UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________.
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
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 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
As of May 21, 2021, there were shares of the registrant’s common stock outstanding.
ADHERA THERAPEUTICS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
| March 31, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related party | ||||||||
| Accrued expenses | ||||||||
| Accrued dividends | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $ par value; shares authorized | ||||||||
| Series C convertible preferred stock, $par value; shares designated; shares issued and outstanding as of March 31, 2021 and December 31, 2020. ($ | ||||||||
| Series D convertible preferred stock, $par value; shares authorized; shares issued and outstanding as of March 31, 2021 and December 31, 2020. ($ | ||||||||
| Series E convertible preferred stock, $par value; shares designated; shares issued and outstanding as of March 31, 2021 and December 31, 2020. ($ | ||||||||
| Series F convertible preferred stock, $par value; shares designated; shares issued and outstanding as of March 31, 2021 and December 31, 2020. ($ | ||||||||
| Common stock, $ par value; shares designated, and shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for share and per share amounts)
Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating expenses | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expense | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Dividends | ( | ) | ( | ) | ||||
| Net Loss Applicable to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share – Common Stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for share amounts)
(Unaudited)
| Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Accrued and deemed dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with notes payable | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | - | $ | - | | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock |
Series F Preferred Stock |
Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Number | Par Value |
Number | Par Value |
Number | Par Value |
Paid-in Capital |
Accumulated Deficit |
Total | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | - | $ | - | $ | - | $ | - | |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||
| Accrued and deemed dividend | - | - | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for term loan conversion | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Benefical conversion feature-term loans | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | - | - | - | - | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows Used in Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share based compensation | ||||||||
| Amortization of debt discount and fees | ||||||||
| Non-cash interest expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows Provided By Financing Activities: | ||||||||
| Proceeds from loans | ||||||||
| Notes payable issuance costs | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Net increase (decrease) in cash | ||||||||
| Cash – Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Non-cash Investing and Financing Activities: | ||||||||
| Issuance of warrants with notes payable | ||||||||
| Issuance of common stock for conversion of debt | ||||||||
| Beneficial conversion feature | ||||||||
| Accrued and deemed dividends | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Note 1 – Nature of Operations, Basis of Presentation and Significant Accounting Policies
Business Overview
Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IThenaPharma, Inc. (“IThena”) (collectively “Adhera,” or the “Company”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
In 2019, the Company was a commercially focused entity that leveraged innovative distribution models and technologies to improve the quality of care for patients in the United States suffering from chronic and acute diseases with a focus on fixed dose combination therapies in hypertension. These efforts were primarily focused on Prestalia®, a single-pill FDC of perindopril arginine and amlodipine besylate, which the Company began marketing in June of 2018 under a licensing agreement. Prestalia was developed in coordination with Les Laboratories, Servier, a French pharmaceutical conglomerate, that sells the formulation outside the United States under the brand names Coveram® and/or Viacoram®. Prestalia was approved by the U.S. Food and Drug Administration (“FDA”) in January 2015 and was distributed through our patented DyrctAxess platform. On January 4, 2021, Servier terminated the licensing agreement for Prestalia.
As of the date of this report, the Company is not engaged in any research, development, or commercialization activities, and is not generating any revenues from operations.
To the extent that resources have been available, the Company has continued to work with its advisors to restructure our company and to identify potential strategic transactions to enhance the value of our company as such opportunities arise, including potential transactions and capital raising initiatives involving the assets relating to our legacy RNA interference programs, as well as business combination transactions with operating companies. There can be no assurance that the Company will be successful at identifying any such transactions, that it will continue to have sufficient resources to actively attempt to identify such transactions, or that such transactions will be available upon terms acceptable to us or at all. If the Company does not complete any significant strategic transactions, or raise substantial additional capital, in the immediate future, it is likely that the Company will discontinue all operations and seek bankruptcy protection.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. This quarterly report should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the year ending December 31, 2021 or for any future period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Adhera Therapeutics, Inc. and the wholly-owned subsidiaries, Ithena, Cequent, MDRNA, and Atossa, and eliminate any inter-company balances and transactions.
