/100 Dollars ($42,500.00), effective upon the first day of the thirteenth (13th), twenty-fifth (25th), and thirty-seventh (37th) months of the Term. Such reductions shall be issued as a credit which Tenant may use against future Rent. Upon the thirty-seventh (37th)month of the Term, the remaining Forty-Two Thousand Five Hundred and No/100 Dollars ($42,500.00) of the Security Deposit shall remain in effect throughthe balance of the Term and any subsequent Term. 7. Rent and Rent Adjustments. 7.1. Initial Monthly Rent. Tenant shall pay to Landlord as minimum monthly rent, without deduction, setoff, prior notice, or demand,the Basic Monthly Rent described in the Principal Lease Provisions (subject to adjustment as provided in the attached Addendum), in advance, on or beforethe first day of each calendar month, beginning on the Rent Commencement Date and thereafter throughout the Term. If the Rent Commencement Date isother than the first day of a calendar month, then the Basic Monthly Rent payable by Tenant for the second month of the Term following the RentCommencement Date (acknowledging that the first month’s rent is payable upon Lease execution) shall be prorated on the basis of the actual number of daysduring the Term occurring during the first partial calendar month thereof. Notwithstanding the foregoing, if Landlord is delayed in completion of Landlord’sWork due to any Tenant Delays, then in addition to the Basic Monthly Rent payable for the first month of the Term following the Rent Commencement Date,Tenant shall additionally pay to Landlord, upon the Rent Commencement Date, additional rent, at the rate of one-thirtieth of the Basic Monthly Rent perday, for the number of days of such delay. 7 7.2. Rental Adjustments. The Basic Monthly Rent shall be increased periodically in accordance with the provisions of attachedAddendum No. 1 to this Lease. 7.3. Additional Rent. In addition to paying the Basic Monthly Rent pursuant to this Paragraph 7, Tenant shall pay to Landlord (inaccordance with Paragraph 8 below), commencing on January 1, 2015, Tenant’s Share (as defined below) of the annual Operating Expenses (as definedbelow) that are in excess of the amount of Operating Expenses applicable to the Base Year. The amounts payable pursuant to this Paragraph, together with allother amounts of any kind (other than Basic Monthly Rent) payable by Tenant to Landlord under the terms of this Lease, constitute additional rent for thePremises and are collectively and individually referred to in this Lease as “Additional Rent.” 7.4. General Rental Provisions. All “Rent” (which includes Basic Monthly Rent and all “Additional Rent” hereunder) shall be paid toLandlord at the same address as notices are to be delivered to Landlord pursuant to the Principal Lease Provisions, as Landlord may change such address fromtime to time pursuant to the terms of this Lease. 8. Additional Rent. 8.1. Definitions. The following definitions apply in this Paragraph 8 (and elsewhere in this Lease): 8.1.1. Operating Expenses. Subject to the Excluded Costs (as defined below) relating to the Project, the term “OperatingExpenses” means all expenses, costs, and amounts of every kind or nature that Landlord pays or incurs because of or in connection with the ownership,operation, management, maintenance, or repair of the Building, Common Areasand Project. Operating Expenses include, without limitation, the followingamounts paid or incurred by Landlord relative to the Building, Common Areas and Project: (a) the cost of supplying utilities to all portions of the Project(other than tenant suites), including without limitation water, waste deposit, power, electricity, heating, ventilation, and air conditioning, (b) Tax Expensesand Insurance Expenses (as such terms are defined below), (c) the cost of providing janitorial services, window washing service and of operating, managing,maintaining, and repairing all building systems, including without limitation utility, mechanical, sanitary, storm drainage, and elevator systems, and the costof supplies, tools, and equipment, as well as maintenance and service contracts in connection with those systems, (d) the cost of licenses, certificates, permits,and inspections relating to the operation of the Project, (e) the cost of consumable materials, contesting the validity or applicability of any governmentenactments that may affect the Operating Expenses, (f) the cost of maintenance, repair, and restoration of any parking areas or structures, including, withoutlimitation, resurfacing, repainting, restriping, and cleaning costs, (g) fees, charges, and other costs, including administrative, management fees andaccounting costs (or amounts in lieu of such fees), whether paid to Landlord, an affiliate of Landlord's, or a third party, consulting fees, legal fees, andaccounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management,maintenance, and repair of the Project, (h) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, repair,or security of the Project plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes imposed on Landlord that may be leviedon those wages, salaries, and other compensation and benefits. If any of Landlord’s employees provide services for more than one project of Landlord's, onlythe prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devotedto the Project will be included in the Operating Expenses, (i) payments under any easement, CC&R's, license, operating agreement, declaration, restrictivecovenant, or other instrument relating to the sharing of costs affecting the Project, (j) amortization (including interest on the unamortized cost at a rate equalto the floating commercial loan rate announced from time to time by Bank of America as its “reference rate” (or a comparable rate selected by Landlord ifsuch reference rate ceases to be published) plus three percentage points per annum) of the cost of acquiring or renting personal property used in themaintenance, repair, and operation of the Project, (k) reasonable reserves (it being acknowledged, that, among other amounts, any amount of reserves requiredby a Lender, as defined below, will be deemed reasonable), (l) fees and expenses for consultants retained, from time to time, by Landlord for the purposes ofenergy conservation, waste treatment, and water recycling and for the costs of any capital improvements, equipment or devices installed or paid for byLandlord or, at Landlord option, an annual amount sufficient, on the basis of Landlord's experience or reasonable estimate, to establish in advance of the timefor such installation a reserve to fund said costs, in order (i) to conform with any change in laws, rules, regulations or requirements of any governmental orquasi-governmental authority having jurisdiction or of the board of fire underwriters or similar insurance body or, (ii) to effect a labor saving, energy saving,or other economy (including, without limitation, as related to water recycling, waste treatment, and energy generation), amortized over the useful life of suchcapital improvement, equipment, or device (as reasonably determined by Landlord), and (m) the cost of maintenance of all heating, ventilating and aircondition systems relating to individual premises and/or the Common Areas, other than HVAC systems exclusively serving other tenants’ premises that aredirectly paid for, or reimbursed, by such other tenants. All capital expenditures shall be amortized (including interest on the unamortized cost at the ratestated in subparagraph (j) of this Paragraph) over their useful life, as reasonably determined by Landlord’s certified public accountant. 8 8.1.2. Excluded Costs. “Excluded Costs” means the following expenses, as they relate to the Operating Expenses: (i)depreciation, principal, interest, and fees on mortgages or ground lease payments, except as otherwise provided herein, (ii) legal fees incurred in negotiatingand enforcing tenant leases, disputes with other tenants, (iii) real estate brokers’ leasing commissions and advertising costs in connection with leasing spacein the Project, (iv) initial improvements or alterations to tenant spaces in the Project, (v) the cost of providing any service directly to and paid directly by asingle individual tenant, or costs incurred for the benefit of a single tenant, (vi) costs of any items to the extent Landlord actually receives reimbursementtherefor from insurance proceeds, under warranties, or from a tenant or other third party (such costs shall be excluded or deducted – as appropriate – fromOperating Expenses in the year in which the reimbursement is received), or which are paid out of reserves previously included in Operating Expenses, (vii)costs incurred due to Landlord’s breach of a law or ordinance, (viii) repairs necessitated by the gross negligence or willful misconduct of Landlord orLandlord's employees, agents, or contractors, (ix) capital expenses other than those specifically included in the definition of Operating Expenses, (x)charitable or political contributions and membership fees or other payments to trade organizations, (xi) costs of Landlord’s Work which are to be borne byLandlord pursuant to attached Exhibit “C”, if any, (xii) rent and similar charges for Landlord’s on-site management office and/or leasing office or any otheroffices of Landlord or its affiliates, (xiii) Landlord's general overhead expenses not related to the Project, (xiv) electric power and other utility costs for whichany tenant directly contracts with and pays the local public service company, (xv) any bad debt loss, rent loss, or reserves for bad debts or rent loss, (xvi) anycompensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord, if any, provided that any compensation paid toany concierge at the Project shall be includable as an Operating Expense, (xvii) any costs expressly excluded from Operating Expenses elsewhere in thisLease, (xiix) costs (A) incurred to comply with laws relating to the removal of Hazardous Material (as defined in Paragraph 37.3 below) except for immaterialamounts completed in connection with routine maintenance and repairs; which was in existence in the Building or on the Project prior to the LeaseCommencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it then had knowledge of the presence of suchHazardous Material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of suchHazardous Material or other remedial or containment action with respect thereto; and (B) costs incurred to remove, remedy, contain, or treat HazardousMaterial, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and isof such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such HazardousMaterial, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such HazardousMaterial or other remedial or containment action with respect thereto except for immaterial amounts completed in connection with routine maintenance andrepairs, (xix) any gifts provided to any entity whatsoever, including, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospectivetenants, and (xxi) any amount paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the cost ofsuch services rendered by qualified, first-class unaffiliated third parties on a competitive basis, 8.1.3. Expense Year. “Expense Year” means the Base Year, and each calendar year after the Base Year, in which any portion ofthe Lease Term falls, through and including the calendar year in which the Lease Term expires. 8.1.4. Tenant's Share. “Tenant’s Share” means a fraction, the numerator of which is the total aggregate Rentable Square Feet inthe Premises, and the denominator of 75,118 which is the total aggregate Rentable Square Feet in the Building. As of the Lease Commencement Date, theTenant's Share will be 10.02%. If either the Premises or the Building are expanded or reduced, Tenant’s Share shall be appropriately adjusted. Tenant’s Sharefor the Expense Year in which that change occurs shall be determined on the basis of the number of days during the Expense Year in which each suchTenant’s Share was in effect. 9 8.2. Adjustment of Operating Expenses. Operating Expenses shall be adjusted as follows: 8.2.1. Gross Up Adjustment When a Project is Less Than Fully Occupied. If the occupancy of the total Rentable SquareFootage of completed, partially occupied buildings within the Project (whose square footage is included in the calculation of the Project’s Rentable SquareFootage pursuant to Paragraph 8.1.2. above) during any part of any Expense Year (including the Base Year) is less than 95%. Landlord shall make anappropriate adjustment to the variable components of the Operating Expenses for that Expense Year, as estimated by Landlord in its reasonable discretionusing sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had such buildings been95% occupied. This amount shall be considered to have been the amount of Operating Expenses for that Expense Year. For purposes of this Paragraph 8.2.“variable components” include only those component expenses that are affected by variations in occupancy levels, such as nightly janitorial service toTenants’ Premises or water usage. 8.2.2. Adjustment When Landlord Adds Additional Buildings to the Project. If Landlord adds additional buildings within theProject following the Base Year, Landlord shall make an appropriate adjustment to the Operating Expenses for the Base Year, as reasonably determined byLandlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred for the BaseYear if such additional building had been complete and 95% occupied during the Base Year. 8.2.3. Adjustment When Landlord Does Not Furnish a Service to All Tenants. If, during any part of any Expense Year(including the Base Year), Landlord is not furnishing a particular service or work (the cost of which, if furnished by Landlord, would be included in OperatingExpenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses forthat Expense Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably haveincurred during such period if Landlord had furnished such service or work to that tenant. 8.2.4. Additional Costs. If due to a change in the types of costs being incurred by Landlord as Operating Expenses (such as, forexample, the commencement or cessation of security services—but not a mere change in how a particular cost is handled—such as going from an in-house toan outside landscaping service), the Base Year Operating Expenses need to be adjusted to eliminate the effect of such change, Landlord shall reasonablyadjust the Base Year Operating Expenses and notify Tenant of such change in writing. Furthermore, Landlord shall have the right to reasonably decrease theamount of the Base Year Operating Expenses for purposes of calculating Increased Operating Expenses to eliminate the effect of abnormally high costs, orunusual costs, of a particular type or types (such as, by way of example, abnormally high energy costs associated with the “energy crisis” of 2001) occurringduring the Base Year. There shall be no cap on Operating Expenses. 8.2.5. Common Areas. Landlord may elect to partition/separate portions of the Common Areas of the Project such that theOperating Expenses associated with such partitioned Common Areas are allocated to particular buildings or parcels within the Project. 8.3. Tax Expenses. “Taxes” means and refers to all federal, state, county, or local government or municipal taxes, school taxes, sewerrates, fees, charges, or other impositions of every kind or nature, whether general, special, ordinary, or extraordinary. Taxes include taxes, fees, and chargessuch as real property taxes, general and special assessments, transit taxes, leasehold taxes, and taxes based on the receipt of rent (including gross receipts orsales taxes applicable to the receipt of rent, unless required to be paid by Tenant), and personal property taxes imposed on Landlord's fixtures, machinery,equipment, apparatus, systems, appurtenances, and other personal property used in connection with the Project or the Building, as the case may be, alongwith reasonable legal and other professional fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce realproperty taxes. Notwithstanding the foregoing, the following shall be excluded from Taxes: (a) all excess profits taxes, franchise taxes, gift taxes, capitalstock taxes, inheritance and succession taxes, estate taxes, federal, state, and local income taxes, and other taxes applied or measured by Landlord’s general ornet income (as opposed to rents, receipts, or income attributable to operations at the Building), and (b) personal property taxes attributable to property ownedor installed by or for other tenants of the Project; “Tax Expenses” means the sum of all Taxes that are paid or incurred by Landlord because of or inconnection with the ownership, leasing, and/or operation of the Project from time to time. 10 8.4. Calculation and Payment of Operating Expenses. Tenant’s Share of the increased Operating Expenses for any Expense Year shallbe calculated and paid as follows: 8.4.1. Calculation of Excess. If Operating Expenses for any Expense Year (other than the Base Year) ending or beginningwithin the Lease Term exceeds the amount of Operating Expenses applicable to the Base Year, Tenant shall pay as Additional Rent to Landlord an amountequal to Tenant’s Share of that excess, in the manner stated below. 8.4.2. Statement/Payment of Operating Expenses. Tenant shall pay to Landlord, on the first day of each calendar month duringthe Lease Term, commencing January 1, 2015, as Additional Rent, without notice, demand, offset, or deduction (except as provided below), an amount(“Tenant's Monthly Payment”) equal to one-twelfth of Tenant's Share of the amount by which the Operating Expenses for each Expense Year following theBase Year exceed the Base Year Operating Expenses (such excess being referred to herein as the “Increased Operating Expenses”), as estimated (andsubsequently reconciled) by Landlord in the most recently delivered Estimated Statement (as defined below). Landlord intends to deliver to Tenant, prior tothe commencement of each Expense Year following the Base Year during the Lease Term, a written statement (“Estimated Statement”) setting forthLandlord's estimate of the Operating Expenses and Increased Operating Expenses allocable to the ensuing Expense Year, and Tenant's Share of suchIncreased Operating Expenses. Landlord may, at its option, during any Expense Year, deliver to Tenant a revised Estimated Statement, revising Landlord'sestimate of the Operating Expenses and Increased Operating Expenses, in accordance with Landlord's most current estimate. Within approximately 90 daysafter the end of each Expense Year during the Lease Term, Landlord intends to deliver to Tenant a written statement (“Actual Statement”) setting forth theactual Operating Expenses allocable to the preceding Expense Year. Tenant's failure to object to Landlord regarding the contents of an Actual Statement, inwriting, within 90 days after delivery to Tenant of such Actual Statement, shall constitute Tenant's absolute and final acceptance and approval of the ActualStatement. If the sum of Tenant's Monthly Payments actually paid by Tenant during any Expense Year exceeds Tenant's Share of the actual IncreasedOperating Expenses allocable to such Expense Year, then such excess will be credited against future Tenant's Monthly Payments, unless such Expense Yearwas the Expense Year during which the Lease Expiration Date occurs (the “Last Calendar Year”), in which event either (i) such excess shall be creditedagainst any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall (within the time frame forreturning Tenant's Security Deposit) pay to Tenant such excess. If the sum of Tenant's Monthly Payments actually paid by Tenant during any Expense Year isless than Tenant's Share of the actual Increased Operating Expenses allocable to such Expense Year, then Tenant shall, within thirty (30) days of delivery ofthe Actual Statement, pay to Landlord the amount of such deficiency. Landlord's delay in delivering any Estimated Statement or Actual Statement will notrelease Tenant from its obligation to pay any Tenant's Monthly Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement,as the case may be. The references in this Paragraph to the actual Increased Operating Expenses allocable to an Expense Year, shall include, if such ExpenseYear is the Last Calendar Year, the actual Increased Operating Expenses allocable to the portion of such year prior to the Lease Expiration Date, calculated ona pro rata basis, without regard to the date of a particular expenditure. The provisions of this Paragraph 8.4 shall survive the termination of this Lease, andeven though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Operating Expenses for theyear in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated expenses paid by Tenant pursuant hereto andconversely any overpayment made in Tenant's estimated payments shall be immediately rebated by Landlord to Tenant. 8.5. Landlord's Books and Records. If Tenant disputes the amount of Additional Rent stated in an Actual Statement within 90 days ofTenant’s receipt thereof, Tenant may, upon at least five business days’ notice to Landlord, request an opportunity to inspect and audit Landlord’s records andsupporting documentation regarding such Actual Statement. Such inspection and audit must be conducted by an independent certified public accountantwithin 180 days of the date Tenant received the Actual Statement, shall be at Tenant’s sole cost and expense (except as provided below), and Landlord shall,at its election, either provide copies of such records and supporting documentation to Tenant or make such records and supporting documentation availableto Tenant for its inspection at Landlord’s business office in San Diego, California during normal business hours. If Tenant fails to dispute the amount ofAdditional Rent stated in an Actual Statement within 90 days of Tenant’s receipt thereof, or Tenant's audit fails to disclose a discrepancy in such ActualStatement within 180 days after Tenant's receipt of the Actual Statement in question, then the Actual Statement will be deemed binding on Tenant. If it isdetermined as a result of Tenant's timely audit of Landlord's records (and Landlord's certified public accountant's concurrence therein) that Tenant wasovercharged relative to the Operating Expenses, such overcharge shall entitle Tenant to a credit against its next payment of Operating Expenses in theamount of the overcharge plus, in the case of an overcharge exceeding three percent of the Operating Expenses, the reasonable third party costs of such audit(and if such credit occurs following the expiration of the Term, Landlord shall promptly pay the amount of such credit to Tenant). If it is determined as aresult of Tenant's timely audit of Landlord's records (and Landlord's certified public accountant's concurrence therein), or otherwise, that Tenant wasundercharged relative to the Operating Expenses, Tenant shall, within ten days of written demand, pay such undercharge to Landlord. 