March 31, 2020 Delaware (IRS Employer 518-3748 ☐ ☐ ☐ ☒. MARCH 31, 2020 5,160 5,267 (3,137 Additional Paid-in Capital - Warrants 636 41 - MARCH 31, 2020 information necessary to empower patients, physicians and manufacturers to achieve optimal care. 2019. 2019. The Company terminated all commercial operations in December 2019, therefore all revenue and cost of goods sold disclosure only apply to periods prior to the first quarter of 2020. Net (3,137 (6,077 Net Book Value June 30, 2019 Remaining Estimated Assets March 31, 2020. 2019. March 31, 2020. March 31, 2020. 7.97 options to recognize through 2022. 0. March 31, 2019 Prestalia. March 31, 2019. 2,764 December 2019. No amortization expense was recognized for the three months ended March 31, 2020. 5,208 (1,024 2020 term loan. expenses of approximately $0.7 million. capital. activities. 2019. financial reporting objectives. financial reporting go undetected.[X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 June 30, 2019[ ]☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware11-265856911-2658569 (State or other jurisdiction of
incorporation or organization)
Identification No.)4721 Emperor Boulevard, Suite 350Durham,27703(Address of principal executive offices) (Zip Code) 578-5901[X]☒ No [ ][X]☒ No [ ]Large accelerated filer [ ]☐Accelerated filer [ ]☐Non-accelerated filer [ ]☐ (Do not check if a smaller reporting company)Smaller reporting company [X]☒Emerging Growth Company [ ]☐[ ][ ]☐ No [X].August 12, 2019,July 3, 2020, there were 10,869,530 shares of the registrant’s common stock outstanding.JUNE 30, 2019PagePage 3192425262727ITEM 6.3.27SIGNATURESITEM 4.28 June 30, 2019 December 31, 2018 (Unaudited) ASSETS Current assets Cash $ 1,644 $ 3,918 Accounts receivable, net of allowance 94 48 Inventory 232 242 Prepaid expenses and other assets 184 469 Total current assets 2,154 4,677 Operating lease right of use asset 178 - Furniture and fixtures, net of depreciation 67 72 Intangible assets, net of amortization 357 392 602 464 Total assets $ 2,756 $ 5,141 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable $ 955 $ 270 Due to related party 4 28 Accrued expenses 1,063 852 Current portion of operating lease liability 78 - Accrued dividends 1,800 1,064 Loan payable 1,260 - Total current liabilities 2,214 Other lease liability, net of current portion 107 - Total liabilities 2,214 Commitments and contingencies (Note 9) Stockholders’ equity (deficit) Preferred stock, $0.01 par value; 100,000 shares authorized Series C convertible preferred stock, $0.01 par value; $5,100 liquidation preference; 1,200 shares authorized; 100 shares issued and outstanding as of June 30, 2019 and December 31, 2018 - - Series D convertible preferred stock, $0.01 par value; $300 liquidation preference; 220 shares authorized; 40 shares issued and outstanding as of June 30, 2019 and December 31, 2018 - - Series E convertible preferred stock, $0.01 par value; $5,000 liquidation preference; 3,500 shares authorized; 3,478 and 3,488 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively - - Series F convertible preferred stock, $0.01 par value; $5,000 liquidation preference; 2,200 shares authorized; 381 shares issued and outstanding as of June 30, 2019 and December 31, 2018 - - Common stock, $0.006 par value; 180,000,000 shares authorized, 10,869,530 and 10,761,684 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively 65 65 Additional paid-in capital 29,346 28,710 Accumulated deficit (31,922 ) (25,848 ) Total stockholders’ equity (deficit) (2,511 ) 2,927 Total liabilities and stockholders’ equity (deficit) $ 2,756 $ 5,141 March 31, 2020 December 31, 2019 (Unaudited) ASSETS Current assets Cash $ 65 $ 50 Prepaid expenses and other assets 250 370 Total current assets 315 420 Total assets $ 315 $ 420 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable $ 2,123 $ 1,403 Due to related party 4 4 Accrued expenses 1,278 1,005 Accrued dividends 2,948 2,565 Notes payable 5,795 5,330 Total current liabilities 12,148 10,307 Total liabilities 12,148 10,307 Commitments and contingencies (Note 8) Stockholders’ deficit Preferred stock, $0.01 par value; 100,000 shares authorized Series C convertible preferred stock, $0.01 par value; $5,100 liquidation preference; 1,200 shares authorized; 100 shares issued and outstanding as of March 31, 2020 and December 31, 2019 — — Series D convertible preferred stock, $0.01 par value; $300 liquidation preference; 220 shares authorized; 40 shares issued and outstanding as of March 31, 2020 and December 31, 2019 — — Series E convertible preferred stock, $0.01 par value; $5,000 liquidation preference; 3,500 shares authorized; 