Going Concern and Management’s Liquidity Plans
The
accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern,
which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2021,
the Company had cash and cash equivalents of $
| 7 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
The
Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through
the sale of common stock, preferred stock, warrants to purchase common stock, convertible notes and secured promissory notes. The Company
incurred a net loss of approximately $
In addition, to the extent that the Company continues its business operations, the Company anticipates that it will continue to have negative cash flows from operations, at least into the near future. However, the Company cannot be certain that it will be able to obtain such funds required for our operations at terms acceptable to us or at all. General market conditions, as well as market conditions for companies in our financial and business position, as well as the ongoing issue arising from the COVID-19 pandemic, may make it difficult for us to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of our stockholders. If the Company is unable to obtain additional financing in the future, there may be a negative impact on the financial viability of the Company. The Company plans to increase working capital by managing its cash flows and expenses, divesting development assets and raising additional capital through private or public equity or debt financing. There can be no assurance that such financing or partnerships will be available on terms which are favorable to the Company or at all. While management of the Company believes that it has a plan to fund ongoing operations, there is no assurance that its plan will be successfully implemented. Failure to raise additional capital through one or more financings, divesting development assets or reducing discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include accruals related to our operating activity including legal and other consulting expenses, the fair value of non-cash equity-based issuances and the valuation allowance on deferred tax assets. Actual results could differ materially from such estimates under different assumptions or circumstances.
Fair Value of Financial Instruments
The Company considers the fair value of cash, accounts payable, debt, accounts receivable and accrued expenses not to be materially different from their carrying value. These financial instruments have short-term maturities. We follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
| Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
There were no liabilities or assets measured at fair value on a recurring basis as of March 31, 2021 or December 31, 2020.
| 8 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Convertible Debt and Warrant Accounting
Debt with warrants
In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in the Company’s consolidated balance sheets if the warrants are not treated as a derivative. The Company determines the fair value of the warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”) or the Monte Carlo Method based upon the underlying conversion features of the debt and then computes and records the relative fair value as a debt discount. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
Convertible debt – derivative treatment
When the Company issues debt with a conversion feature, it first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.
Convertible debt – beneficial conversion feature
If the conversion feature is not treated as a derivative, the Company assesses whether it is a beneficial conversion feature (“BCF”). A BCF exists if the effective conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.
Recently Issued Accounting Pronouncements
Recently Adopted
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350) (“ASU 2017-04”), which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill impairment test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize a goodwill impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill impairment charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is calculated by subtracting the reporting unit’s implied fair value of goodwill from the goodwill carrying amount. The standard was effective January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s historical financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective January 1, 2022 for the Company and may be applied using a full or modified retrospective approach. Early adoption is permitted, but no earlier than January 1, 2021 for the Company. The Company adopted ASU No. 2020-06 on January 1, 2021. Management determined such adoption did not have a material impact on the overall stockholders’ equity (deficit) in the Company’s consolidated financial statements.
| 9 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include outstanding warrants, stock options and preferred stock have been excluded from the computation of diluted net loss per share as their effect would be anti-dilutive. For all periods presented, basic and diluted net loss were the same.
Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Dividends | ( | ) | ( | ) | ||||
| Net Loss allocable to common stock holders | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted average common shares outstanding used to compute net loss per share, basic and diluted | ||||||||
| Net loss per share of common stock, basic and diluted | ||||||||
| Net loss per share | $ | ( | ) | $ | ( | ) | ||
For the Three Months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Convertible notes | ||||||||
| Stock options outstanding | ||||||||
| Warrants | ||||||||
| Series C Preferred Stock | ||||||||
| Series D Preferred Stock | ||||||||
| Series E Preferred Stock | ||||||||
| Series F Preferred Stock | ||||||||
| Total | ||||||||
Note 2 – Notes Payable
2019 Term Loan
On
June 28, July 3, July 17, and August 5, 2019, the Company entered into term loan subscription agreements with certain accredited investors,
pursuant to which the Company issued secured promissory notes (the “Notes”) in the aggregate principal amount of approximately
$
The
Notes accrue interest at a rate of
| 10 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
The unpaid principal balance of the Notes, plus accrued and unpaid interest thereon, will mature on the earliest to occur of: (i) June 28, 2020 (subject to extension for up to () days based upon the mutual agreement of the Company and the holders of a majority of the unpaid principal balance of all outstanding Notes) or (ii) at any time following an Event of Default. The Notes may not be prepaid without the prior written consent of the holders of the Notes. The Notes are secured by a first lien and security interest on all the assets of the Company and certain of its wholly owned subsidiaries.