11 9. Utilities and Services. 9.1. Tenant’s Utility Costs. To the extent separately metered to the Premises, Tenant shall pay when due all bills for gas, electricity,and other utilities used at the Premises on and after the Rent Commencement Date and through and including the date of expiration of this Lease. 9.2. Standard Tenant Services. Subject to the terms and conditions contained herein, Landlord shall provide the following servicesduring the Lease Term. 9.2.1. Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shallprovide heating and condenser water to facilitate the production of air conditioning (collectively, “HVAC”) when necessary for normal comfort for normaloffice use in the Premises during Building Standard Operating Hours. 9.2.2. Landlord shall provide adequate electrical wiring and facilities sufficient to provide electrical current to the Premises forProject-standard ordinary and customary office uses and excluding electrical power required for electric data processing equipment, computer rooms, speciallighting in excess of Building standard lighting, or any other item of electrical equipment which (individually) consumes more than 1.8 kilowatts at ratedcapacity in which requires a voltage other than 120 volts single phase. In addition to the foregoing, Landlord shall replace lamps, starters, and ballasts forProject-standard lighting fixtures within the Premises upon Tenant’s request; the expense of which will be an Operating Expense. Tenant shall replace lamps,starters, and ballasts for non-Project-standard lighting fixtures within the Premises at Tenant’s sole expense. Landlord shall also provide electrical service inconnection with Common Area needs, such as lighting. 9.2.3. Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in theBuilding Common Areas. 9.2.4. Landlord shall provide five day per week ordinary and customary, basic janitorial services in and about the Premises ina manner consistent with other comparable buildings in the vicinity of the Building. Landlord shall not be required to provide janitorial services to above-Project-standard improvements installed in the Premises including but not limited to metallic trim, wood floor covering, glass panels, interior windows,kitchen/dining areas, executive washrooms, or shower facilities. Any janitorial services required by Tenant and provided by Landlord in excess of suchordinary and customary, basic janitorial services shall be separately paid for by Tenant, as Additional Rent, within ten days of written demand. 9.2.5. Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours,shall have one elevator available at all other times, including on the Holidays, and shall provide nonexclusive, non-attended automatic passenger escalatorservice during Building Hours only. 9.2.6. Landlord shall provide nonexclusive freight elevator service subject to scheduling by Landlord. 12 Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for theproper functioning and protection of the HVAC, electrical, mechanical, and plumbing systems. Notwithstanding the foregoing, Tenant shall be responsiblefor all installation and recurring costs associated with utilities services at the Premises. 9.3. Over-Standard Tenant Use. Tenant shall not exceed the rated capacity of the Building’s electrical and other utility systems, whichsystems will be consistent in capacity with other first class office buildings built at or about the same time as the Building. In the event of any damage to anyof the Project’s systems caused by Tenant’s use thereof in excess of ordinary and customary usage for a professional office. Tenant shall be responsible for allcosts and expenses incurred by Landlord as a result of such over-use. In addition, if Tenant requires any utilities or services described in this Paragraph 9,which are to be provided by Landlord, in excess of the standard levels being provided by Landlord, or during hours other than Building Standard OperatingHours, Landlord shall have the right to impose reasonable restrictions on such usage and/or commercially reasonable charges therefor. The initial charge toTenant for heating and air conditioning during hours other than Building Standard Operating Hours will be $45.00 per hour (or portion thereof), subject toincrease over the Lease Term, including the Extension Term, if any. This charge will be based on Landlord’s actual cost and there will be no Landlord “add-on” or supervisory fee associated with this charge. Such charges are Additional Rent relative to the provision of such services and are not an offset to anyOperating Expenses. 9.4. Conduit and Wiring. Installation of all types of conduit and wiring exclusively serving the Premises (other than as part ofLandlord's Work), including but not limited to Tenant's Work, is subject to the requirements of Paragraph 22, below, Exhibit “C”, and the Landlord’sreasonable approval of the location, manner of installation, and qualifications of the installing contractor. All such conduit and wiring will, at Landlord'soption, become Landlord's property upon the expiration of the Term. Upon expiration of the Term, Landlord may elect to require Tenant to remove suchconduit and wiring at Tenant's expense and return the Premises and the Common Areas to their pre-existing condition. If Landlord constructs new oradditional utility facilities, including wiring, plumbing, conduits, and/or mains, resulting from Tenant's changed or increased utility requirements, Tenantshall on demand promptly pay (or advance) to Landlord the cost of such items as Additional Rent. 9.5. Utilities Generally. Tenant agrees that, except as provided below, Landlord will not be liable for damages, by abatement of Rentor otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services) or for diminution in the quality orquantity of any service. Such failure, delay, or diminution will not constitute an eviction or a disturbance of Tenant’s use and possession of the Premises orrelieve Tenant from paying Rent or performing any of its obligations under this Lease, except that Tenant will be entitled to an equitable abatement of Rentfor the period of such failure, delay, or diminution to the extent such failure, delay, or diminution is (i) is directly attributable to Landlord’s negligent acts oromissions, (ii) prevents Tenant from using, and Tenant does not use, the Premises or the affected portion thereof for the conduct of Tenant's businessoperations therein, (iii) Tenant was using the Premises or such affected portion for the conduct of Tenant's business operations immediately prior to thefailure, and (iv) such failure, delay, or diminution continues for more than two consecutive business days (or ten business days in any twelve month period)after delivery of written notice of such failure, delay, or diminution from Tenant to Landlord. Landlord will not be liable, under any circumstances, for a lossof or injury to property or for injury to or interference with Tenant’s business, including loss of profits through, in connection with, or incidental to a failureto furnish any of the utilities or services under this Paragraph. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correctany such interruption of utilities or services. Tenant hereby waives the provisions of California Civil Code Section 1932(1) or any other applicable existingor future law, ordinance or governmental regulation permitting the termination of this Lease due to the interruption or failure of or inability to provide anyservices required to be provided by Landlord hereunder. If any governmental authority having jurisdiction over the Project imposes mandatory controls, orsuggests voluntary guidelines applicable to the Project, relating to the use or conservation of water, gas, electricity, power, or the reduction of automobileemissions, Landlord, at its sole discretion, may comply with such mandatory controls or voluntary guidelines and, accordingly, require Tenant to so comply.Landlord shall not be liable for damages to persons or property for any such reduction, nor shall such reduction in any way be construed as a partial evictionof Tenant, cause an abatement of Rent, or operate to release Tenant from any of Tenant's obligations under this Lease, except as specifically provided in thisParagraph 9.5. 13 10. Maintenance. 10.1. Tenant's Duties. Tenant shall at its sole cost maintain, repair, replace, and repaint, all in first class condition, the interior of thePremises, all building systems exclusively serving the Premises and located within the Premises or the walls of the Premises, and any damage to the Premisesor the Project resulting from the acts or omissions of Tenant or Tenant's Invitees Tenant shall maintain all communications conduit, equipment, and wiringserving the Premises, whether in the Premises or not (and specifically including all of Tenant’s Work and all wiring, equipment, and conduit located on theroof of the Building), regardless of the ownership of said conduit or wiring, subject to Landlord’s reasonable approval of Tenant’s maintenance/repaircontractor and manner of maintenance/repair. Notwithstanding anything to the contrary contained herein, Tenant shall pay any and all maintenance andrecurring costs for supplemental HVAC units exclusively serving the Premises, or any portion thereof, upon presentation of invoice from Landlord. If Tenantfails to maintain, repair, replace, or repaint any portion of the Premises or the Project as provided above then following ten days’ written notice thereof toTenant, Landlord may, at its election, maintain, repair, replace, or repaint any such portion of the Premises or the Project and Tenant shall promptly reimburseLandlord, as Additional Rent, for Landlord's actual cost thereof, plus a supervisory fee in the amount of ten percent of Landlord’s actual cost.Notwithstanding the foregoing, if following Tenant’s payment (or performance) of its obligations under this Paragraph, Landlord receives payment from aninsurer for such work, Tenant will be entitled to receive such proceeds (after Landlord has first been fully reimbursed for its costs and expenses relativethereto including Landlord’s costs and expenses in obtaining such proceeds) to the extent Tenant previously paid or incurred third party costs relativethereto.. 10.2. Landlord's Duties. Landlord shall, as part of the Operating Expenses, maintain, repair, replace, and repaint, all in good order andcondition, consistent with other first-class office buildings in the vicinity of the Building, the Common Areas and all portions of the interior and exterior ofthe Building and any other buildings in the Project (including, without limitation, all electrical, mechanical, plumbing, fire/life safety, and other buildingsystems), except to the extent of Tenant's obligations as set forth in Paragraph 10.1, above. Landlord's failure to perform its obligations set forth above willnot release Tenant of its obligations under this Lease, including without limitation Tenant's obligation to pay Rent. Tenant waives the provisions ofCalifornia Civil Code Section 1942 (or any successor statute), and any similar principles of law with respect to Landlord's obligations for tenantability of thePremises and Tenant's right to make repairs and deduct the expense of such repairs from rent. If Landlord fails to perform any of its repair and maintenanceobligations under this Paragraph 10.2 and such failure materially and adversely impairs Tenant’s ability to use and occupy the Premises for the Permitted Use,Tenant will have the right, to perform such repairs and/or maintenance to the extent necessary to enable Tenant to resume its use and occupancy of thePremises. Notwithstanding the foregoing, prior to exercising such right, Tenant must, except as provided below in connection with an emergency, have givenLandlord at least 30 days’ prior written notice of the nature of the problem and Tenant’s intention to exercise its rights under this Paragraph if such matter isnot resolved within such 30-day period; provided, however, if the nature of thematter giving rise to such repair or maintenance obligation obligation willreasonably require more than 30 days to remedy and Landlord is proceeding with due diligence to remedy such matter, then such 30 day period will beextended for such additional time as may be necessary for Landlord to complete such repairs or maintenance. Notwithstanding the preceding sentence, in thecase of an emergency which poses an imminent threat of death, injury, or severe damage to persons or property, the required notice from Tenant may beprovided orally rather than in writing and for such shorter period of time (i.e., less than 30 days) as Tenant, in the exercise of its reasonable judgment deemsappropriate under the exigent circumstances (however, at a minimum, Tenant shall at least contact Landlord telephonically prior to commencing such workso that Landlord may, make arrangements to handle such emergency itself). If Landlord fails to fulfill its repair and maintenance obligations under thisParagraph, and as a result thereof Tenant exercises the foregoing right to correct such matter, then Landlord shall reimburse Tenant for the reasonable third-party costs incurred by Tenant to complete such repairs and/or maintenance within 30 days after receipt of Tenant’s written demand therefor, together withcopies of the paid invoices evidencing the costs so incurred. Any such repairs or maintenance performed by Tenant, as permitted herein, must be performed ina good and workmanlike manner by licensed contractors. Under no circumstances may Tenant offset any amount it is owed by Landlord pursuant to thisParagraph (or otherwise) against any Rent obligation under this Lease. 11. Parking. 11.1. General Parking Rights. Subject to the remaining provisions of this Paragraph 11, Landlord grants to Tenant (for the benefit ofTenant and Tenant’s Invitees) the right to the non-exclusive use of the unreserved parking area within the boundaries of and serving the Project (the “ParkingArea”). Tenant's use of the Parking Area shall be subject to such reasonable, non-discriminatory rules as Landlord may, in its sole discretion, adopt from timeto time with respect to the Parking Area, (i) rules providing for the payment of charges or fees by users of the Parking Area , and in such event the charges orfees shall be deemed Additional Rent, (ii) rules limiting tenants of the Project ( Tenant) to the use of, or excluding the use of, certain parking spaces or certainportions of the Parking Area, in order to maintain the availability of accessible parking spaces for clients, guests, and invitees of tenants of the Project, and(iii) rules limiting tenants of the Project (including without limitation Tenant), and their employees, to the use of a restricted number of parking spaces or arestricted area. If Tenant, or any of Tenant's employees, fails to comply with any such rules or requirement (such as, by way of example, parking in areasdesignated as visitor parking only), then Landlord will have the right to either have such vehicles towed from the Project at Tenant's expense, or to chargeTenant $100.00 per day per car for any cars which are parked in violation of such requirements. Furthermore, Landlord shall have the right to immobilizesuch improperly parked vehicles by use of a "boot" or other device. Notwithstanding anything to the contrary in this Paragraph, Landlord may, at its election,construct improvements upon or otherwise alter in any manner the Parking Area, provided that Landlord makes parking available to Tenant elsewhere withinthe Project (or within a reasonable distance from the Premises that is equal to or greater than the applicable ratio described in Paragraph 11.2. below. Landlordreserves the right to grant certain tenants in the Project the exclusive right to park in specified areas of the Parking Area, to the exclusion of all other tenants.Tenant acknowledges that the exercise of the rights reserved to Landlord under this Paragraph may result in a decrease in the number of parking spacesavailable to Tenant and Tenant's Invitees, and no such decrease shall affect Tenant's obligations under this Paragraph or entitle Tenant to any abatement ofRent, provided the applicable parking ratio described in Paragraph 11.2. below, is maintained or exceeded. 14 11.2. Parking Ratios. As of the Rent Commencement Date (and subject to temporary interruptions in connection with Landlord’scontinued development of the Project, as provided below), the parking ratio within the Project applicable to Tenant will be twenty-six (26) spaces based onfour (4) spaces per 1,000 Usable Square Feet (“USF”) of space within the Premises. The foregoing (4:1,000 USF) parking ratio includes all spaces within theProject, including covered, uncovered, reserved, unreserved, handicap, and visitor parking spaces. Of the total spaces described above, a maximum of six (6)of said total spaces may be reserved in the parking garage by Tenant at the rate of $100.00 per space per month during the initial Lease Term. Tenant shallnotify Landlord in writing upon execution of this Lease how many of the six (6) reserved spaces it chooses to reserved, and only those spaces shall bereserved for the entire initial Lease Term All unreserved parking shall be provided on a free and unassigned basis (i.e., first come, first served). 12. Signs. 12.1. General Signage Conditions. Landlord may at any time change the name of either or both of the Building and/or the Project andinstall, affix, and maintain all signs on the exterior and interior of the Building and other buildings within the Project as Landlord may, in Landlord’s solediscretion, desire. Tenant shall not have or acquire any property right or interest in the name of the Building or the Project. Subject to Tenant’s signage rightsunder Paragraph 12.2. below. Tenant may not place, construct, or maintain any sign, advertisement, awning, banner, or other exterior decoration (collectively,“sign”) inside or outside the Premises which is visible from the exterior of the Premises, or on the Building or any other portion of the Project, withoutLandlord's prior written consent. Any sign that Tenant is permitted by Landlord to place, construct, or maintain in the Premises or on the Building or theProject (including pursuant to Paragraph 12.2. below) must comply with Landlord's sign criteria applicable to the Project, including, criteria relating to size,color, shape, graphics, and location (collectively, the “Sign Criteria”), and shall comply with all applicable laws, ordinances, CC&R’s (or similar recordedinstruments), rules, or regulations, and Tenant shall obtain any approvals required by such laws, ordinances, CC&R’s (or similar recorded instruments), rules,and regulations. Landlord makes no representation or warranty with respect to Tenant's ability to obtain any such approval. Tenant shall, at Tenant's solecost, make any changes to any sign, whether in the Premises or on the Building, as required by any new or revised applicable laws, ordinances, rules, orregulations or any changes in the Project Sign Criteria. Tenant shall, additionally, maintain, repair, and replace all of Tenant’s signs (including, specifically,those installed pursuant to Paragraph 12.2. below) in first class condition. Nothing contained in this Paragraph 12 will limit the Landlord’s right to grantsignage rights to other tenants of the Building, or to affect the signage rights of any tenant of the Building. 15 12.2. Tenant's Individual Signage Rights. Subject to compliance with the requirements of Paragraph 12.1, above, Tenant is herebygranted the following signage rights in/on the Building and at the Project. 12.2.1. Directory/Suite Signage. The Building will be provided, at Landlord’s expense, with both a Project-standard lobbydirectory sign and suite signage. Tenant shall be entitled to be listed on such signs, subject to prior approval of the Tenant’s graphics by Landlord, ifapplicable. 13. Rules, Regulations, and Covenants. Tenant shall observe (and shall cause Tenant's Invitees to observe) faithfully and comply strictlywith any rules and regulations which Landlord may from time to time adopt for the Project (and provide Tenant with a copy of), as well as any recordedeasement agreements, maintenance agreements, CC&R’s or like instruments affecting the Building and/or the Project, whether now existing or hereafteradopted or amended from time to time (all of the foregoing, collectively, “Rules”). The current Rules are attached as Exhibit “D”. Landlord has no duty orobligation to enforce any Rule against any other tenant, and Landlord will not be liable to Tenant for violation of any Rule by any other tenant, or any othertenant's agents, employees, officers, independent contractors, customers, invitees, visitors, or licensees. Tenant acknowledges that Landlord reserves the right,from time to time, to enter into leases or other agreements by which Landlord agrees to restrict the use of all or any portion of the Project (including thePremises) from certain uses. All such leases and other agreements, whether now existing or entered into in the future, shall be binding upon Tenant and in noevent shall Tenant utilize the Premises for any use so prohibited; provided, however, no such restriction may prevent Tenant from using the Premises for thePermitted Use. 14. Intentionally Deleted. 15. Tenant’s Liability Insurance. Tenant shall maintain, at Tenant’s sole cost and expense, Commercial General Liability Insurance coveringthe insured against (i) any and all Claims (as defined below) of bodily injury, personal injury and property damage (including loss of use thereof) arising outof or connection with Tenant's use, occupancy and operations within the Premises and Building, and (ii) all contractual liabilities under this Lease, including,without limitation, indemnity provisions contained herein, for limits of liability not less than: Bodily Injury andProperty Damage Liability $2,000,000 each occurrence$4,000,000 annual aggregatePersonal Injury Liability $2,000,000 each occurrence$4,000,000 annual aggregate0% Insured's participation 16. Tenant’s Property Damage Insurance. Tenant shall maintain, at Tenant’s sole cost and expense, Physical Damage Insurance covering (i)all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant'sproperty on the Premises installed by, for, or at the expense of Tenant, (ii) all Tenant improvements (installed and/or constructed per Exhibit “C” attachedhereto), and any other improvements which exist in the Premises as of the Commencement Date (excluding the base building structure and building systems),and (iii) all other improvements, Alterations, Personal Property and additions to the Premises. Such insurance shall be written on an "all risks" of physical lossor damage basis, for the full replacement cost value, new without deduction for depreciation of the covered items and in amounts that meet any co-insuranceclauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalismand malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, coverage with respect to increased costsdue to building ordinances, demolition coverage, boiler and machinery insurance and explosion. Such “full replacement value” shall be determined by theinsurance company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenantmay, at its election, notify the other that it elects to have the replacement value redetermined by an insurance company. Such redetermination shall be madepromptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurancecompany, and Landlord and Tenant shall be promptly notified of the results by the company. Such policy shall be promptly adjusted according to suchredetermination 16 17. Tenant’s Additional Insurance. In addition to the foregoing coverages, Tenant shall maintain, at Tenant’s sole cost and expense: 17.1. Worker's Compensation and Employer's Liability or other similar insurance pursuant to all applicable laws. 17.2. Business Interruption Insurance in amounts sufficient to reimburse Tenant for direct or indirect loss of earnings attributable to allperils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Project as a result of such perils,including, without limitation, reimbursement for payment of rental and all other monetary obligations required herein. 18. Form of Tenant’s Insurance Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no eventlimit the liability of Tenant under this Lease. TheTenant’s liability insurance (i) shall name Landlord, American Assets Trust, Inc. and American Assets Trust,LP. and any other party with an insurable interest in the Project which the Landlord so specifies by written notice to Tenant, as an additional insured,including Landlord's managing agent, American Assets Trust Management, LLC, as such agent may be changed from time to time; (ii) shall cover theliability assumed by Tenant under the indemnification provisions of this Lease; (iii) shall consist of “occurrence” based coverage, without provision forsubsequent conversion to “claims” based coverage; (iv) shall be issued by an insurance company having a rating of not less than A XV in Best's InsuranceGuide or which is otherwise acceptable to Landlord and licensed or approved or permitted to do business in the State of California; (v) shall be primaryinsurance as to all Claims thereunder; (vi) be in form and content reasonably acceptable to Landlord; and (vii) shall provide that said insurance shall not becanceled unless thirty (30) days' prior notice shall have been given to Landlord, and (viii) shall not provide for a deductible or co-insurance provision inexcess of $10,000.00. Tenant shall deliver said policy or policies or certificates thereof or reasonable evidence that such insurance is in place to Landlord onor before the Commencement Date. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at itsoption upon five (5) business days’ notice to Tenant, procure such policies for the account of Tenant unless Tenant provides same within such five (5) dayperiod, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefore. Tenant shall, at least 30 days prior to theexpiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Not more frequently than once every two (2) years, if inthe opinion of Landlord the amount or scope of such insurance at that time is not adequate, Tenant shall increase such insurance as reasonably required byLandlord. 19. Waiver of Subrogation. Landlord and Tenant release each other, Tenant's Invitees, and Landlord's guests, invitees, customers andlicensees (collectively, “Landlord's Invitees”) from all claims for damage, loss, or injury to the Project, to Tenant's Personal Property, and to the fixtures andAlterations of either Landlord or Tenant in or on the Project to the extent such damage, loss or injury is covered by any insurance policies carried byLandlord and Tenant and in force at the time of such damage, or which would have been covered by insurance policies required by this Lease to be carried byTenant, but which Tenant failed to carry. Subject to the remaining provisions of this Paragraph, Landlord and Tenant shall each cause all insurance policiesobtained by it pursuant to this Lease to provide that the insurance company waives all right of recovery by way of subrogation against Landlord and Tenantin connection with any damage, loss, or injury covered by such policy. If any such policy cannot be obtained with a waiver of subrogation, or is obtainableonly by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogationendorsements, the party undertaking to obtain such policy (the “Undertaking Party”) shall so notify the other party (the “Notified Party”). The Notified Partyshall, within ten days after the giving of such notice, either obtain such policy from a company that is reasonably satisfactory to the Undertaking Party andthat will issue such policy with a waiver of subrogation endorsement, or agree to pay the additional premium if such policy is obtainable at additional cost. Ifsuch policy cannot be obtained with a waiver of subrogation endorsement or the Notified Party refuses to pay such additional premium, then the UndertakingParty shall not be required to obtain a waiver of subrogation endorsement with respect to such policy. 17 20. Landlord's Insurance. Landlord shall at all times while this Lease is in effect maintain the following insurance, in such amounts and withsuch limits as Landlord may determine in its reasonable discretion: (i) Public liability and property damage insurance, and products liability insurance; (ii)all risk property insurance insuring the Building. In addition, Landlord may, at its election, maintain any of the following insurance, and any other insurancedeemed appropriate or necessary, in Landlord’s sole discretion, in such amounts and with such limits as Landlord shall determine in its reasonable discretion:(i) coverage with respect to increased costs due to building ordinances, demolition coverage, and sprinkler leakage coverage; (ii) boiler and machineryinsurance; (iii) fidelity insurance; (iv) Plate-glass insurance; (v) earthquake insurance; (vi) terrorism insurance, (vii) flood insurance; and (vii) rentalinterruption and/or business interruption insurance. The premiums, costs, expenses, and deductibles (or similar costs or charges) of and/or with respect to anysuch insurance (all of the preceding, collectively, "Insurance Expenses") shall be included in Operating Expenses. Any such coverage may be part of anumbrella or blanket policy, whereupon the premiums, costs, and expenses hereof will be reasonably apportioned between the Building and the otherproperties so included under such policy(ies). 21. Personal Property Taxes. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied orassessed against, or based upon the value of, Tenant’s personal property installed or located in or on the Premises including without limitation trade fixtures,furnishings, equipment, Alterations, and inventory (collectively, “Tenant’s Personal Property”). On written demand by Landlord, Tenant shall furnishLandlord with satisfactory evidence of such payments. If any such taxes, assessments, license fees, and/or other charges are levied against Landlord orLandlord’s property, or if the assessed value of the Premises is increased by the inclusion of a value placed on Tenant’s Personal Property, and if Landlordpays such taxes, assessments, license fees, and/or other charges or any taxes based on the increased assessments caused by Tenant’s Personal Property, thenTenant, on demand, shall immediately reimburse Landlord, as Additional Rent, for the sum of such taxes, assessments, license fees, and/or other charges solevied against Landlord, or the proportion of taxes resulting from such increase in Landlord’s assessment. Landlord may, at its election, pay such taxes,assessments, license fees, and/or other charges or such proportion, and receive such reimbursement. 22. Alterations. Tenant shall not make any alterations, improvements, additions, installations, or changes of any nature in or to the Premises(any of the preceding, “Alterations”) unless Tenant first obtains Landlord’s written consent to such Alteration and otherwise complies with the provisions ofthis Paragraph 22; provided, however, no such consent will be required in connection with any Minor Alterations (as defined below). 22.1. Request for Consent. At least 15 days prior to making any Alterations, Tenant shall submit to Landlord, in written form, proposeddetailed plans of such Alterations, which plans must (i) in the case of a Minor Alterations, be in sufficient detail to, among other things, provide Landlordwith reasonable evidence that such Alterations are of a nature that Landlord’s consent is not required, and (ii) in the case of any other Alterations, in sufficientdetail to allow Landlord and its consultants to fully evaluate the proposed Alterations and their affect upon the Premises and the Project. Landlord will notunreasonably withhold, condition, or delay its consent to any Alterations for which consent is required; except that, in the case of exterior Alterations orAlterations which will be visible from outside the Premises or which will affect any structural components of the Project, Landlord shall have the right togrant or withhold its consent in the exercise of its sole discretion. In addition to the foregoing requirements, if the proposed Alteration requires approval by ornotice to the lessor of a ground or underlying lease or the holder of a deed of trust encumbering the Project, no Alteration shall be commenced until suchapproval has been received, or such notice has been given, as the case may be, and all applicable conditions and provisions of said superior lease or deed oftrust with respect to the proposed Alteration or Alterations have been met or complied with at Tenant’s expense; and Landlord, if it approves the Alteration,will request such approval or give such notice expeditiously, as the case may be, and thereafter diligently pursue obtaining such approval. 22.2. Minor Alterations. Notwithstanding anything to the contrary contained herein, minor, interior cosmetic Alterations such aspainting, wall papering, carpeting or hanging pictures or moving furniture and temporary partitions or cubicles (the aggregate cost of which will not exceed$10,000.00, and which Alterations will not be visible from outside the Premises or affect any structural components of the Project) will not require Landlord’sprior consent so long as (i) Tenant notifies Landlord in accordance with Paragraph 22.1 (i), and (ii) Tenant complies with all reasonable conditions whichmay be imposed by Landlord including, but not limited to, the requirements of Paragraph 22.3 below, Landlord’s selection of specific contractors orconstruction techniques and the requirements of the attached Exhibit “C.” Any Alterations meeting the foregoing requirements to avoid the necessity ofobtaining Landlord’s consent are referred to herein as a “Minor Alterations.” 18 22.3. Additional Requirements. Tenant shall, prior to the commencement of any Alterations, and at Tenant's sole cost, (i) acquire (anddeliver to Landlord a copy of) any required permit from the appropriate governmental agencies to make such Alterations (any conditions of which permitTenant shall comply with, at Tenant’s sole cost, in a prompt and expeditious manner), (ii) provide Landlord with ten business days’ prior written notice of thedate the installation of the such Alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility, (iii) payLandlord the reasonable costs and expenses of Landlord for architectural, engineering, or other consultants which reasonably may be incurred by Landlord indetermining whether to approve any such Alterations (excluding Minor Alterations), and (iv) if applicable, obtain (and deliver to Landlord proof of)reasonably adequate workers compensation insurance with respect to any of Tenant’s employees installing or involved with such Alterations (whichinsurance Tenant shall maintain on an occurrence basis in force until completion of the Alterations). In addition, Tenant shall comply with all reasonableconditions which may be imposed by Landlord relative to such Alterations including, but not limited to, (v) Landlord’s selection of specific contractors orconstruction techniques and (2) the requirements of the attached Exhibit “C” applicable to Tenant’s Work. Notwithstanding anything to the contrarycontained in this Paragraph 22.3, in no event may Tenant remove any ceiling tiles or ceiling gridwork or lighting without Landlord's prior consent, and anysuch consent may be conditioned upon requiring Tenant to post a deposit to cover the cost of restoring the Premises to their prior condition upon terminationof the Term and to secure Tenant's obligation to so restore the Premises. 22.4. Ownership of Alterations. All Alterations shall, upon the Expiration Date of this Lease, become the property of Landlord and shallremain on and be surrendered with the Premises on the Expiration Date; except that, Landlord may, at its election, require Tenant to remove any or all of theAlterations, provided that Landlord notifies Tenant in writing prior to commencement of the Alterations. If Landlord so elects to have the Alterationsremoved, Tenant shall, at its sole cost, on or before the Expiration Date, repair and restore the Premises to the condition of the Premises prior to theinstallation of the Alterations which are to be removed. Tenant shall pay all costs for Alterations and other construction done or caused to be done by Tenantand Tenant shall keep the Premises free and clear of all mechanics’ and materialmen’s liens resulting from or relating to any Alterations or other construction.Tenant may, at its election, contest the correctness or validity of any such lien provided that within 20 days after written demand by Landlord, Tenantprocures and records a lien release bond, issued by a corporation satisfactory to Landlord and authorized to issue surety bonds in California, in an amountequal to 125% of the amount of the claim of lien, which bond meets the requirements of California Civil Code Section 8424 or any successor statute.22.5. Control over Tenant’s Wi-Fi Use.(a) Wi-Fi. Tenant shall have the right to install, at its sole cost and expense, a wireless intranet, Internet, and communicationsnetwork (also known as “Wi-Fi”) utilizing IEEE 802.XX protocols within the Premises for the use of Tenant and its employees (the “Network”) subject to theprovisions of this Paragraph 22.5 and the other provisions of Paragraph 22. All telecommunications service providers shall be subject to Landlord’s priorwritten approval with Landlord’s said approval not to be unreasonably withheld or delayed.(b) No solicitation. Tenant shall not solicit, suffer, or permit other tenants or occupants of the Building to use the Network or anyother communications service, including, without limitation, any wired or wireless Internet service that passes through, is transmitted through, or emanatesfrom the Premises.(c) Interference. Tenant agrees that the Network, Tenant’s communications equipment and the communications equipment ofTenant’s service providers located in or about the Premises or installed in the Building to service the Premises including, without limitation, any antennas,switches, or other equipment (collectively, “Tenant’s Communications Equipment”) shall be of a type and, if applicable, a frequency that will not cause radiofrequency, electromagnetic, or other interference to any other party or any equipment of any other party including, without limitation, Landlord, othertenants, or occupants of the Building, Landlord reserves the right to cause Tenant to operate on a channel or frequency band that Landlord selects. In theevent that Tenant’s Communications Equipment causes or is believed by Landlord to cause any such interference, upon written receipt of notice fromLandlord of such interference, Tenant will promptly take all steps necessary to correct and eliminate the interference. If the interference is not eliminatedwithin 24 hours (or a shorter period if Landlord believes a shorter period to be appropriate) then, upon notice from Landlord, Tenant shall use other channelsor frequencies as determined solely by Landlord, or, at Landlord’s election, shut down the Tenant’s Communications Equipment pending resolution of theinterference (with the exception of intermittent testing upon prior notice to, and with the prior approval of, Landlord). Landlord shall have no obligation orliability with respect to any interruption, curtailment or discontinuance of telecommunications services. 19 (d) Maintenance. Tenant shall maintain Tenant’s Telecommunications Equipment in good order and repair at its sole cost andexpense.(e) Acknowledgment. Tenant acknowledges that Landlord has granted and/or may grant lease rights, licenses, and other rights toother tenants and/or occupants of the Building and to telecommunications service providers. 23. Surrender of Premises and Holding Over. 23.1. Surrender. On the Expiration Date, Tenant shall surrender to Landlord the Premises and all Alterations (except for Alterations thatTenant is obligated to remove as expressly set forth above) in a first class and clean condition, less any normal wear and tear, free of trash and debrisincluding cleaning of all flooring; all walls shall be patched and painted; all signage installed by Tenant on any portion of the Buildings or Project shall beremoved and the surfaces repaired, including restoration of the signage mounting surfaces to their pre-existing condition; all sign circuits, electrical circuits,and lighting fixtures shall be in good operating condition; all roof penetrations arising from Tenant’s occupancy of the Premises shall be in a watertightcondition; and all doors, windows, locks, and hardware shall be in operable condition upon the termination of this Lease. Tenant shall additionally, as of theExpiration Date, remove all of Tenant's Personal Property and perform all repairs and restoration required by the removal of any Alterations or Tenant'sPersonal Property, and Tenant shall surrender to Landlord all keys to the Premises (including without limitation any keys to any exterior or interior doors).Landlord may elect to retain or dispose of in any manner any Alterations or Tenant's Personal Property that Tenant does not remove from the Premises on theExpiration Date as required by this Lease by giving written notice to Tenant. Any such Alterations or Tenant's Personal Property that Landlord elects to retainor dispose of shall immediately upon notice to Tenant vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting fromLandlord's retention or disposition of any such Alterations or Tenant's Personal Property. Tenant will be liable to Landlord for Landlord's costs for storing,removing (including related restoration work), or disposing of any such Alterations or Tenant's Personal Property. If Tenant fails to surrender the Premises toLandlord on the Expiration Date in the condition required by this Paragraph, Tenant shall indemnify, defend, and hold Landlord harmless from and againstall liabilities, damages, losses, costs, expenses, attorneys' fees and claims resulting from such failure, including without limitation any claim for damagesmade by a succeeding tenant. 23.2. Holding Over. If Tenant, with Landlord's consent, remains in possession of the Premises after the Expiration Date, such possessionby Tenant shall be deemed to be a month-to-month tenancy terminable on 30-days' written notice given at any time by Landlord or Tenant. During any suchmonth-to-month tenancy, or any other holdover tenancy which is without Landlord’s consent, Tenant shall pay, as Basic Monthly Rent, 150% of the BasicMonthly Rent in effect immediately prior to the Expiration Date; which rental amount Tenant acknowledges is fair and reasonable under all of the facts andcircumstances existing as of the date of this Lease. All provisions of this Lease except for those pertaining to Term shall apply to any such tenancy.Acceptance by Landlord of rent after such expiration or earlier termination shall not constitute consent to a holdover tenancy hereunder or result in a renewal.The foregoing provisions this Paragraph 23.2 are in addition to, and do not affect, Landlord’s right of re-entry or any rights of Landlord hereunder or asotherwise provided by law. Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in thisLease upon expiration or other termination of this Lease. The provisions of this Paragraph 23.2 shall not be considered to limit or constitute a waiver of anyother rights or remedies of Landlord provided in this Lease or at law. 24. Default. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant (each an “Event ofDefault”): 24.1. The abandonment (as defined in the California Civil Code 1951.3) of the Premises by Tenant. 20 24.2. Tenant's failure to make any payment of Rent (including late charges) as and when due. No grace period prior to the imposition ofa late charge pursuant to Paragraph 26 below, shall extend the date when such Rent is due and payable, and Tenant shall be in default under this Lease if suchpayment is not timely made. In the case of Basic Monthly Rent, payments must be received on or before the first day of each calendar month, and Tenantshall be in default if such Rent is not paid by such date. 24.3. Tenant’s failure to timely deliver an estoppel certificate to Landlord in accordance with the provisions of Paragraph 41, below, ora subordination, non-disturbance, and attornment agreement in accordance with Paragraph 40, below. 24.4. Tenant’s failure to observe or perform any of the provisions of this Lease to be observed or performed by Tenant, other thandescribed in the preceding three paragraphs, where such failure shall continue for a period of ten days after written notice of such failure from Landlord toTenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under applicable unlawful detainer statutes;and provided further, that if the nature of Tenant's default is such that more than ten days are reasonably required for its cure, then Tenant shall not be deemedto be in default if Tenant commenced such cure within such ten day period and thereafter diligently prosecutes such cure to completion within 60 days afterLandlord's written notice. Such written notice will be deemed to satisfy the statutory notice requirements of applicable unlawful detainer statutes and will bein lieu thereof (and not in addition thereto). 24.5. Intentionally Deleted. 24.6. Tenant's failure to deliver to Landlord, within ten days after Landlord's written request but not more than once per calendar year,any financial statement of Tenant (including without limitation a current annual balance sheet of Tenant) reasonably requested by Landlord, or if anyfinancial statement given to Landlord by Tenant, or by any assignee, subtenant, or guarantor of Tenant, is materially false or evidences that Tenant's networth is negative, and Tenant fails to furnish to Landlord, within ten days after written notice from Landlord to Tenant, with cash as an additional securitydeposit in an amount equal to the aggregate Rental payable under this Lease for the six full calendar months immediately following such notice. 24.7. The making by Tenant of any general arrangement or assignment for the benefit of creditors; Tenant's becoming bankrupt,insolvent or a “debtor” as defined in 11 U.S.C. Section 101, or any successor statute (unless, in the case of a petition filed against Tenant, such petition isdismissed within 60 days after its original filing); the institution of proceedings under the bankruptcy or similar laws in which Tenant is the debtor orbankrupt; the appointing of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in thisLease (unless possession is restored to Tenant within 60 days after such taking); the attachment, execution, or judicial seizure of substantially all of Tenant'sassets located at the Premises or Tenant's interest in this Lease (unless such attachment, execution, or judicial seizure is discharged within 60 days after suchattachment, execution, or judicial seizure); or, if Tenant is a partnership or consists of more than one person or entity, any partners of the partnership or anysuch other person or entity becoming bankrupt or insolvent or making a general arrangement or assignment for the benefit of creditors. 24.8. Notwithstanding the foregoing, if (i) Tenant commits two similar defaults during any 12-month period or less, (ii) Tenant receivesnotices of default on each separate occasion, and (iii) each such default could have been cured within a 24-hour period from the date Tenant received noticeof such default, then, as to any further, similar default that thereafter occurs during the same 12-month period. Landlord may treat such default as an Event ofDefault and exercise its remedies under Paragraph 26, below, without giving Tenant any further notice of default or opportunity to cure. 25. Landlord's Remedies. Landlord shall have the following remedies if Tenant commits an Event of Default under this Lease. Theseremedies are not exclusive, but are cumulative and in addition to any remedies provided elsewhere in this Lease or now or later allowed by law. 25.1. Continuation of Lease. No act by Landlord shall terminate Tenant's right to possession unless Landlord notifies Tenant in writingthat Landlord elects to terminate Tenant's right to possession. As long as Landlord does not terminate Tenant's right to possession, Landlord may (i) continuethis Lease in effect, (ii) continue to collect Rent when due and enforce all the other provisions of this Lease, and (iii) enter the Premises and relet them, or anypart of them, to third parties for Tenant's account, for a period shorter or longer than the remaining Term of this Lease. Tenant shall immediately pay toLandlord all costs Landlord incurs in such reletting, including, brokers' commissions, attorneys' fees, advertising costs, and expenses of remodeling thePremises for such reletting. The parties agree that Landlord is to have the remedy described in California Civil Code Section 1951.4 (which effectivelyprovides that a lessor may continue a lease in effect after the lessee’s breach and recover rent as it becomes due), and the Tenant hereby acknowledges thatthis Lease meets the requirements of such statutory provision and that Tenant’s rights to sublet or assign hereunder are subject only to reasonable limitations. 21 25.2. Rent from Reletting. If Landlord elects to relet all or any portion of the Premises as permitted above, rent that Landlord receivesfrom such reletting shall be applied to the payment of, in the following order and priority, (i) any indebtedness from Tenant to Landlord other than Rent duefrom Tenant, (ii) all costs incurred by Landlord in such reletting, and (iii) Rent due and unpaid under this Lease. After applying such payments as referred toabove, any sum remaining from the rent Landlord receives from such reletting shall be held by Landlord and applied in payment of future Rent as it becomesdue under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord unless and until all obligations of Tenant under this Lease,including all future obligations, are satisfied in full. 25.3. Termination of Tenant's Right to Possession. Landlord may terminate Tenant's right to possession of the Premises at any time, bynotifying Tenant in writing that Landlord elects to terminate Tenant's right to possession. Such written notice will result in the immediate termination of thisLease upon the date such right of possession is terminated. Upon termination of this Lease, Landlord has the right to recover from Tenant (i) the worth at thetime of the award of the unpaid Rent which had been earned at the time of such termination, (ii) the worth at the time of the award of the amount by which theunpaid Rent which would have been earned after such termination until the time of award exceeds the amount of such loss of Rent that Tenant proves couldhave been reasonably avoided, (iii) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time ofaward (had there been no such termination) exceeds the amount of such loss of Rent that Tenant proves could be reasonably avoided, and (iv) any otheramount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or in theordinary course of things would be likely to result therefrom. The “worth at the time of the award” of the amounts referred to in clauses (i) and (ii) above is tobe computed by allowing interest at the Default Rate. The “worth at the time of the award” of the amount referred to in clause (iii) above is to be computed bydiscounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. 25.4. Landlord's Right to Cure Default. Landlord, at any time after Tenant commits an Event of Default, may cure such Event of Defaultat Tenant's sole cost. If Landlord at any time, by reason of Tenant's default or breach, pays any sum or does any act that requires the payment of any sum, suchsum shall be due immediately from Tenant to Landlord at the time such sum is paid, along with a supervisory fee in the amount of ten percent of such amountso expended by Landlord, and shall be deemed Additional Rent under this Lease. If Tenant fails to timely pay any amount due under this Paragraph withinten business days of receipt of Landlord’s invoice for such costs, then (without curing such default) interest at the Default Rate shall accrue (and beimmediately payable) on such overdue amount until it is paid. 25.5. Enforcement Costs. All costs and expenses incurred by Landlord in connection with collecting any amounts and damages owingby Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, including reasonable attorneys' fees, whether or not any action iscommenced by Landlord, shall be paid by Tenant to Landlord upon demand. If Tenant fails to timely pay any amount due under this Paragraph, then(without curing such default) interest at the Default Rate shall accrue (and be immediately payable) on such overdue amounts until it is paid. 26. Interest and Late Charges. Late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by thisLease, the exact amount of which would be impracticable or extremely difficult to fix. Such costs include, processing, collection and accounting charges, andlate charges that may be imposed on Landlord by the terms of any deed of trust covering the Premises. Therefore, if any Rent (in the form of good funds) isnot received by Landlord within ten days of its due date, then, without any requirement for notice to Tenant, Tenant shall owe and pay to Landlord anadditional sum of ten percent of such overdue amount as a late charge. Such late charge represents a fair and reasonable estimate of the costs that Landlordwill incur by reason of any late payment by Tenant, and therefore this Paragraph is reasonable under the circumstances existing at the time this Lease is made.Acceptance of such late charge by Landlord shall not constitute a waiver or cure of Tenant's default with respect to such overdue amount, nor preventLandlord from exercising any of the other rights and remedies available to Landlord under this Lease. In addition to the late charge payable by Tenant, asprovided above, if any such Rent is not paid within 30 days of the date such Rent was due, then Tenant shall pay to Landlord interest on such overdue Rent(from such 30th day until all amounts, including interest, are paid in full) at the rate of seven percent above the “reference rate” announced from time to timeby Bank of America, NT&SA (the “Default Rate”). If such reference rate ceases to be announced, then a comparable “prime rate” shall be utilized, as selectedby Landlord. 22 27. Landlord Default – Tenant’s Remedies. If Landlord fails to cure a default by Landlord within any applicable cure period (or if no cureperiod is specified, then within 30 days of written notice from Tenant setting forth the nature of the claimed default; provided, however, if the nature of thecure of such default will reasonably require more than 30 days to complete and Landlord is proceeding with due diligence to remedy such matter, then such30 day period will be extended for such additional time as may be necessary for Landlord to complete such cure), Tenant may, as Tenant’s sole remedy,remedy such default, whereupon Landlord shall reimburse Tenant for the reasonable third-party costs incurred by Tenant to remedy such default within 30days after receipt of Tenant’s written demand therefor, together with copies of the paid invoices evidencing the costs so incurred. In no event will Tenanthave any right to offset any amount owed by Landlord (regardless of whether Landlord is in default hereunder) against Tenant’s monetary obligations underthis Lease). 28. Intentionally Deleted 29. Destruction. If the Building is totally or partially destroyed during the Term, rendering the Premises totally or partially inaccessible orunusable, then, subject to the remainder of this Paragraph, (i) Landlord shall promptly commence work necessary to restore the Building to substantially thesame condition as it was in immediately before such destruction and shall diligently prosecute such restoration work until completed, (ii) Landlord shall notbe required to restore Tenant's Alterations or Tenant's Personal Property, unless they are an integral part of the Premises and they are specifically covered byinsurance proceeds received by Landlord, such excluded items being the sole responsibility of Tenant to restore, (iii) such destruction shall not terminate thisLease (except as provided below), and (iv) all obligations of Tenant under this Lease shall remain in effect, except that the Basic Monthly Rent andAdditional Rent shall be abated or reduced, between the date of such destruction and the date of Substantial Completion of restoration, by the ratio of (a) theRentable Square Footage of the Premises rendered unusable or inaccessible by the destruction, to (b) the Rentable Square Footage of the Premises prior tosuch destruction. (The term "Substantial Completion" as used herein will mean completed to such an extent that the Premises may be used by Tenant for thePermitted Use, subject only to punchlist or correction items, and the restoration can be finally completed within 60 days and without material interference toTenant's occupancy and use of the Premises.) Notwithstanding anything to the contrary in this Paragraph, either party shall have ten business days from thedate of Landlord’s determination that this sentence applies to the subject destruction/reconstruction, in which to terminate this Lease if Landlord determinesthat (1) it will likely take more than either (A) 330 days following the date of such casualty, or (B) 270 days from obtaining all required permits for suchreconstruction, in which to complete such work, (2) such destruction (which is not de minimus in nature) occurs during the last year of the Term, or (3) then-existing laws do not permit such restoration. Additionally, Landlord may, at its election, terminate this Lease by so notifying Tenant in writing on or beforethe later of 60 days after such destruction or 30 days after Landlord's receipt of the proceeds (or written notice of the amount of proceeds) from insurancemaintained by Landlord, if (l) such destruction exceeds 20% of the then-replacement value of the Premises, the Building, or the Project, or (ll) Landlordreasonably determines that the cost of such restoration will exceed the amount of insurance proceeds relating to such destruction actually received byLandlord from insurance maintained by Landlord, excluding deductibles, by more than five percent of such cost of restoration. If Landlord or Tenant soterminates this Lease, then (x) Landlord shall have no obligation to restore the Project , (y) Landlord shall retain all insurance proceeds under Landlord’smaintained policies relating to such destruction, and (z) this Lease shall terminate as of 30 days after such notice of termination from Landlord to Tenant.Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) or any successor statute with respect to any destruction of thePremises. If Landlord restores the Premises following any such destruction, Tenant shall immediately refixturize, re-equip, and (if applicable) restock thePremises and shall re-open the Premises for business as soon thereafter as is reasonably practicable. If Tenant does not intend to so reopen the Premises forbusiness, it must notify Landlord in writing within 20 business days of such damage or destruction, whereupon Landlord may cease its repair work andterminate this Lease. Additionally, if Landlord fails to Substantially Complete such restoration work within two hundred seventy (270) days, Tenant may, by30 days’ written notice to Landlord delivered after such year (during which period of time such restoration is not Substantially Completed), terminate thisLease. 23 30. Condemnation. If during the Term, or during the period of time between the execution of this Lease and the Lease Commencement Date,there is any taking of all or any part of the Premises or any interest in this Lease by the exercise of any governmental power, whether by legal proceedings orotherwise, by any public or quasi-public authority, or private corporation or individual, having the power of condemnation (any of the preceding a“Condemnor”), or a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings forcondemnation are pending (any of the preceding, a “Condemnation”), the rights and obligations of Landlord and Tenant shall be determined pursuant to thisParagraph. If such Condemnation is of the entire Premises, then this Lease shall terminate on the date the Condemnor takes possession of the Premises (the“Date of Condemnation”). If such Condemnation is of any portion, but not all, of the Premises, then this Lease shall remain in effect, except that, if theremaining portion of the Premises is rendered unsuitable for Tenant's continued use of the Premises as conducted prior to Condemnation, then Tenant mayelect to terminate this Lease, by so notifying Landlord in writing (the “Termination Notice”) within 30 days after the date that the nature and extent of theCondemnation have been determined. Such termination shall be effective on the earlier of (i) the date that is 30 days after the giving of the TerminationNotice, or (ii) the Date of Condemnation. If Tenant does not give to Landlord the Termination Notice within such 30-day period, then all obligations ofTenant under this Lease shall remain in effect, except that (unless the Premises are restored as set forth below) Basic Monthly Rent and Tenant’s Share ofOperating Expenses shall be reduced by the ratio of (a) the Rentable Square Footage of the Premises taken to (b) the Rentable Square Footage of the Premisesimmediately prior to the Date of Condemnation. Notwithstanding anything to the contrary in this Paragraph, if, within 30 days after Landlord's receipt of theTermination Notice, Landlord notifies Tenant that Landlord at its cost will add to the remaining Premises (or substitute for the Premises other comparablespace in the Project) so that the Rentable Square Footage of the Premises will be substantially the same after the Condemnation as they were before theCondemnation, and Landlord commences the restoration promptly and completes it within 150 days after Landlord so notifies Tenant, then all obligations ofTenant under this Lease shall remain in effect, except that Basic Monthly Rent and Additional Rent shall be abated or reduced during the period from theDate of Condemnation until the completion of such restoration by the ratio of (A) the Rentable Square Footage of the Premises taken to (B) the RentableSquare Footage of the Premises immediately prior to the Date of Condemnation. Unless Landlord restores the Premises pursuant to the preceding sentence, orunless Tenant gives to Landlord the Termination Notice within the relevant 30-day period, Tenant at its sole cost shall accomplish any restoration requiredby Tenant to use the Premises. A temporary Condemnation of the Premises, or any part of the Premises, for less than 180 days, shall not constitute aCondemnation under this Paragraph; but the Basic Monthly Rent and Tenant’s Share of Operating Expenses shall abate as to the portion of the Premisesaffected during such temporary Condemnation, including any portion of the Premises rendered unsuitable for Tenant’s continued use as conducted prior tothe Condemnation. All compensation, sums, or anything of value awarded, paid, or received on a total or partial Condemnation (the “Award”) shall belong toand be paid to Landlord. Tenant shall have no right to any part of the Award, and Tenant hereby assigns to Landlord all of Tenant's right, title, and interest inand to any part of the Award, except that Tenant shall receive from the Award any sum paid expressly to Tenant from the Condemnor for Tenant’s PersonalProperty or for severance damages. Landlord and Tenant waive the provisions of any statute (including without limitation California Code of Civil ProcedureSection 1265.130 or any successor statute) that allows Landlord or Tenant to petition the superior court (or any other court) to terminate this Lease in theevent of a partial Condemnation of the Premises. 31. Assignment and Other Transfers. 31.1. Restriction on Transfer. Without Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned ordelayed and except as permitted by Paragraph 31.3, below, none of the following shall occur (nor be permitted by Tenant to occur), voluntarily,involuntarily, by operation of law, or otherwise (any of the following, a “Transfer”): (i) any assignment, sublease, disposition, sale, concession, license,license agreement for the use of any portion of the Premises, mortgage, encumbrance, hypothecation, pledge, collateral assignment, or other transfer, byTenant of this Lease, any interest in this Lease, or all or any portion of the Premises; or (ii) any assignment, disposition, sale, transfer, acquisition, or issuanceof equitable interests (whether stock, partnership or otherwise) in Tenant, to or by any person, entity, or group of related persons or affiliated entities, whetherin a single transaction or in a series of related or unrelated transactions, which results in such person, entity, or group holding (or assigning, transferring,disposing of, or selling) 50% or more of the aggregate issued and outstanding equitable interests in Tenant. 