On
December 28, 2019, the Company defaulted on the initial interest payment on the loan and the interest rate per annum increased to the
default rate of
The
Company recognized approximately $
As
of March 31, 2021 the Company has approximately $
2020 Term Loan
On
February 5, 2020, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to purchase: (i) original
issue discount unsecured Convertible Promissory Notes (the “Notes”), issued at a
The
maturity date is the six (6) month anniversary of the original issue date, or August 5, 2020, or such earlier date as the Note is required
or permitted to be repaid as provided thereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of the Note. Interest shall accrue to the Holders on the aggregate unconverted and then outstanding principal amount
of the Notes at the rate of
On
or after May 5, 2020 until the Notes are no longer outstanding, the Notes shall be convertible, in whole or in part, at any time, and
from time to time, into shares of Common Stock at the option of the noteholder. The conversion price shall be the lower of: (i) $
The
exercise price of the Warrants shall be equal to the conversion price of the Notes, provided, that on the date that the Notes are no
longer outstanding, the exercise price shall be fixed at the conversion price of the Notes on such date, with the exercise price of the
Warrants thereafter (and the number of shares of Common Stock issuable upon the exercise thereof) being subject to adjustment as set
forth in the Warrants. The warrants have a
The
Company recorded a discount related to the warrants of approximately $
On
June 15, 2020, the Company defaulted on certain covenants in the 2020 term loan and the interest rate reset to the default rate of
The
Company recognized $
| 11 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
As of March 31, 2021, the debt discount and issuance costs for this term loan were fully amortized. The Company remains in default on the repayment of principal and interest on the notes.
On
March 19, 2021, the holder of the note converted $
Secured Promissory Note – June 2020
On
June 26, 2020, the Company issued to an existing investor in the Company a
On
or after September 24, 2020, the Note shall be convertible, in whole or in part, into shares of common stock of the Company at the option
of the noteholder at a conversion price of $
The
obligations of the Company under the Note are secured by a senior lien and security interest in all of the assets of the Company and
certain of its wholly-owned subsidiaries pursuant to the terms and conditions of a Security Agreement dated June 26, 2020 by the Company
in favor of the noteholder. In connection with the issuance of the Note, the holders of the secured promissory notes that the Company
issued to select accredited investors between June 28, 2019 and August 5, 2019 in the aggregate principal amount of approximately $
On
August 5, 2020, the Company defaulted on certain covenants in the loan and the interest rate reset to the default rate of
For
the three months ended March 31, 2021, the Company recognized approximately $
As
of March 31, 2021, the debt discount and issuance costs for the loan were fully amortized. The Company remains in default on the repayment
of principal and interest on the notes. As of March 31, 2021, the Company has accrued interest on the note of approximately $
Secured Promissory Note – October 2020
On
October 30, 2020, the Company issued to an existing investor in and lender to the Company a
The obligations of the Company under the note are secured by a senior lien and security interest in all of the assets of the Company.
Additionally,
the Company issued the noteholder
The Company recorded approximately $
The note matures on April 30, 2021, or such earlier date as the note is required or permitted to be repaid. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the note at the rate of 10% per annum, calculated on the basis of a 360-day year.
| 12 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
The
Company recorded a discount related to the warrants of approximately $
For
the three months ended March 31, 2021, the Company recognized approximately $
As
of March 31,2021, the Company has recorded $
Secured Promissory Note – January 2021
On
January 31, 2021, the Company issued to an existing investor in and lender to the Company a
The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company.
Additionally,
the Company issued to the investor
The Company recorded approximately $
The note matures on July 31, 2021, or such earlier date as the note is required or permitted to be repaid. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the note at the rate of 10% per annum, calculated on the basis of a 360-day year.