24 31.2. Transfer Provisions Generally. 31.2.1. Landlord shall not be liable in damages to Tenant or to any proposed subtenant, assignee or other transferee (any of thepreceding a “Proposed Transferee”) if such consent is adjudicated to have been unreasonably withheld, and, in such event, Tenant's sole remedy shall be tohave the proposed Transfer declared as valid as if Landlord's consent had been given, although Tenant shall be entitled to reasonable attorney's fees if Tenantis the prevailing party in such litigation. At least 30 days prior to entering into any proposed Transfer, Tenant shall submit to Landlord the sum of $500.00(as payment toward Landlord's and Landlord's attorneys' cost of reviewing, consenting to, rejecting and/or consummating any proposed Transfer), and awritten notice (“Tenant's Notice”) which includes (i) a fully executed copy of the instrument of transfer (i.e., the sublease or assignment) relating to theproposed Transfer, along with all related agreements, documents, instruments, exhibits, and escrow instructions, (ii) the name and address of the ProposedTransferee, (iii) an abstract of the terms and conditions of the proposed Transfer, including without limitation the economics of such Proposed Transfer andthe commencement or effective date of the proposed Transfer, which shall be at least 30 days after Tenant's Notice is given, and (iv) the nature, character, andcurrent banking, financial, and other credit information and references with respect to the Proposed Transferee and the business of the Proposed Transferee(including without limitation tax returns for the three most-recent years, a business plan with cash-flow projections and financial projections withassumptions and competitive market analysis), in reasonably sufficient detail to enable Landlord to determine the Proposed Transferee's financialresponsibility. 31.2.2. Within 30 days after Landlord's receipt from Tenant of such sum and Tenant's Notice, and all documentation requested ofTenant by Landlord, Landlord shall notify Tenant whether Landlord has consented to the proposed Transfer. Any consent by Landlord to any proposedTransfer shall not constitute a consent with respect to any other Transfer. If Landlord consents to any proposed Transfer, and Tenant fails to consummate suchTransfer within 30 days of the commencement or effective date of the proposed Transfer (as set forth in Tenant's Notice) or, if Tenant’s Notice fails to identifysuch a date, then within 150 days of the Tenant’s Notice, then such consent shall be deemed withdrawn and Tenant shall be required again to comply withthis Paragraph before making a Transfer. Landlord shall not have unreasonably withheld its consent with respect to any Transfer if (among other things)Landlord shall not have received such sum or Tenant's Notice, if the nature or character of the Proposed Transferee is not in keeping with the dignity andcharacter of the Building and the surrounding area, if the Proposed Transferee’s proposed use is materially and adversely different than the Permitted Use orTenant’s prior use, if the proposed Transfer will result in the diminution of the value or marketability of the Building or the Project, if Landlord is notreasonably satisfied that the Proposed Transferee is creditworthy, or if the proposed Transfer will conflict with or result in a breach of any of the provisions of,or constitute a default under, any agreement, instrument, or document to which Landlord is a party or by which the Project may be bound. No Transfer shallrelease or discharge Tenant from any liability, whether past, present, or future, under this Lease and Tenant shall continue to remain directly and primarilyliable under this Lease (and not as a mere surety); provided, however, as a condition to granting consent to any assignment (or like Transfer) Landlord mayrequire the assigning Tenant to execute a guaranty on Landlord's standard form—which guaranty shall serve to release such assigning Tenant from directliability hereunder and such assigning Tenant will then only have liability for matters first accruing under this Lease thereafter pursuant to such guaranty.Tenant irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent and other amounts generated from any Transfer, andLandlord, as assignee and as special attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and otheramounts and apply them toward Tenant's obligations under this Lease; except that, unless a default occurs under this Lease, Tenant shall have the right tocollect such rent and other amounts. 31.2.3 Unless otherwise agreed to by all parties, the Tenant's Security Deposit (if any) shall be retained by Landlord and returnedto the lawful tenant in possession of the Premises at the time of the Lease termination, subject to the terms and conditions of Paragraph 6 of this Lease. AnyTransfer documentation shall contain the following provisions, which provisions whether contained in such Transfer documentation or not, shall apply tosuch Transfer: (a) Such Transfer shall be subject and subordinate to, and bound by, all provisions of this Lease; (b) No Proposed Transferee shall be permittedto enter into any Transfer without Landlord's prior written consent; and (c) At Landlord's option, in the event of cancellation or termination of this Lease forany reason or the surrender of this Lease, whether voluntarily, involuntarily, by operation of law or otherwise, prior to the expiration of such Transfer, theProposed Transferee shall make full and complete attornment to Landlord for the balance of the term of such Transfer. Such attornment shall be evidenced byan agreement in form and substance reasonably satisfactory to Landlord that the Proposed Transferee shall execute and deliver to Landlord within five daysafter request by Landlord. 25 31.2.4. Tenant shall promptly reimburse Landlord for Landlord's reasonable cost (less the $500.00 previously paid) of reviewing,consenting to, rejecting and/or consummating any proposed Transfer, including without limitation reasonable attorneys' fees and costs/fees of Landlord’sLender in connection therewith. If Tenant fails to pay such amount within twenty business days of written demand, Tenant shall be in default hereunder andLandlord shall have the right, in addition to its other rights and remedies under this Lease, to revoke its prior approval of the proposed Transfer if suchProposed Transferee has not yet taken over possession of the Premises. 31.3. Excess Rent and Recapture. Tenant shall promptly pay to Landlord, as and when received, 50% of all rents and otherconsideration after all of Tenant’s reasonable third-party expenses incurred in connection with such Transfer are deducted, of whatever nature, payable by theProposed Transferee (or receivable by Tenant) pursuant to or as a result of any Transfer, which exceed (i) in the case of a sublease of a portion of the Premises,the portion of the Basic Monthly Rent that is allocable to the portion of the Premises subleased (such allocation based on the Rentable Square Footage of theportion subleased), or (ii) in the case of any other Transfer, the Basic Monthly Rent. Landlord additionally has the right, in the event Tenant indicates in theTenant’s Notice that it desires to assign this Lease or sublet greater than 50% of the Premises, at its election, by giving written notice (the “RecaptureNotice”) to Tenant within 15 days after receipt of Tenant’s Notice, to recapture the Premises and terminate this Lease. If Landlord elects to exercise such rightand delivers a Recapture Notice to Tenant, this Lease shall automatically be deemed terminated as of the commencement or effective date stated in Tenant’sNotice for the proposed Transfer, and Tenant shall surrender possession of the Premises as of such date (and any failure to do so shall constitute a defaulthereunder); provided that, Tenant may in a written notice given within 15 days after receipt of the Recapture Notice withdraw the Tenant’s Notice, whichshall thereafter be deemed of no force or effect.. Landlord’s giving of a Recapture Notice shall not constitute Landlord’s consent to Tenant’s proposedTransfer. 31.4. Permitted Transferee. Notwithstanding anything to the contrary contained in Paragraphs 31.1 or 31.3, above, no consent ofLandlord will be required for, and no amounts will be payable to Landlord in connection with, any assignment or subletting to any of the following (any ofwhich will constitute a “Permitted Transferee”): 31.4.1. Any parent, wholly-owned subsidiary, or other company of which Tenant owns all or substantially all of the voting andbeneficial interests, or which company owns all or substantially all of the voting and beneficial interests in Tenant, and which parent, subsidiary, or othercompany has a net worth (determined in accordance with GAAP) equal to or greater than Tenant’s net worth as of the day before such transaction or as of theLease Commencement Date, whichever is less; 31.4.2. Any surviving or successor entity resulting from a merger, consolidation, or sale of substantially all of the assets ofTenant, where the net worth of the resulting or acquiring company exceeds (as determined in accordance with GAAP), the net worth of the Tenant as of theday prior to such transaction or as of the Lease Commencement Date, whichever is less; or 31.4.3. Any sale of stock as part of a “public offering” on one of the nationally recognized securities exchanges (such as,without limitation, NYSE or NASDAQ). 26 Notwithstanding the foregoing, and as a condition precedent to the effectiveness of any such Transfer to a Permitted Transferee under Sections31.4.1 or 31.4.2, at least 20 days prior to any proposed Transfer to a Permitted Transferee, Tenant shall notify Landlord in writing of its intention to undertakesuch a Transfer and provide Landlord with sufficient information to confirm that such entity will in fact be a Permitted Transferee and the assigning Tenantshall execute Landlord's form guaranty—which guaranty shall serve to release such assigning Tenant from direct liability hereunder and such assigningTenant will then only have liability for matters first accruing under this Lease thereafter pursuant to such guaranty (it being understood that if such assigningTenant fails to execute such a Guaranty, then such assignment shall constitute an Event of Default, such Transfer will be void, and such assigning Tenantshall remain primarily liable hereunder). Landlord shall keep all such information confidential. Other than the right to engage in such a Transfer to aPermitted Transferee without Landlord’s consent, all other provisions of Paragraph 31.2 shall apply to such a Transfer under Sections 31.4.1 or 31.4.2. 32. Landlord’s Reserved Rights. 32.1. General Rights Reserved. In addition to the specific reserved rights identified in Paragraph 32.2, below, Landlord, as owner of theProject, in addition to Landlord’s other rights, reserves the right from time to time: (i) to temporarily utilize portions of the Common Areas for, among otherthings, entertainment, outdoor shows, displays, automobile and other product shows, the leasing of kiosks, or such other uses which, in Landlord’s reasonablejudgment, are appropriate; (ii) to utilize the lighting standards and other areas or improvements in the Common Areas for advertising, notice purposes, orother reasonable purposes; (iii) to close any of the Common Areas to the extent required in the opinion of Landlord's legal counsel to prevent a dedication ofany of the Common Areas or the accrual of any rights to any person or to the public in and to any portion of the Common Areas; (iv) to close, temporarily,any of the Common Areas for maintenance purposes; (v) to designate other property outside the boundaries of the Project to become part of the CommonAreas; (vi) to close off or otherwise utilize portions of the Common Areas while constructing improvements or making repairs or alterations to any portion ofthe Project; (vii) to utilize portions of the Common Areas, on a temporary basis, as a staging area for any construction work by Landlord or its affiliates,agents, tenants, or contractors; and (viii) to make any changes to the Common Areas, or any part of the Project, including without limitation changes tobuildings or other improvements, the addition of new buildings or other improvements, and/or changes in (among other things) the location of driveways,entrances, exits, vehicular parking spaces, or the direction of the flow of traffic. In exercising such rights, Landlord agrees that (1) it will not materiallyadversely interfere with Tenant's use of the Premises and further agrees to use commercially reasonable efforts to minimize any lesser interference withTenant's use of the Premises caused by the exercise of such rights; and (ii) in the event Landlord elects to close or restrict access to a material portion of theparking area pursuant to the rights reserved under this Paragraph 32.1, Landlord will provide substitute unreserved parking at no cost to Tenant. 32.2. Future Construction. Tenant acknowledges that, as more particularly provided below, the development of the Project iscontinuing and may, at Landlord’s election, include the construction of additional buildings and improvements within the Project, including in areas whichcurrently constitute Common Areas. Tenant is entering into this Lease with a full understanding of the possible ramifications/effects of such futuredevelopment work on its tenancy and the rental charged hereunder takes such factors into account. Tenant further acknowledges and agrees that Landlordmay, from time to time, at its sole election, construct (including, without limitation, additional buildings), reconstruct (including without limitation thereplacement of certain improvements with other improvements), improve (including tenant improvements), modify, expand, or otherwise alter the Project(collectively, “Construction Work”), or portions thereof (in no event however will Landlord have any obligation to do so). Tenant acknowledges that anysuch Construction Work will necessarily involve, among other things, the generation of noise, dust, and vibrations, barricading portions of the Project andthe placement of scaffolding within the Project, demolition, structural alterations, storage of materials and equipment within the Project, and the presence ofworkmen within the Project, all of which may require the rearrangement of the Common Areas, including, without limitation, landscaping, parking areas(which may include the provision of temporary parking areas during periods of construction), roadways, lighting facilities, and the re-direction of vehicularand pedestrian traffic. Further, Landlord hereby reserves such licenses and easements in, on, above or below the Premises as may be reasonably required (i) forthe installation, inspection, surveying, maintenance, or construction of mains, conduits, shafts, columns, footings, piers, pipes or other facilities to serve anybuilding within the Project, or (ii) for any Construction Work; provided, however, Landlord will use its good faith efforts to minimize any unreasonableinterference with Tenant’s use, occupancy, or enjoyment of the Premises as contemplated by this Lease. Except as provided below, Tenant waives any and allclaims, defenses, rights of offset, or deductions based upon any inconvenience suffered by Tenant or any interruption of or interference with Tenant’sbusiness including, without limitation, any loss of business, damage to property, loss of electronic information, or inconvenience to Tenant or Tenant’sInvitees as a result of or relating to such Construction Work. Landlord hereby reserves for itself and its agents, employees, licensees and contractors, the rightto enter the Premises to the extent reasonably necessary to pursue such Construction Work upon 24 hours’ prior notice to Tenant. The exercise of any ofLandlord’s rights pursuant to this Paragraph will not entitle Tenant to any abatement of Rent or other claim, right of offset, or defense against Landlord,except that (a) Tenant shall have the right (subject to the provisions of Paragraph 19) to bring an action against Landlord (as Tenant’s sole remedy) in theevent Tenant suffers any damages as a result of Landlord’s gross negligence or intentional misconduct in pursuing such Construction Work, and (b) if suchConstruction Work results in Tenant being unable to access the Premises, or portions thereof, for the Permitted Use for a period of greater than five businessdays, Tenant shall be entitled to equitable abatement of the Rent for such period of time during which it is unable to access the Premises. Tenant furtheracknowledges that expansion of the Project may affect the amount of the Lease Expenses and the portion thereof payable by Tenant. . In exercising suchrights, Landlord agrees that (1) it will not materially adversely interfere with Tenant's use of the Premises and further agrees to use commercially reasonableefforts to minimize any lesser interference with Tenant's use of the Premises caused by the exercise of such rights; (ii) subject to Paragraph 11, Landlord willnot materially adversely interfere with Tenant's parking rights; and (iii) in the event Landlord elects to close or restrict access to a material portion of theparking area pursuant to the rights reserved under this Paragraph 32.1, Landlord will provide substitute unreserved parking at no cost to Tenant. 27 32.3. Intentionally Deleted. 33. Easements. Landlord may, at its election, from time to time, grant such easements, rights and dedications, and cause the recordation ofparcel maps, easement and operating agreements, and restrictions affecting the Premises and the Project, provided that no such acts materially and adverselyaffect Tenant’s rights of ingress or egress to the Building and the Premises or Tenant’s right to use the Premises. Tenant shall promptly sign any documents orinstruments to accomplish the foregoing upon request by Landlord. Tenant irrevocably appoints Landlord as Tenant’s special attorney-in-fact to execute anddeliver such documents or instruments on behalf of Tenant if Tenant refuses or fails to do so within ten days of written request. 34. Access by Landlord. Landlord and any of Landlord's Invitees shall have the right to enter the Premises at all reasonable times, duringnormal business hours if feasible under the circumstances, and upon 24 hours’ notice, if feasible under the circumstances, (i) to determine whether thePremises are in good condition and whether Tenant is complying with its obligations under this Lease, (ii) to do any necessary maintenance or make anyrestoration to the Premises that Landlord has the right or obligation to perform, (iii) to serve, post, or keep posted any notices required or allowed under thisLease, (v) to post “for sale” or “for rent” or “for lease” signs during the final nine months of the Term, (vi) to show the Premises to brokers, lenders, agents,prospective buyers, prospective tenants, or other persons interested in a listing of, financing, purchasing, or occupying the Project, the Premises or anyportion of the Project or the Premises, and (vii) to shore the foundations, footings, and walls of the Project, and to erect scaffolding and protective barricadesaround and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of thePremises if any excavation or other construction is undertaken or is about to be undertaken on any adjacent property or nearby street. In the event of anemergency Landlord shall have the right to enter the Premises at any time, without prior notice to Tenant. Landlord's rights under this Paragraph extend, withLandlord's consent, to the owner of adjacent property on which excavation or construction is to take place and the adjacent property owner's agents,employees, officers, and contractors. Landlord shall not be liable for any inconvenience, disturbance, loss of business, nuisance, or other damage arising outof any entry on the Premises as provided in this Paragraph except damage resulting directly from the grossly negligent acts or willful misconduct of Landlordor Landlord's Invitees. Tenant shall not be entitled to any abatement or reduction of Basic Monthly Rent or other Rent because of the exercise by Landlord ofany rights under this Paragraph. 35. Indemnity. Tenant hereby agrees to indemnify, defend, protect, and hold harmless Landlord and its shareholders, officers, directors,agents, property managers, employees, contractors, and the partners comprising Landlord (if any) from and against all Claims (as defined below) and all costs,expenses, and attorneys' fees incurred in the defense or handling of any such Claims or any action or proceeding brought on any of such Claims. For purposesof this Lease, the term “Claims” shall mean all liabilities, damages, losses, costs, expenses, attorneys' fees, and claims (except to the extent they result fromLandlord's negligent acts or willful misconduct) arising from or which seek to impose liability under or because of (i) Tenant's or Tenant's Invitees' use of thePremises, (ii) the conduct of Tenant's business, (iii) any activity, work, or things done, permitted, or suffered by Tenant or any of Tenant's Invitees in or aboutthe Premises or elsewhere, (iv) any breach or default in the performance of any obligation to be performed by Tenant under this Lease, and/or (v) anynegligence of Tenant or any of Tenant's Invitees. If any action or proceeding is brought against Landlord or its shareholders, officers, directors, agents,property managers, employees, contractors, or the partners comprising Landlord (if any) by reason of any such Claims, Tenant upon notice from Landlordshall defend such action or proceeding at Tenant's sole cost by legal counsel satisfactory to Landlord. 28 36. Exemption of Landlord from Liability. Except to the extent caused by Landlord's grossly negligent acts or willful misconduct, Tenantassumes all risk of, Tenant waives all claims against Landlord in respect of, and Landlord shall not be liable for, any of the matters set forth in the precedingParagraph or any of the following: injury to Tenant's business, loss of income from such business, or damage or injury to the goods, wares, merchandise, orother property or the person of Tenant, Tenant's Invitees, or any other persons in, upon, or about the Premises, whether such damage, loss, or injury is causedby or results from criminal acts, fire, steam, electricity, gas, water, rain, the breakage, leakage, obstruction or other defects of pipes, sewer lines, sprinklers,wires, appliances, plumbing, air-conditioning or lighting fixtures, or any other cause, conditions arising upon the Premises, or other sources or places, andregardless of whether the cause of such damage, loss, or injury or the means of repairing such damage, loss, or injury is inaccessible to Tenant. In connectionwith the foregoing, Tenant hereby waives any defense would otherwise be provided by Section 1542 of the California Civil Code (which states "A generalrelease does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if knownby him or her must have materially affected his or her settlement with the debtor"), or laws of a similar nature, which would limit any such release to mattersknown or suspected to exist by Tenant. This Lease shall not be affected or impaired by any change to any part of the Project or any sidewalks, streets orimprovements nearby the Project. 37. Hazardous Substances. 37.1. Landlord’s Covenants. Landlord hereby notifies Tenant, and Tenant hereby acknowledges that, prior to the leasing of thePremises pursuant to this Lease, Tenant has been notified, pursuant to California Health and Safety Code Section 25359.7 (or any successor statute), thatLandlord knows, or has reasonable cause to believe, that certain hazardous substances (as such term is used in such Section 25359.7), such as commoncleaning supplies, office supplies, spillage of petroleum products from motor vehicles, and other consumer products, may have come (and may in the futurecome) to be located on or beneath the Premises and/or the Project. Notwithstanding the foregoing, Landlord shall not cause any unlawful accumulations ofHazardous Material (as defined below) to be generated, brought onto, used, stored, or disposed of in or about the Premises, the Building, or the Project byLandlord or its agents, employees, or contractors, except for limited quantities of standard office and janitorial supplies and petroleum and petroleum-relatedproducts commonly used on or at similar office projects. Furthermore, Landlord shall: (a) use, store, and dispose of all such permitted Hazardous Material instrict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material,public health and safety and protection of the environment, and (b) comply at all times during the Lease Term with all environmental laws (as defined inParagraph 37.2, below). Except as to those matters which are Tenant’s responsibility pursuant to Paragraph 37.2, below, Landlord shall be responsible, at itsexpense (or the expense of others; but not as an Operating Expense) to cause any unlawful accumulations of Hazardous Materials to be remediated inaccordance with the requirements of all applicable environmental laws. 37.2. Tenant’s Covenants. Tenant covenants, represents, and warrants to the Landlord that its use of the Premises, the Building, and theProject will be in full compliance with all environmental laws. Tenant hereby agrees to indemnify Landlord against all actions, liabilities, damages, losses,costs, expenses, attorneys’ fees, and claims (except to the extent they arise as a result of Landlord’s grossly negligent acts or willful misconduct), arising fromor relating to: (i) any discharges, releases, or threatened releases of any Hazardous Material into ambient air, water, or land by Tenant or Tenant’s Invitee’sfrom, on, under, or above the Premises, (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants,contaminants, or hazardous or toxic wastes, substances, or materials by Tenant or Tenant’s Invitees, from, on, or under, the Premises, or (iii) a violation of anyenvironmental law on, under, or above the Premises by Tenant or Tenant’s Invitees (for purposes of this Lease, “environmental laws” shall mean any Federal,State, or local law, statute, regulation, ordinance, guideline, or common law principle relating to public health or safety or the use or control of theenvironment, including without limitation the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Carpenter-Presley-Tanner Hazardous Substance Account Act, the California Hazardous Waste Control Law, the Federal Clean Air Act, the California Air Resources Act,the Federal Clean Water Act, the California Porter-Cologne Water Quality Control Act, the Federal Resource Conservation and Recovery Act, the CaliforniaNejedly-Z'berg-Dills Solid Waste Management and Recovery Act, and California Health and Safety Code Section 25359.7). Tenant agrees to promptlyreimburse Landlord for all of Landlord's costs arising from periodic monitoring of Tenant's use, handling, or storage of Hazardous Substances at orsurrounding the Premises. Tenant shall not cause or permit any Hazardous Material to be generated, brought onto, used, stored, or disposed of in or about thePremises, the Building, or the Project by Tenant or its agents, employees, contractors, subtenants, or invitees, except for limited quantities of standard officeand janitorial supplies. Tenant shall: (a) use, store, and dispose of all such permitted Hazardous Material in strict compliance with all applicable statutes,ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material, public health and safety and protection of theenvironment, and (b) comply at all times during the Lease Term with all environmental laws. If the Premises are contaminated (or, due to the acts or omissionsof Tenant or Tenant's Invitees, the Project is contaminated) by any Hazardous Material during the Term, then (1) Tenant shall promptly notify Landlord inwriting of such contamination, and (2) Landlord may elect to either (A) demand that Tenant perform all remediation required by Landlord (to Landlord'ssatisfaction and at Tenant's sole cost, necessary to return the Premises (and/or the Project) to at least as good a condition as the Premises (or the Project) are inas of the date of this Lease, which Tenant shall immediately do upon receipt of notice from Landlord, or (B) proceed to cause such investigation, clean-up,and remediation work which Landlord deems necessary or desirable to be undertaken, whereupon the entire cost thereof (plus a supervisory fee equal to tenpercent of such cost) will be payable by Tenant to Landlord upon demand as Additional Rent. If, after demand by Landlord, as provided in this Paragraph,Tenant does not promptly commence and diligently pursue such remediation, then Landlord may, at Landlord's election, perform or cause to be performedsuch remediation and Tenant shall immediately, upon demand, pay the cost thereof to Landlord, plus a supervisory fee in the amount of ten percent of suchcost. Tenant's obligations and liability under this Paragraph shall survive the termination of Tenant's tenancy and the Term of this Lease, except that nothingcontained in this Paragraph shall be deemed to impose liability on Tenant for any problem arising after the Term of this Lease provided neither Tenant norTenant's Invitees contributed to such problem during the Term of the Lease. 29 37.3. Definition of Hazardous Materials. As used in this Lease the term "Hazardous Material" shall mean any hazardous or toxicsubstance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdictionover the Building. Hazardous Material includes, without limitation: (a) any "hazardous substance", as that term is defined in the ComprehensiveEnvironmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675); (b) "hazardous waste", as thatterm is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k); (c) any pollutant,contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law,regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning anyhazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect); (d) petroleum products; (e) radioactive material, including any source,special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297; (f) asbestos in any form or condition; and (g) polychlorinatedbiphenyls (PCBs) and substances or compounds containing PCBs. 38. Prohibition Against Mold, Lead-Based Paint, and Asbestos-Containing Materials. Tenant shall not allow or permit any lead-based paintto be used in the Premises, nor shall Tenant allow or permit any condition to occur which could result in the growth of mold within the Premises.Additionally, Tenant shall not allow or permit any materials which contain asbestos in any form or concentration (“Asbestos-Containing Materials”) to beused or stored in the Premises or used in the construction of any improvements or alterations to the Premises, including, without limitation, building orconstruction materials and supplies. Such prohibition against Asbestos-Containing Materials shall apply regardless of whether the Asbestos-ContainingMaterials may be considered safe or approved for use by a manufacturer, supplier, or governmental authority, or by common use or practice. Landlord shallhave the right, upon 24-hours’ written notice, to enter upon and conduct inspections of the Premises to determine Tenant's compliance with this Paragraph. IfTenant violates the foregoing covenants relating to lead-based paint, mold, and Asbestos-Containing Materials (collectively “Prohibited Substances”), then(a) Tenant shall, upon notice from Landlord, immediately remove and remediate any damage from such Prohibited Substances at Tenant's sole cost, (b) suchremoval and remediation shall comply with all applicable laws, regulations, and requirements, (c) Tenant shall reimburse Landlord for all expenses incurredin connection with any inspection and testing of the Premises conducted by Landlord, and (d) unless Tenant completes such removal within 30 days afternotice from Landlord, Landlord may, at its election, do either or both of the following: (i) declare an Event of Default (without the requirement of any noticeunder Paragraph 24.4) and exercise Landlord’s remedies hereunder, including, without limitation, terminate this Lease upon ten days prior written notice toTenant, and/or (ii) remove and remediate such Prohibited Substances and obtain reimbursement from Tenant for the cost of such removal and remediation,including a supervisory fee payable to Landlord in the amount of ten percent of the removal and disposal cost. Tenant shall indemnify Landlord andLandlord's directors, officers, employees, and agents against all costs, liabilities, expenses, penalties, and claims for damages, including, without limitation,litigation costs and attorneys' fees, arising from (A) the presence of Prohibited Substances upon the Premises, to the extent that such Prohibited Substances areused, stored, or otherwise permitted in the Premises or used in the construction of any Alterations by Tenant or Tenant's agents, employees, representatives, orindependent contractors, (B) any lawsuit, settlement, governmental order, or decree relating to the presence, handling, removal, or disposal of ProhibitedSubstances upon or from the Premises, to the extent that such Prohibited Substances are used, stored, or otherwise permitted in the Premises or used in theconstruction of any improvements or Alterations to the Premises by Tenant or Tenant's agents, employees, representatives or independent contractors, or (C)Tenant's failure to perform its obligations to remove such Prohibited Substances under this Paragraph. The provisions of this Paragraph shall not apply to anyProhibited Substances brought onto the Premises by Landlord or Landlord’s Invitees or resulting from the acts of Landlord or Landlord’s Invitees. 30 39. Security Measures. Tenant acknowledges that, although the Building may contain a restricted access entry system (if provided for as partof Landlord's Work), (i) the Basic Monthly Rent does not include the cost of any security measures for any portion of the Project (ii) Landlord shall have noobligation to provide any such security measures, (iii) Landlord has made no representation to Tenant regarding the safety or security of the Project, and (iv)Tenant will be solely responsible for providing any security it deems necessary to protect itself, its property, and Tenant's Invitees in, on, or about the Project.If Landlord provides any security measures at any time, then the cost thereof shall be included as part of the Operating Expenses, but Landlord will not beobligated to continue providing such security measures for any period of time, Landlord may discontinue such security measures without notice and withoutliability to Tenant, and Landlord will not be obligated to provide such security measures with any particular standard of care. Tenant assumes allresponsibility for the security and safety of Tenant, Tenant's property, and Tenant's Invitees. Tenant releases Landlord from all claims (other than due toLandlord's gross negligence or intentional misconduct) for damage, loss, or injury to Tenant, Tenant's Invitees, and/or to the personal property of Tenantand/or of Tenant's Invitees, even if such damage, loss, or injury is caused by or results from the criminal, reckless, or negligent acts of third parties. Inconnection with the foregoing, Tenant hereby waives any defense would otherwise be provided by Section 1542 of the California Civil Code (which states"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, whichif known by him or her must have materially affected his or her settlement with the debtor"), or laws of a similar nature, which would limit any such release tomatters known or suspected to exist by Tenant. Tenant is hereby instructed to conduct its own investigation through local police agencies regarding anycriminal acts or dangerous conduct that has occurred in or near the Project. Landlord shall have no duty to warn Tenant of any criminal acts or dangerousconduct that has occurred in or near the Project, regardless of Landlord's knowledge of such crimes or conduct, and Tenant hereby undertakes to remaininformed regarding such issues. 40. Subordination and Attornment. This Lease and Tenant's rights under this Lease are subject and subordinate to any mortgage, deed oftrust, ground lease, or underlying lease (and to all renewals, modifications, consolidations, replacements, or extensions thereof), now or hereafter affecting thePremises. The provisions of this Paragraph shall be self-operative, and no further instrument of subordination shall be required. In confirmation of suchsubordination, however, Tenant shall promptly execute and deliver any commercially reasonable instruments that Landlord, any Lender, or the lessor underany ground or underlying lease, may request to evidence such subordination, provided such instrument contains customary non-disturbance language infavor of Tenant and is consistent with the provisions of the next sentence including, without limitation, a Subordination, Attornment, and Non-DisturbanceAgreement in the form to be commercially reasonable and acceptable to Lender. If any Lender, or the lessor of any ground or underlying lease affecting thePremises, shall hereafter succeed to the rights of Landlord under this Lease, whether by foreclosure, deed in lieu of foreclosure, or otherwise, then (i) suchsuccessor landlord shall not be subject to any offsets or defenses which Tenant might have against Landlord, (ii) such successor landlord shall not be boundby any prepayment by Tenant of more than one month's installment of Basic Monthly Rent or any other Rent, (iii) such successor landlord shall not besubject to any liability or obligation of Landlord except those arising after such succession, (iv) Tenant shall attorn to and recognize such successor landlordas Tenant's landlord under this Lease, (v) Tenant shall promptly execute and deliver any commercially reasonable instruments that may be necessary toevidence such attornment, (vi) upon such attornment, this Lease shall continue in effect as a direct lease (whether separately documented or not) betweensuch successor landlord and Tenant upon and subject to all of the provisions of this Lease, and (vii) Tenant shall be entitled to quiet enjoyment of thePremises for so long as Tenant is not in default under the terms of this Lease or any substitute lease referenced above. Notwithstanding the precedingprovisions of this Paragraph, if any ground lessor or Lender elects to have this Lease prior to the lien of its ground lease, deed of trust, or mortgage, and giveswritten notice thereof to Tenant that this Lease shall be deemed prior to such ground lease, deed of trust, or mortgage, whether this Lease is dated prior orsubsequent to the date of such ground lease, deed of trust, or mortgage, then this Lease shall be deemed to be prior to the lien of such ground lease ormortgage and such ground lease, deed of trust, or mortgage shall be deemed to be subordinate to this Lease. 31 41. Estoppel Certificate. Within ten days after written request from Landlord, Tenant shall execute and deliver to Landlord, in recordableform, a certificate (“Estoppel Certificate”) stating (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, andstating all modifications, (ii) the then-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in advance, (iv) the amount ofany security deposit, prepaid rent or other payment constituting Rent which has been paid, (v) whether or not Tenant or, to Tenant’s knowledge, Landlord isin default under this Lease and whether there currently exist any defenses or rights of offset under the Lease in favor of Tenant, (vi) that any Landlord’s Workrequired by this Lease is complete (or stating any exceptions) and (vii) such other matters as Landlord may reasonably request. Tenant's failure to deliver suchcertificate within such ten day period shall be conclusive upon Tenant for the benefit of Landlord, and any successor in interest to Landlord, any lender orproposed lender, and any purchaser or proposed purchaser of the Project that, except as may be represented by Landlord, this Lease is unmodified and in fullforce and effect, no Rent has been paid more than 30 days in advance, neither Tenant nor Landlord is in default under this Lease, no defenses or rights ofoffset under the Lease exist in favor of Tenant, and that all Landlord’s Work required by this Lease is complete. Landlord will similarly, in connection withany lending or Transfer transaction, upon ten days written request from Tenant, execute an estoppel certificate in favor of Tenant's proposed lender orTransferee confirming (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating all modifications, (ii) thethen-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in advance, (iv) the amount of any security deposit, prepaid rent,or other payment constituting Rent which has been paid, and (v) whether or not to the best of Landlord's knowledge Tenant is in default under this Lease. Therequirement for Tenant to execute and deliver to Landlord, the Estoppel Certificate, as required above, shall not be delayed, conditioned, or withheld for anyreason; this requirement shall be an independent covenant of Tenant under this Lease. 42. Waiver. No delay or omission in the exercise of any right or remedy of Landlord in the event of any default or Event of Default byTenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiverof any default other than the particular Rent payment accepted. Landlord's receipt and acceptance from Tenant, on any date (the “Receipt Date”), of anamount less than the Rent actually due on such Receipt Date, or to become due at a later date but applicable to a period prior to such Receipt Date, shall notrelease Tenant of its obligation (i) to pay the full amount of such Rent due on such Receipt Date or (ii) to pay when due the full amount of such Rent tobecome due at a later date but applicable to a period prior to such Receipt Date. No act or conduct of Landlord, including without limitation, the acceptanceof the keys to the Premises, shall constitute an acceptance by Landlord of the surrender of the Premises by Tenant before the Expiration Date. Only a writtennotice from Landlord to Tenant stating Landlord's election to terminate Tenant's right to possession of the Premises shall constitute acceptance of thesurrender of the Premises and accomplish a termination of this Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent orapproval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any other or subsequent act by Tenant. Any waiver byLandlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. Tenanthereby waives any rights granted to Tenant under California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and/or anysuccessor statute(s). Tenant represents and warrants that if Tenant breaches this Lease and, as a result, this Lease is terminated, Tenant will not suffer anyundue hardship as a result of such termination and, during the Term, will make such alternative or other contingency plans to provide for its vacation of thePremises and relocation in the event of such termination. Tenant acknowledges that Tenant's waivers set forth in this Paragraph are a material part of theconsideration for Landlord's entering into this Lease and that Landlord would not have entered into this Lease in the absence of such waivers. 