The
Company recorded a discount related to the warrants of approximately $
The Company recorded a beneficial conversion feature of
approximately $
For
the year ended March 31, 2021, the Company recognized approximately $
As
of March 31,2021, the Company has recorded $
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Note 3 - Licensing Agreements
Les Laboratories Servier
As a result of the Asset Purchase Agreement that the Company entered into with Symplmed Pharmaceuticals LLC in June 2017, Symplmed assigned to the Company an Amended and Restated License and Commercialization Agreement with Les Laboratories Servier, pursuant to which the Company has the exclusive right to manufacture, have manufactured, develop, promote, market, distribute and sell Prestalia® in the U.S. (and its territories and possessions). The terms of the agreement include single-digit royalty payments based on net sales and milestone payments based upon the attainment of sales thresholds. The agreement includes a termination clause pursuant to which Servier has the right to terminate the agreement in various circumstances, including, without limitation, as a result of the failure by the Company to achieve certain sales thresholds by the dates set forth in the agreement.
On
November 19, 2019, the Company entered into an Amendment No. 4 to the Amended and Restated License and Commercialization Agreement with
Les Laboratories Servier, which modified the agreement to delay the date by which the Company would be required to meet certain net sales
milestones as set forth in the agreement. As per the license and commercialization agreement, as amended, Les Laboratories Servier may
terminate the agreement if net sales of Prestalia® by the Company are below $
On January 4, 2021, Servier terminated the licensing agreement with the Company for the commercialization of Prestalia®.
Novosom Agreements
In
2010, the Company entered into an asset purchase agreement with Novosom Verwaltungs GmbH (“Novosom”), pursuant to which the
Company acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system. In May 2018, the Company issued
to Novosom shares of our common stock, with a fair value of $
The Company recognized no income from the agreement for the three-month periods ended March 31, 2020 or 2021.
License of DiLA2 Assets
On
March 16, 2018, the Company entered into an exclusive sublicensing agreement for certain intellectual property rights to its DiLA2 delivery
system. The agreement included an upfront payment of $
Note 4 - Related Party Transactions
Due to Related Party
The Company and other related entities have had a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.
The Company had a Master Services Agreement (“MSA”) with Autotelic Inc., a related party that is partly owned by one of the Company’s former Board members and executive officers, namely Vuong Trieu, Ph.D., effective November 15, 2016. The MSA stated that Autotelic Inc. will provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA included personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company. The MSA required a 90-day written termination notice in the event either party requires to terminate such services. We and Autotelic Inc. agreed to terminate the MSA effective October 31, 2018. Dr. Trieu resigned as a director of our company effective October 1, 2018.
An
unpaid balance of approximately $
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Note 5 - Stockholders’ Equity
Preferred Stock
Adhera has authorized shares of preferred stock for issuance and has designated shares as Series B Preferred Stock (“Series B Preferred”) and shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). No shares of Series B Preferred or Series A Preferred are outstanding. In March 2014, Adhera designated shares as Series C Convertible Preferred Stock (“Series C Preferred”). In August 2015, Adhera designated shares as Series D Convertible Preferred Stock (“Series D Preferred”). In April 2018, Adhera designated shares of Series E Convertible Preferred Stock (“Series E Preferred”). In July 2018, Adhera designated shares of Series F Convertible Preferred Stock (“Series F Preferred”).
Series C Preferred
Each
share of Series C Preferred has a stated value of $ per share, has a $ liquidation preference per share, has
As of December 31, 2020, and December 31, 2019, shares of Series C Preferred stock were outstanding.
Series D Preferred
Each
share of Series D Preferred has a stated value of $ per share, has a liquidation preference of $ per share, has
As of December 31, 2020, and December 31, 2019, shares of Series D Preferred were outstanding.
Series E Convertible Preferred Stock and Warrants
The
Series E Preferred accrues
As
of March 31, 2021, the Company had a total of
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
On December 11, 2020, the Company issued unregistered shares of our common stock to a holder of Series E Convertible Preferred Stock in connection with the conversion of shares Series E Convertible Preferred Stock plus accrued dividends.
On December 21, 2020, the Company issued unregistered shares of our common stock to a holder of Series E Convertible Preferred Stock in connection with the conversion of shares Series E Convertible Preferred Stock plus accrued dividends.