32 43. Brokers. Tenant represents that no real estate broker, agent, finder, or other person is responsible for bringing about or negotiating thisLease other than the Tenant's broker, if any, listed in the Principal Lease Provisions, and Tenant has not dealt with any other real estate broker, agent, finder,or other person, relative to this Lease in any manner. Tenant shall indemnify, defend, and hold Landlord harmless from and against all liabilities, damages,losses, costs, expenses, attorneys' fees and claims arising from any claims that may be made against Landlord by any real estate broker, agent, finder, or otherperson (other than as set forth above), alleging to have acted on behalf of or to have dealt with Tenant. Landlord shall be responsible, upon satisfaction of therequirements of a separate written listing agreement between Landlord and Landlord's broker, for the payment of the commission due and owing to Landlord'sbrokers identified in the Principal Lease Provisions (or any other brokers engaged by Landlord), pursuant to such separate written agreement betweenLandlord and Landlord's broker. Landlord's broker will in turn split such commission with Tenant's broker as such parties may agree. 44. Limitations on Landlord's Liability. If Landlord is in default of this Lease, and as a consequence Tenant recovers a money judgmentagainst Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levy against the right, title,and interest of Landlord in the Project, and out of rent or other income from the Project receivable by Landlord or out of the consideration received byLandlord from the sale or other disposition of all or any part of Landlord's right, title, and interest in the Project. Neither Landlord nor Landlord'sshareholders, members, officers, directors, agents, property managers, employees, contractors, or the partners comprising Landlord (if any) shall be personallyliable for any deficiency. 45. Sale or Transfer of Premises. If Landlord sells or transfers the Project (whether voluntarily or involuntarily), Landlord, on consummationof the sale or transfer, shall be released from any liability thereafter accruing under this Lease. If any security deposit or prepaid rent has been paid by Tenant,Landlord may transfer the security deposit and/or prepaid rent to Landlord's successor-in-interest and on such transfer Landlord shall be discharged from anyfurther liability arising from the security deposit or prepaid rent. 46. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the Expiration Date, promptly on Landlord's request, a quitclaim deedto the Premises, in recordable form, designating Landlord as transferee. 47. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, or a termination byLandlord, shall not work a merger, and shall, at the option of Landlord, terminate any existing subleases or may, at the option of Landlord, operate as anassignment to Landlord of any such subleases. 48. Confidentiality. Except as essential to the consummation of the transaction contemplated by this Lease (together with all amendmentsand addenda hereto): 48.1. Tenant shall keep and maintain the terms of this Lease and the transactions contemplated by this Lease or any aspect of this Leasein strict confidence; and 48.2. Tenant may not make or allow any notices, statements, disclosures, communication, or news releases concerning this Lease, theterms of this Lease and the transactions contemplated by this Lease or any aspect of this Lease. 48.3. Nothing provided herein, however, shall prevent Tenant from disclosing to its legal counsel and/or certified public accountants,prospective purchasers, or lenders the existence and terms of this Lease or any transaction under this Lease, or any aspect of this lease, or from complyingwith any governmental or court order or similar legal requirement which requires such party to disclose this Lease, the terms of this Lease, the transactioncontemplated by this Lease and/or any aspect of this Lease; provided that such party uses reasonable and diligent good faith efforts to disclose no more thanis absolutely required to be disclosed by such legal requirement. If Tenant violates this confidentiality provision, in addition to all other remedies to whichLandlord may be entitled under law or in equity, Landlord shall be entitled to receive immediately the entire value of any rent relief, rent abatement, free rent,reimbursement, or other concession which Landlord has previously granted to Tenant. 33 48.4. Disclosure. Notwithstanding anything contained herein to the contrary, Landlord shall be entitled to disclose the terms of thisLease in connection with public filings and/or presentations of its parent and/or affiliates. 49. Miscellaneous. 49.1. This Lease may be executed in counterparts, each of which shall be deemed an original and all of which together shall constituteone document. 49.2. Within twenty days of written request, Tenant shall furnish to Landlord, not more than once every two (2) years financialstatements certified by Tenant to be true and correct, reflecting Tenant's then current financial condition. Such financial statements shall include a currentbalance sheet and a profit and loss statement covering the most recent 12-month period available. 49.3. Notwithstanding any other provision in this Lease to the contrary, Tenant shall refrain from selling or otherwise distributing anyalcoholic beverages and such sales are expressly forbidden under this Lease notwithstanding the fact that Tenant may hold the appropriate license as issuedand/or approved by the California Alcoholic Beverage Control Agency. 49.4. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises are located. If thePremises are located outside of California, then the references in this Lease to California statutes shall be deemed to include any relevant statute of thejurisdiction in which the Premises are located that is comparable to such California statutes. 49.5. For purposes of venue and jurisdiction, this Lease shall be deemed made and to be performed in the City of San Diego, California(whether or not the Premises are located in San Diego, California) and Landlord and Tenant hereby consent to the jurisdiction of the Courts of the County ofSan Diego. 49.6. Tenant covenants and agrees not to protest or in any way oppose any application for a license to serve or sell liquor filed bytenants or other users of space within the Project. 49.7. Whenever the context so requires, all words used in the singular shall be construed to have been used in the plural (and viceversa), each gender shall be construed to include any other genders, and the word “person” shall be construed to include a natural person, a corporation, afirm, a partnership, a joint venture, a limited liability company, a trust, an estate or any other entity. 49.8. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease orthe application of such provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or theapplication of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by suchinvalidity or unenforceability, unless such provision or such application of such provision is essential to this Lease. 49.9. In the event any litigation, arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any party against any otherparty to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in connection with this Lease the prevailing party in such Proceeding shall beentitled to recover from the unsuccessful party all costs, expenses, and reasonable attorney's fees and expert witness fees relating to or arising out of suchProceeding (whether or not such Proceeding proceeds to judgment), and any post-judgment or post-award proceeding including without limitation one toenforce any judgment or award resulting from any such Proceeding. Any such judgment or award shall contain a specific provision for the recovery of allsuch subsequently incurred costs, expenses, and actual attorney's fees and expert witness fees. 34 49.10. This Lease shall become effective and binding upon the parties when it has been executed by each of Landlord and Tenant;notwithstanding the fact that the Term of this Lease (i.e. Tenant's rights of full occupancy hereunder) will not commence until the Lease CommencementDate. 49.11. Subject to any restriction on transferability contained in this Lease, this Lease shall be binding upon and shall inure to the benefitof the successors-in-interest and assigns of each party to this Lease. Nothing in this Paragraph shall create any rights enforceable by any person not a party tothis Lease, except for the rights of the successors-in-interest and assigns of each party to this Lease, unless such rights are expressly granted in this Lease toother specifically identified persons. 49.12. The headings of the Paragraphs of this Lease have been included only for convenience, and shall not be deemed in any manner tomodify or limit any of the provisions of this Lease, or be used in any manner in the interpretation of this Lease. 49.13. Time and strict and punctual performance are of the essence with respect to each provision of this Lease. All references to "days" inthis Lease will refer to calendar days, unless such reference specifically indicates that "business days" are intended. Business days will mean and refer to allcalendar days other than Saturdays, Sundays, and national or California state holidays. 49.14. Each party to this Lease and its legal counsel have had an opportunity to review and revise this Lease. The rule of construction thatany ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any Addendum or Exhibit to thisLease, and such rule of construction is hereby waived by Tenant. 49.15. All notices required or permitted to be given by Tenant to Landlord shall be in writing and shall be personally delivered, sent bycertified mail, postage prepaid, return receipt requested, or sent by a nationally or locally recognized overnight express courier service that provides writtenconfirmation of delivery to Landlord at the address set forth in the Principal Lease Provisions of this Lease. Each such notice or other communication shall bedeemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given,delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with thisParagraph, and if it is sent by nationally recognized overnight express courier service, it shall be deemed given one business day after deposit with thecourier. Landlord or Tenant must give a notice of a change of its address to the other, if such address changes. All notices required or permitted to be given toTenant by Landlord shall, except as otherwise provided in this Lease, be in writing, and such notice shall be personally delivered, sent by certified mail,postage prepaid, return receipt requested, or sent by a nationally recognized overnight express courier service that provides written confirmation of delivery,to Tenant at the address set forth in the Principal Lease Provisions of this Lease. Each such notice or other communication shall be deemed given, deliveredand received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given, delivered and receivedthree days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph.Notwithstanding the foregoing, routine correspondence between Landlord and Tenant shall be deliverable by regular U.S. mail, by fax, or by other suchmeans of delivery as may become customary. 49.16. If more than one person is Tenant, then the obligations of Tenant under this Lease shall be the joint and several obligations of eachof such persons; provided, however, that any act or signature of one or more of any of such persons and any notice or refund given to or served on any one ofsuch persons shall be fully binding on each of such persons. 49.17. All provisions, whether covenants or conditions, to be performed or observed by Tenant shall be deemed to be both covenants andconditions. All indemnity, defense, and hold harmless obligations of Tenant hereunder shall survive the termination of this Lease. 49.18. Intentionally Deleted. 35 49.19. All payments to be made by Tenant to Landlord under this Lease shall be in United States currency. 49.20. Any claim, demand, rights, or defense by Tenant that arises out of this Lease or the negotiations that preceded this Lease shall bebarred unless Tenant commences an action thereon, or interposes a defense by reason thereof, within 12 months after the date of the inaction, omission, event,or action that gave rise to such claim, demand, right, or defense. Tenant acknowledges and understands, after having consulted with its legal counsel, that thepurpose of this Paragraph is to shorten the period within which Tenant would otherwise have to raise such claims, demands, rights, or defenses underapplicable laws. 49.21. This Lease, the Exhibits and Addenda, if any, attached hereto (which are incorporated herein by this reference), constitute all of thecovenants, promises, assurances, representations, warranties, statements, agreements, conditions and understandings between Landlord and Tenantconcerning the Premises and the Project, and there are no other covenants, promises, assurances, representations, warranties, statements, conditions, orunderstandings, either oral or written, between them. Except as herein otherwise provided, no subsequent alteration, change, modification, or addition to thisLease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each of them. Notwithstanding the foregoing, the Landlord may,from time to time, establish and amend such Rules, regulations, and signage criteria, in a written form, for the benefit of the Project and Building, as it deemsappropriate. Violations of such Rules, regulations, and signage criteria by Tenant or Tenant's Invitees shall constitute a material default of this Lease. 49.22. This Lease, upon full execution, supersedes and revokes any and all previous leases governing the Premises, lease negotiations,arrangements, letters of intents, offers to lease, lease proposals or drafts, brochures, representations, and information conveyed, whether oral or written,between parties hereto or their respective representations or any other person purported to represent Landlord or Tenant. The Tenant acknowledges it has notbeen induced to enter into this Lease by any representations not set forth in the Leases, nor has it relied on any such representations. No such representationsshould be used in the interpretation or construction of this Lease and the Landlord shall have no liability for any consequences arising as a result of any suchrepresentations. 49.23. LANDLORD AND TENANT WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CONTRACT OR TORTCLAIM, COUNTERCLAIM, CROSS COMPLAINT, OR CAUSE OF ACTION IN ANY ACTION, PROCEEDING, OR HEARING BROUGHT BY EITHERPARTY AGAINST THE OTHER ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OFLANDLORD AND TENANT, OR TENANT’S USE OR OCCUPANCY OF THE PREMISES, INCLUDING ANY CLAIM OF INJURY OR DAMAGE OR THEENFORCEMENT OF ANY REMEDY UNDER ANY CURRENT OR FUTURE LAW, STATUTE, REGULATION, CODE, OR ORDINANCE. ____________________ _________________LANDLORD’S INITIALS TENANT’S INITIALS 49.24. Consequential Damages. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose anyobligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from all liability for, consequential damages other thanthose consequential damages incurred by Landlord in connection with a holdover (without Landlord's consent) of the Premises by Tenant after the expirationor earlier termination of this Lease or incurred by Landlord in connection with any repair, physical construction or improvement work performed by or onbehalf of Tenant in the Project. 49.25. Anti-Money Laundering/OFAC Requirements. Tenant represents and warrants as follows, with the understanding that the Landlordwill rely on the accuracy of these representations and warranties to establish the Landlord’s compliance with the laws enforced by the United StatesDepartment of Treasury’s Office of Foreign Assets Control (“OFAC”), and any other applicable laws, rules, regulations and other legal requirements relatingto the combating of money laundering and/or terrorism (i.e., Patriot Act). 36 49.25.1. If Tenant is an entity (e.g., a corporation, partnership, limited liability company, trust), (i) Tenant has exercised duediligence to establish the identity of each person who possesses the power, directly or indirectly, to direct or cause the direction of Tenant’s management andpolicies; (ii) if ownership interests in Tenant are not publicly traded on an exchange or an organized over-the-counter market that is regulated by any foreigngovernment, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate tosecurities matters, Tenant has exercised due diligence to establish the identity of each person who holds, directly or indirectly, a beneficial interest in Tenant;and (iii) if Tenant is a financial intermediary (e.g., a bank, brokerage firm, depository), Tenant has exercised due diligence to establish the identity of each ofits account holders (each of the foregoing persons listed in this Paragraph being an “Affiliated Person”). Tenant (x) maintains records of all documents it usesto verify the identities of its Affiliated Persons; (y) will maintain all such records for a period of at least five (5) years after the expiration of the Lease; and (z)will make such documentation available to the Landlord at any time upon request. 49.25.2. Tenant is not a “Prohibited Person” (as defined below), none of its Affiliated Persons is a Prohibited Person, and Tenant isnot acquiring, and does not intend to enter into this Lease for the direct or indirect benefit of any Prohibited Person. Tenant acknowledges and agrees that if,at any time, the Landlord determines that Tenant is or may be a Prohibited Person, or that any Prohibited Person holds or may hold a direct or indirect interestin Tenant, the Landlord may, in its sole discretion, terminate the Lease. 49.25.3. For purposes of the foregoing representations and warranties, “Prohibited Person” means any person or entity that acts orhas acted (i) in contravention of any statute, rule, regulation or other legal requirement to which that person is subject relating to the combating of terrorismand/or money laundering, or (ii) on behalf of any person or organization (A) residing or having a place of business in a country or territory subject to embargounder laws enforced by OFAC, or (B) identified as a terrorist, terrorist organization, specially designated national or blocked person by OFAC, any otherdepartment, agency, division, board, bureau or other instrumentality of the United States Government, or any recognized international organization,multilateral expert group or governmental or industry publication. OFAC’s lists of specially designated nationals, blocked persons and embargoed countriesand territories can be found at www.treas.gov/ofac, 49.25.4. Tenant acknowledges and agrees that, any provision of this Lease to the contrary notwithstanding, the Landlord mayrelease confidential information regarding Tenant to law enforcement authorities and/or regulators if the Landlord determines, that it is in the best interests ofthe Landlord to do so in light of the Landlord’s obligations and/or potential liability under any applicable statute, rule, regulation or other legal requirementrelating to the combating of terrorism and/or money laundering. 49.25.5. Tenant acknowledges and agrees that the foregoing representations and warranties are subject to Tenant’sindemnification obligations under this Lease. 49.25.6. If Tenant becomes aware of any fact or circumstance that may render any of the foregoing representations and warrantiesinaccurate in any respect, Tenant will immediately notify the Landlord. LANDLORD: TENANT: PACIFIC NORTH COURT HOLDINGS, L.P., ADAMIS PHARMACEUTICALSa California limited partnership CORPORATION, a Delaware corporation By:American Assets Trust Management, By:/s/ Dennis J. Carlo LLC, a Delaware limited liability Dennis J. Carlo company, as Agent President and CEO By:/s/ John W. Chamberlain Dated: April 1, 2014 John W. Chamberlain President and CEO By:/s/ James R. Durfey James R. Durfey V.P. of Office Leasing Dated: April 1, 2014 37 ADDENDUM NO. 1TO STANDARD OFFICE LEASE This Addendum to Lease (“Addendum”) constitutes part of the Office Lease Agreement (“Lease”) dated as of April 1, 2014 between PACIFICNORTH COURT HOLDINGS, L.P., a California limited partnership (“Landlord”), and ADAMIS PHARMACEUTICALS CORPORATION, a Delawarecorporation (“Tenant”). The terms of this Addendum are incorporated in the Lease for all purposes. All capitalized terms not otherwise defined in thisAddendum are defined by the terms of the Lease. 1.BASIC MONTHLY RENT Basic Monthly Rent during the Lease Term shall be as follows: Lease PeriodApproximate Basic Monthly Rent PerRentable Square Foot Actual BasicMonthly Rentfor the Premises 12/1/2014 – 11/30/2015$3.20$24,080.00** 12/1/2015 – 11/30/2016$3.30$24,802.40 12/1/2016 – 11/30/2017$3.39$25,546.47 12/1/2017 – 11/30/2018 $3.50$26,312.87 In addition, Tenant shall pay for all individually and separately metered utilities. **Tenant shall be granted a three (3) month full abatement of Basic Monthly Rent during months two (2) through four (4) of the Initial Lease Termand a partial abatement equal to seventy-five percent (75%) of Basic Monthly Rent during month five (5) of the Initial Lease Term. As such andprovided Tenant is not in material default of this Lease, Tenant shall not be required to pay Basic Monthly Rent during the second (2nd) throughfourth (4th) months of the Initial Lease Term, nor seventy-five (75%) of Basic Monthly Rent during the fifth (5th) month of the Initial Lease Term. IfTenant is deemed in material default of the Lease (after applicable notice and cure period), Tenant shall become fully liable for all funds abated andLandlord shall be entitled to exercise all of its rights and remedies with respect to collecting the monies so abated. 