On March 19, 2021, the
exercise price of the Series E warrants was adjusted down to $
The
Company had accrued dividends on the Series E Preferred stock of approximately
$
Series F Convertible Preferred Shares and Warrants
In
July 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold
shares of our Series F Preferred, at a purchase
price of $
The
Company received proceeds of approximately $
On
November 9, 2018, the Company entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant
to which we sold shares of our Series F Preferred Stock, at a purchase price of $
On
October 30, 2019, the Company repurchased shares of Series F Convertible Preferred Stock including accrued and unpaid dividends and
warrants to purchase
On March 19, 2021, the
exercise price of the Series F warrants was adjusted down to $
The
Company had accrued dividends on the Series F Preferred stock of approximately $
Common Stock
On March 19, 2021,
the Company issued shares of common stock to the holder of the 2020 Term Loan for conversion of $
Warrants
As
of March 31, 2021, there were
| Expiring in 2021 | ||||
| Expiring in 2022 | ||||
| Expiring in 2023 | ||||
| Expiring in 2024 | ||||
| Expiring thereafter | ||||
| Total |
The above includes price adjustable warrants, including the warrants issued with the 2021 term loan which are subject to adjustment based upon the final conversion price of the note.
No warrants expired during the period.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Stock Options
| Options Outstanding | ||||||||
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Options granted | ||||||||
| Options expired / forfeited | ( | ) | ||||||
| Outstanding, March 31, 2021 | ||||||||
| Exercisable, March 31, 2021 | $ | |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Totals | $ | $ | ||||||||||||||||||
During the three months ended March 31, 2021, the Company granted no stock options.
Total expense related to stock options was approximately $ for the three months ended March 31, 2020. No stock- based compensation expense was recognized for the period ended March 31, 2021.
As of March 31, 2021, the Company had no unrecognized compensation expense related to unvested stock options.
As of March 31, 2021, the intrinsic value of stock options outstanding was zero.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
Note 7 - Commitments and Contingencies
Litigation
Because of the nature of the Company’s business, it is subject to claims and/or threatened legal actions, which arise out of the normal course of business. As of the date of this filing, the Company is not aware of any pending lawsuits against it, its officers or directors.
Leases
The Company does not own or lease any real property or facilities that are material to its current business operations. If the Company continues its business operations, the Company may seek to lease facilities in order to support its operational and administrative needs.
Note 8 - Subsequent Events
Except for the events discussed below, there were no subsequent events that required recognition or disclosure.
Default on Secured Promissory Note
On
April 30, 2021, the Company defaulted on the October 2020 term loan and the interest rate on the loan reset to
Issuance of Secured Promissory Note
On
April 16th, 2021, Adhera Therapeutics, Inc. (the “Company”) issued to an existing investor in and lender to the
Company a
Pursuant to the Note, the Company promises to pay the principal sum of the Note to the noteholder on the date that is the six-month anniversary of the original issue date, or such earlier date as the Note is required or permitted to be repaid as provided thereunder, and to pay interest to the noteholder on the aggregate unconverted and then outstanding principal amount of the Note in accordance with the provisions thereof. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated based on a 360-day year and shall accrue daily commencing on the original issue date until payment in full of the outstanding principal (or conversion to the extent applicable), together with all accrued and unpaid interest, liquidated damages and other amounts which may become due thereunder, has been made.
The
Note is convertible, in whole or in part, at any time, and from time to time, into shares of the common stock of the Company at the option
of the noteholder at a conversion price of $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect management’s current views with respect to future events and financial performance. The following discussion should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) on April 7, 2021. Forward-looking statements are projections in respect of future events or financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.
Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform them to actual results, new information, future events or otherwise, except as otherwise required by securities and other applicable laws.
The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated:
| ● | our ability to obtain additional funding for our company, whether pursuant to a capital raising transaction arising from the sale of our securities, a strategic transaction or otherwise; |
| ● | our ability to satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended, and to maintain the registration of our common stock thereunder; and |
| ● | our ability to attract and retain qualified officers, directors, employees and consultants as necessary. |
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 7, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any forward-looking statements after the date of this report to conform these statements to actual results.