38 2.PROJECT EXPANSION/MODIFICATION A.Further Construction. Tenant acknowledges that Landlord may, from time to time, at its sole election, construct, reconstruct, modify, expand, orotherwise alter the Project (collectively, "Construction Work"), or portions thereof (in no event however will Landlord have any obligation to doso). Tenant acknowledges that any such Construction Work will necessarily involve, among other things, the generation of noise, dust, andvibrations, barricading portions of the Project and the placement of scaffolding within the Project, demolition, structural alterations, storage ofmaterials and equipment within the Project, and the presence of workmen within the Project, all of which may require the rearrangement ofparking areas, common areas, roadways, lighting facilities, and the re-direction of vehicular and pedestrian traffic. Except as provided below,Tenant waives any and all claims, defenses, rights of offset, or deductions based upon any inconvenience suffered by Tenant or any interruptionof or interference with Tenant's business including, without limitation, any loss of business, decreased sales, or inconvenience to Tenant orTenant's Invitees as a result of or relating to such Construction Work. Landlord hereby reserves for itself and its agents, employees, licensees andcontractors, the right to enter the Premises to the extent reasonably necessary to pursue such Construction Work upon 48 hours' prior written notice to Tenant. The exercise of any of Landlord's rights pursuant to this paragraph will not entitle Tenant to any abatement of Rent or otherclaim, right of offset, or defense against Landlord, except that. Tenant shall have the right to bring an action against Landlord in the eventTenant suffers any damages as a result of Landlord's negligence or intentional misconduct in pursuing such Construction Work. Tenant furtheracknowledges that expansion of the Project may affect the amount of the Operating Expenses and the portion thereof payable by Tenant. B.Reserved Rights. Landlord hereby reserves such licenses and easements in, on, above or below the Premises as may be reasonably required (i) forthe installation, inspection, surveying, maintenance, or construction of mains, conduits, shafts, columns, footings, piers, pipes or other facilitiesto serve any building within the Project, or (ii) for any Construction Work; provided, however, Landlord will use its best efforts to minimize anyunreasonable interference with Tenant's use, occupancy, or enjoyment of the Premises as contemplated by this Lease. C.Right of Abatement. Notwithstanding anything to the contrary contained in Paragraph A, above, to the extent any Construction Workundertaken by Landlord materially adversely affects Tenant’s access to and reasonable use of the Premises then Tenant's Base Monthly Rent willbe equitably abated during the period such material adverse interference with Tenant’s business at the Premises continues as a result thereof. Theforegoing right of abatement will constitute Tenant's sole and absolute right against Landlord or otherwise in connection with any suchConstruction Work and Tenant releases and waives any other claims, defenses, or rights in connection therewith. D.Remodel. Landlord may in the future remodel, renovate or refurbish (“remodel”) all or any portion of the Project, which remodel may includethe Premises. The remodeling will be done in accordance with design specifications prepared by the project architect and reviewed andapproved by Landlord and, with respect to the interior of the Premises, also by Tenant. 39 3.CONDITION OF THE PREMISES Tenant acknowledge that Tenant shall accept and occupy the Premises in its currently existing “as-is” condition pursuant to the terms of thisLease. Tenant acknowledges and agrees that Landlord has no obligation to improve the Premises, other than as may be set forth specifically in theLease. In particular, Tenant acknowledges that any improvements or alterations needed to accommodate Tenant’s intended use shall be made solelyat Tenant’s sole cost and expense, and strictly in accordance with the requirements of this Lease (including the requirement to obtain Landlord’sconsent thereto), unless such improvements and alterations are specifically required of Landlord and expressly set forth in this Lease and in Exhibit“C”. Should tenant improvements be made to the Premises in the future, the Premises shall be constructed in accordance with the procedures outlinedin Exhibit “C” of this Lease. Landlord shall have no responsibility to do any work required under any building codes or other governmentalrequirements not in effect or applicable on the Lease Commencement Date, including without limitation any requirements related to sprinklerretrofitting, seismic structural requirements, accommodation of disabled persons, or hazardous materials. 4.UTILITIES Notwithstanding the terms of Paragraph 9 of the Lease, the Premises are separately metered for electricity. Tenant shall make all arrangements for theestablishment of an account or accounts with the appropriate utility provider(s), and Tenant shall make all payments with respect thereto for use ofsaid utilities within the Premises during the term of the Lease, including any periods of early occupancy or holdover thereof. In the event the Premisesare sub-metered and direct payment to the utility is impractical, Tenant shall reimburse Landlord or Landlord’s designee directly for all such costs,fees, and consumption charges arising from said sub-meter. [Signature page to follow] 40 LANDLORD: TENANT: PACIFIC NORTH COURT HOLDINGS, L.P., ADAMIS PHARMACEUTICALSa California limited partnership CORPORATION, a Delaware corporation By:American Assets Trust Management, By:/s/ Dennis J. Carlo LLC, a Delaware limited liability Dennis J. Carlo company, as Agent President and CEO By:/s/ John W. Chamberlain Dated: April 1, 2014 John W. Chamberlain President and CEO By:/s/ James R. Durfey James R. Durfey V.P. of Office Leasing Dated: April 1, 2014 41 EXHIBIT "A"Project Site PlanThis Exhibit “A” is intended to show the approximate configuration of the Project and the Building as of the Commencement Date and is not a representationor warranty by Landlord as to the size, nature or exact configuration of the Project or Building. 42 EXHIBIT "B"FLOOR PLANS OF PREMISES 43 EXHIBIT "C"WORK LETTER General Recital: Tenant accepts the Premises in its “As-Is, Where-Is” condition. 44 EXHIBIT “D” BUILDING RULES AND REGULATIONS Tenant shall comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of these rules andRegulations. 1.Locks; Keys. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises withoutobtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Landlord for thePremises shall furnish two keys, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to beestablished by Landlord. 2.Doors Opening to Public Corridors. All doors opening to public corridors must be kept closed at all times except for normal ingress to andegress from the Premises. 3.Securing Doors; Admission to Building. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building duringthe hours when Comparable Building are customarily closed and locked. When departing after the Building’s normal Business Hours, Tenantand Tenant’s employees and agents must be sure that the doors to the Building are securely closed and locked. Any person, including Tenantand Tenant’s employees and agents, who enters or leaves the Building at any time when it is locked or at any time considered to be after theBuilding’s normal Business Hours, may be required to sign the Building register. Access to the Building may be refused unless the personseeking access has proper identification or has previously arranged a pass for access to the Building. Landlord and its agents shall not be liablefor damages for any error concerning the admission to, or exclusion from, the Building of any person. Landlord reserves the right, in the event ofinvasion, mob, riot, public excitement, or any other commotion, to prevent access to the Building or Project during the continuance of thatevent by any means it considers appropriate for the safety and protection of life and property. 4.Furniture, Freight, and Equipment; Service Deliveries. No furniture, freight, or equipment of any kind may be brought into the Building withoutprior notice to Landlord. All moving activity into or out of the Building must be scheduled with Landlord and done only at a time and in themanner designated by Landlord. No service deliveries (other than Messenger services) shall be allowed between the hours of 4:00 PM and 6:00PM, Monday through Friday. Landlord may at any time restrict the elevators and areas of the Building into which messengers may enter andmay require that Tenant leave deliveries at the lobby security desk for pickup. Landlord may prescribe the weight, size, and position of all safesand other heavy property brought into the Building and the times and manner of moving those items within and out of the Building. Tenantshall not overload the floor of the Premises. If considered necessary by Landlord, safes and other heavy objects must stand on supports that areadequate to distribute the weight properly. Landlord shall not be responsible for loss of or damage to any safe or property. Any damage to anypart of the Building or to its contents, occupants, or visitors caused by moving or maintaining any safe or other property referred to in thisclause shall be the sole responsibility and expense of Tenant. 5.Receipt of Deliveries; Use of Elevators. No furniture, packages, supplies, equipment, or merchandise may be received in the Building or carriedup or down the elevators, except between those hours and in that specific elevator that Landlord shall designate. 6.No Disturbance of Other Occupants. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlordand Landlord’s agents to prevent these actions. 7.Use of Restrooms; Responsibility for Damage. The restrooms, urinals, wash bowls, and other apparatus shall not be used for any other purposeother than that for which they were constructed, and no foreign substance of any kind shall be thrown into them. The expense of any breakage,stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who caused, or whose employees or agents caused, thebreakage, stoppage, or damage. 8.Heating and Air-Conditioning. Tenant shall not use any method of heating or air-conditioning, other than that supplied by Landlord, withoutLandlord’s prior written consent. 9.Foul or Noxious Gases or Substances; Noninterference With Others. Tenant shall not use or keep, or allow to be used or kept, any foul ornoxious gas or substance in or on the Premises. Tenant shall not allow the Premises to be occupied or used in a manner causing noise, odors, orvibrations that are offensive or objectionable to Landlord or other occupants of Project. 10.Animals, Birds, and Vehicles. Tenant shall not bring into, or keep within, the Premise, Building or Project any animals, birds, or vehicles (e.g.,bicycles). 11.Cooking; No use of the Premises for Improper Purposes. No cooking shall be done or permitted on the Premises, except that Underwriter’sLaboratory (UL)-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hotchocolate, and similar beverages for employees and visitors. This must be in accordance with all applicable federal, state, and city laws, codes,ordinances, rules, and regulations. 45 12.Telephone and Other Wires. Tenant may not introduce telephone wires or other wires into the Premises without first obtaining Landlord’sapproval of the method and location of such introduction with Landlord’s said approval not to be unreasonably withheld or delayed. . Noboring or cutting for telephone wires or other wires shall be allowed without Landlord’s consent. The location of telephones, call boxes, andother office equipment affixed to the Premises shall be subject to Landlord’s approval with Landlord’s said approval not to be unreasonablywithheld or delayed. 13.Exclusion or Expulsion. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord’s judgment, is under theinfluence of alcohol or drugs or commits and act in violation of theses Rules and Regulations. 14.Loitering Prohibited. Tenant and Tenant’s employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls,stairways, elevators, or common areas for the purpose of smoking tobacco products or for any other purpose. Tenant and Tenant’s employeesand agents shall not obstruct these areas but use them only as a means of ingress to and egress from the Premises. 15.Operation of Electricity, Water, and Air Conditioning. Tenant shall not waste electricity, water, or air-conditioning and shall cooperate fullywith Landlord to ensure the most effective operation of the Building’s heating and air-conditioning system. Tenant shall not adjust any controlsof that heating and air-conditioning system. 16.Disposal of Trash and Garbage. Tenant shall store all trash and garbage within the interior of the Premises. Tenant shall not place or have placedin the trash boxes or receptacles any material that may not or cannot be disposed of in the ordinary and customary manner of removing anddisposing of trash in the vicinity of the Building. In disposing of trash and garbage, Tenant shall comply fully with any law or ordinancegoverning that disposal. All trash, garbage, and refuse disposal shall be made only through entry-ways and elevators provided for that purposeand shall be made only at times designated by Landlord. 17.Compliance With Safety Regulations. Tenant shall comply with all safety, fire protection and evacuation procedures and regulationsestablished by Landlord or by any government agency and participate in practice drills scheduled from time to time by Landlord. 18.Protection of Premises. Tenant shall assume all responsibility, including keeping doors locked and other means of entry to the Premises closed,for protecting the Premises from theft, robbery, and pilferage. 19.Awnings, Curtains, and Electrical Ceiling Fixtures. No awnings or other projection shall be attached to the outside walls of the Buildingwithout Landlord’s prior written consent. No curtains, blinds, shades, or screens, shall be attached to, hung in, or used in connection with anywindow or door of the Premises without Landlord’s prior written consent. All electrical ceiling fixtures hung in offices or spaces along theperimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord. Tenant shall abide byLandlord’s regulations concerning the opening and closing of window coverings attached to those windows, if any, in the Premises that have aview of any interior portion of the Building or Building Common Area. 20.Non-obstruction of Light. Tenant shall not cover or obstruct the sashes, sash doors, skylights, windows, and doors that reflect or admit light andair into halls, passageways, or other public places in the Building. Tenant shall not place any bottles, parcels, or other articles on thewindowsills. 21.Provision of Information to Tenant’s Employees. Tenant shall comply with requests by Landlord that Tenant informs Tenant’s employees ofitems of importance to Landlord. 22.Hand Trucks and Similar Equipment. Without Landlord’s prior consent, Tenant shall not use, in any space or in the public halls of the Building,any hand trucks unless they are equipped with rubber tires and side guards or similar equipment. Tenant shall not bring any other vehicles ofany kind into the Building. 23.Use of Building’s Name or Likeness. Without Landlord’s prior written consent, Tenant shall not use the Building’s name or any photograph orother likeness of the Building in connection with, or in promoting or advertising, Tenant’s business, except that Tenant may include theBuilding’s name in the Tenant’s address. 24.Parking Rules and Regulations. Without Landlord’s prior written consent, no automobile detailing or washing shall be permitted in the parkingareas of the Building or Project. 25.Rules Changes; Waivers. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations or tomake any additional reasonable Rules and Regulations that, in Landlord’s judgment, may be necessary for: (a) The management, safety, care,and cleanliness of the Premises, Building, and Project; (b) The preservation of good order, and (c) The convenience of other occupants andtenants in the Premises, Building, and Project. 46 26.Flammable. Tenant shall not have any open flames in the Premises, Building or Project at any time whatsoever, including, but not limited to, litcandles, lighters, matches or as it relates to cooking. No inflammable, explosive or dangerous fluids or substances shall be used or kept byTenant in the Premises, Building or about the Property, except for those substances as are typically found in similar premises used for generaloffice purposes and are being used by Tenant in a safe manner and in accordance with all applicable Laws. Tenant shall install and maintain, atTenant’s sole cost and expense, an adequate, visibly marked (at all times properly operational) fire extinguisher next to any duplication orphotocopying machine or similar heat producing equipment (which may or may not contain combustible material) in the Premises. Tenant shallinstall in the Premises as many other fire extinguishers in such locations as required by City code. Tenant shall not, without Landlord’s priorwritten consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Property, anyasbestos-containing materials or any solid, liquid or gaseous material now or subsequently considered toxic or hazardous under the provisionsof 42 U.S.C. Section 9601 et seq. or any other applicable environmental Law which may now or later be in effect. Tenant shall comply with allLaws pertaining to and governing the use of these materials by Tenant and shall remain solely liable for the costs of abatement and removal. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants. No waiver by Landlord shall be constructed as awaiver of those Rules and Regulations in favor of any other tenant, and no waiver shall prevent Landlord from enforcing those Rules and Regulations againstany other tenant of the Project. Tenant shall be considered to have read these Rules and Regulations and to have agreed to abide by them as a condition ofTenant’s occupancy of the Premises. 47  Adamis Pharmaceutical Corporation 10-KExhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM As independent registered public accountants, we hereby consent to the incorporation by reference in the following registration statements of our reportdated June 23, 2014, included in Adamis Pharmaceutical Corporation’s Form 10-K for the year ended March 31, 2014. ·Registration statement on Form S-8, SEC file number 333-159229, as filed with the Securities and Exchange Commission on May 19, 2009, ·Registration statement on Form S-8, SEC file number 333-169106, as filed with the Securities and Exchange Commission on August 30, 2010, ·Registration statement on Form S-8, SEC file number 333-175383, as filed with the Securities and Exchange Commission on July 7, 2011, ·Registration statement on Form S-1, SEC file number 333-190798, as filed with the Securities and Exchange Commission on August 23, 2013, ·Registration statement on Form S-1, SEC file number 333-192372, as filed with the Securities and Exchange Commission on November 15, 2013, ·Registration statement on Form S-8, SEC file number 333-196435 as filed with the Securities and Exchange Commission on March 17, 2014. /s/ Mayer Hoffman McCann P.C. Boca Raton, Florida June 23, 2014 Adamis Pharmaceuticals Corporation 10-K Exhibit 31.1CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis J. Carlo, certify that: 1.I have reviewed this annual report on Form 10-K of Adamis Pharmaceuticals Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annualreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and (15d-15(e)) for the registrant and we have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting disclosure to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:June 23, 2014 By:/s/ Dennis J. Carlo Chief Executive Officer Adamis Pharmaceuticals Corporation 10-K Exhibit 31.2CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert O. Hopkins, certify that: 1.I have reviewed this annual report on Form 10-K of Adamis Pharmaceuticals Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annualreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and (15d-15(e)) for the registrant and we have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting disclosure to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:June 23, 2014 By:/s/ Robert O. Hopkins Vice President, Finance and Chief Financial Officer Adamis Pharmaceuticals Corporation 10-K Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT The undersigned, Dennis J. Carlo, the Chief Executive Officer of Adamis Pharmaceuticals Corporation (the “Company”), pursuant to 18 U.S.C. 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge: (1) the Company’s Annual Report on Form 10-K for the year ended March 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a)of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ DENNIS J. CARLO Dennis J. Carlo Chief Executive Officer Dated: June 23, 2014 This certification is being furnished to the SEC with this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 andshall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. Adamis Pharmaceuticals Corporation 10-K Exhibit 32.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT The undersigned, Robert O. Hopkins, as Vice President, Finance and Chief Financial Officer of Adamis Pharmaceuticals, Corporation (the “Company”),pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge: (1) the Company’s Annual Report on Form 10-K for the year ended March 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a)of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ ROBERT O. HOPKINS Robert O. Hopkins Vice President and Chief Financial Officer Dated: June 23, 2014 This certification is being furnished to the SEC with this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. 

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