As used in this quarterly report and unless otherwise indicated, the terms “we,” “us,” “our” or the “Company” refer to Adhera Therapeutics, Inc., a Delaware corporation, and its wholly-owned subsidiaries, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc., Atossa Healthcare, Inc., and IthenaPharma, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars. Our common stock is currently listed on the OTC Market, OTCQB tier, under the symbol “ATRX.”
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Corporate Overview
Nature of Business
Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IThenaPharma, Inc. (“IThena”) (collectively “Adhera,” the “Company,” “we,” “our,” or “us”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
As a result, as of the date of this report, we are not engaged in any research, development or commercialization activities, and we are not generating any revenues from operations. Moreover, as of the date of this report, we do not have any personnel other than a contracted Chief Executive Officer.
To the extent that resources have been available, we have been working with our advisors to restructure our company and to identify potential strategic transactions to enhance the value of our company as such opportunities arise, including potential transactions and capital raising initiatives involving the assets relating to our legacy RNA interference programs, as well as business combination transactions with operating companies. There can be no assurance that we will be successful at identifying any such transactions, that we will continue to have sufficient resources to actively attempt to identify such transactions, or that such transactions will be available upon terms acceptable to us or at all. If we do not complete any significant strategic transactions, or raise substantial additional capital, in the immediate future, it is likely that we will discontinue all operations and seek bankruptcy protection.
Appointment of Director
On April 20, 2021, we appointed Trond K. Waerness to serve as a member of the Board of Directors.
Need for Future Financing
On April 16th, 2021, we issued to an existing investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,666 for a purchase price of $60,000. Additionally, we issued to the investor 800,000 warrants to purchase the Company’s common stock at an exercise price of $0.095 per share. The Note matures on the date that is the six (6) month anniversary of the original issue date. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated on the basis of a 360-day year.
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We will require substantial additional funds on an immediate basis to continue our business operations. We have, in the past, raised additional capital to supplement our commercialization, clinical and pre-clinical development and operational expenses. We will need to raise additional funds through equity financing, debt financing, strategic alliances, or other sources, which may result in significant further dilution in the equity ownership of our shares or result in further encumbrances being placed on our assets. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms, or that it will be sufficient for us to successfully engage in any of our planned business operations. If we are not able to obtain additional financing on a timely basis as required or generate significant capital from the out-licensing and/or divestiture of existing assets, we will not be able to meet our other obligations as they become due and will be forced to scale down or even cease our operations altogether.
Results of Operations
Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020
Operating Expenses
Our operating expenses for the three months ended March 31, 2021 and 2020 are summarized as follows:
| Three Months Ended | ||||||||||||
March 31, 2021 | March 31, 2020 | Increase/ (Decrease) | ||||||||||
| (in thousands) | ||||||||||||
| Sales and marketing | $ | 9 | $ | 784 | $ | (775 | ) | |||||
| General and administrative expenses | 101 | 539 | (438 | ) | ||||||||
| Total operating expenses | $ | 110 | $ | 1,323 | $ | (1,213 | ) | |||||
Sales and Marketing
For the three months ended March 31, 2021, sales and marketing expense decreased by approximately $775,000 as compared to the three months ended March 31, 2020. Sales and marketing expenses for the three months ended March 31, 2020 were primarily related to regulatory costs incurred for maintaining the Prestalia® NDA including approximately $679,000 of PFUFA fees. No such costs were incurred for the same period of 2021.
General and Administrative
General and administrative expense decreased by approximately $438,000 for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. The decrease was primarily due to a reduction in personnel related expenses and public company fees including legal expenses and insurance for the three months ended March 31, 2021 as compared to the same period of 2020.
Other Expense
| Three Months Ended | ||||||||||||
March 31, 2021 | March 31, 2020 | (Increase)/ Decrease | ||||||||||
| (in thousands) | ||||||||||||
| Interest expense | $ | (243 | ) | $ | (410 | ) | $ | (167 | ) | |||
| Amortization of debt discount | (75 | ) | (105 | ) | (30 | ) | ||||||
| Total other expense, net | $ | (318 | ) | $ | (515 | ) | $ | (197 | ) | |||
Interest expense for the three months ended March 31, 2021 decreased by $167,000 compared to the three months ended March 31, 2020 primarily due to a decrease in the amortization of debt issuance costs for our term loans. The amortization of debt discount decreased by $30,000 primarily due to a maturity of our outstanding term loans.
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Liquidity & Capital Resources
Working Capital
| (in thousands) | March 31, 2021 | December 31, 2020 | ||||||
| Current assets | $ | 1 | $ | 1 | ||||
| Current liabilities | (15,506 | ) | (14,774 | ) | ||||
| Working deficit | $ | (15,505 | ) | $ | (14,773 | ) | ||
Negative working capital as of March 31, 2021 was approximately $15.5 million as compared to negative working capital of approximately $14.8 million as of December 31, 2020. The decrease in working capital is primarily related to an increase in our current liabilities as of March 31, 2021 including approximately $46,000 of notes payable net of issuance costs, an increase in accrued dividends for our convertible preferred stock of approximately $377,000 and an increase in accounts payable and accrued expenses related to our operating activities.
Cash Flows and Liquidity
Net cash used in Operating Activities
Net cash used in operating activities was approximately $46,000 during the three months ended March 31, 2021. This was primarily due to our net operating loss of approximately $428,000, partially offset by non-cash interest expense related to our term loans of $241,000, amortization of debt discount and fees of $77,000 and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $64,000.
Net cash used in operating activities was approximately $394,000 during the three months ended March 31, 2020. This was primarily due to our net operating loss of approximately $1.8 million, partially offset by non-cash interest expense related to our term loans of $221,000 and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $772,000.
Net cash used in Investing Activities
There was no cash used in or provided by investing activities for the three months ended March 31, 2021 or March 31, 2020.
Net cash provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2021, and 2020 was approximately $46,000 and $409,000, respectively from the issuance of promissory notes to certain accredited investors.
We will need to raise immediate additional operating capital to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we will not have the cash resources to continue as a going concern thereafter.
Future Financing
On April 16, 2021, the company issued to an existing investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,666 for a purchase price of $60,000. Additionally, the Company issued to the investor 800,000 warrants to purchase the Company’s common stock at an exercise price of $0.095 per share. The Note matures on the date that is the six (6) month anniversary of the original issue date. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated on the basis of a 360-day year.
We will require immediate additional funds to continue our business. Historically, we have raised additional capital to supplement our commercialization, clinical development and operational expenses. We will need to raise additional funds required through equity financing, debt financing, strategic alliances or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. Failure to raise additional capital through one or more financings, divesting development assets or reducing discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives. These factors raise substantial doubt about our ability to continue as a going concern.
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Off-Balance Sheet Arrangements
As of March 31, 2021 we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included herein for the period ended March 31, 2021 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
.
New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the period ended March 31, 2021.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weakness(es) in internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of March 31, 2021 was not effective.
A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses:
| ● | Inadequate segregation of duties consistent with control objectives; |
| ● | Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; and |
| ● | Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. |
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Management’s Plan to Remediate the Material Weakness
Providing funds are available, management plans to implement measures designed to ensure that control deficiencies, contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned included:
| ● | Identifying gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Continuing to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
We will continue to reassess our plans to remedy our internal control deficiencies in light of our personnel structure and our financial condition. We hope that such measures will lead to an improvement in the timely preparation of financial reports and strengthen our segregation of duties at our company. We are committed to developing a strong internal control environment, and we believe that the remediation efforts that we will implement will result in significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
Currently, there is no material litigation pending against our company. From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of our business. Although the results of such litigation and claims in the ordinary course of business cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, results of operations or financial condition. Regardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), as filed with the SEC on April 7, 2021, in addition to other information contained in those documents and reports that we have filed with the SEC pursuant to the Securities Act and the Exchange Act since the date of the filing of the Annual Report, including, without limitation, this Quarterly Report on Form 10-Q, in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be adversely affected due to any of those risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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Item 6. Exhibits
| 25 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ADHERA THERAPEUTICS, INC. | ||
| Date: May 24, 2021 | By: | /s/ Andrew Kucharchuk |
Andrew Kucharchuk CEO (Principal Executive and Principal Financial Officer) | ||
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