3,478 shares issued and outstanding as of March 31, 2020 and December 31, 2019 — — Series F convertible preferred stock, $0.01 par value; $5,000 liquidation preference; 2,200 shares authorized; 361 shares issued and outstanding as of March 31, 2020 and December 31, 2019 — — Common stock, $0.006 par value; 180,000,000 shares authorized, 10,869,530 shares issued and outstanding as of March 31, 2020 and December 31, 2019 65 65 Additional paid-in capital 29,650 29,375 Accumulated deficit (41,548) (39,327) Total stockholders’ deficit (11,833) (9,887) Total liabilities and stockholders’ deficit $ 315 $ 420 For the Three Months Ended For the Six Months Ended June 30, June 30, 2019 2018 2019 2018 Net sales $ 66 $ - $ 69 $ - Cost of sales 81 - 198 - Gross Margin (15 ) - (129 ) - Operating expenses Sales, marketing and commercial operations 1,148 2,586 2,207 2,586 Research and development - - - 173 General and administrative 1,599 1,059 2,966 1,979 Amortization 17 123 35 247 Total operating expenses 2,764 3,768 5,208 4,985 Loss from operations (2,779 ) (3,768 ) (5,337 ) (4,985 ) Other expense Interest expense (1 ) (5 ) (1 ) (149 ) Loss on settlement - (875 ) - (875 ) (1 ) (880 ) (1 ) (1,024 ) Loss before provision for income taxes (2,780 ) (4,648 ) (5,338 ) (6,009 ) Provision for income taxes - - - - Net loss (2,780 ) (4,648 ) (5,338 ) (6,009 ) Preferred Stock Dividends (357 ) (271 ) (739 ) (271 ) Net Loss Applicable to Common Stockholders $ ) $ (4,919 ) $ (6,077 ) $ (6,280 ) Net loss per share – Common Shareholders - basic and diluted $ (0.29 ) $ (0.45 ) $ (0.56 ) $ (0.59 ) Weighted average shares outstanding - basic and diluted 10,860,049 10,821,230 10,811,138 10,672,082 2020 2019 Net sales $ — $ 3 Cost of sales — 117 Gross margin — (114) Operating expenses Sales and marketing 784 1,059 General and administrative 539 1,367 Amortization — 18 Total operating expenses 1,323 2,444 Loss from operations (1,323) (2,558) Other expense Interest expense (410) — Amortization of debt discount (105) — Net loss (1,838) (2,558) Preferred Stock Dividends (383) (382) Net Loss Applicable to Common Stockholders $ (2,221) $ (2,940) Net loss per share – Common Shareholders - basic and diluted $ (0.20) $ (0.27) Weighted average shares outstanding - basic and diluted 10,869,530 10,781,684 Series E Preferred Stock Series F Preferred Stock Common Stock Additional Additional
Paid-in Number Par
Value Number Par
Value Number Par
Value Paid-in
Capital Capital
Warrants Accumulated
Deficit Total Balance, December 31, 2017 - $ - - $ - 10,521,278 $ 63 $ 8,414 $ - $ (8,029 ) $ 448 Share based compensation - - - - - - 119 - - 119 Net loss - - - - - - - - (1,361 ) (1,361 ) Balance, March 31, 2018 - - - - 10,521,278 63 8,533 - (9,390 ) (794 ) Issuance of Series E Preferred Stock, net of fees 2,812 - - - - - 12,258 - - 12,258 Warrants issued with Series E Preferred Stock - - - - - - (31,107 ) 31,107 - - Issuance of Series E Preferred for debt and accounts payable 687 - - - - - 3,438 - - 3,438 Conversion of Series C Preferred stock for common stock - - - - 433,334 3 (3 ) - - - Conversion of Series D Preferred stock for common stock - - - - 25,000 - - - - - Warrants issued for settlement of liability - - - - - - - 1,494 - 1,494 Shares issued for settlement of litigation - - - - 210,084 1 249 - - 250 Shares issued for License Agreement - - - - 51,988 - 75 - - 75 Accrued dividend - - - - - - - - (271 ) (271 ) Share based compensation - - - - - - 374 - - 374 Cancellation of Series E Preferred Stock (9 ) - - - - - (46 ) - - (46 ) Net loss - - - - - - - - (4,648 ) (4,648 ) Balance, June 30, 2018 3,490 $ - - $ - 11,241,684 $ 67 $ (6,229 ) $ 32,601 $ (14,309 ) $ 12,130 Series E Preferred Stock Series F Preferred Stock Common Stock Additional Number Par
Value Number Par
Value Number Par
Value Paid-in
Capital Accumulated
Deficit Total Balance, December 31, 2018 3,488 $ - 381 $ - 10,761,684 $ 65 $ (5,384 ) $ 34,094 $ (25,848 ) $ 2,927 Accrued dividend - - - - - - - - (382 ) (382 ) Share based compensation - - - - - - 395 - - 395 Net loss - - - - - - - - (2,558 ) (2,558 ) Balance, March 31, 2019 3,488 - 381 - 10,761,684 65 (4,989 ) 34,094 (28,788 ) 382 Conversion of Series E Preferred stock for common stock (10 ) - - - 107,846 - - - 3 3 Accrued dividend - - - - - - - - (357 ) (357 ) Share based compensation - - - - - - 241 - - 241 Net loss - - (2,780 ) (2,780 ) Balance, June 30, 2019 3,478 $ - 381 $ - 10,869,530 $ 65 $ (4,748 ) $ 34,094 $ (31,922 ) $ (2,511 ) Series E Preferred Stock Series F Preferred Stock Common Stock Total Number Number Number Balance, December 31, 2018 3,488 $ — 381 $ — 10,761,684 $ 65 $ (5,384) $ 34,094 $ (25,848) $ 2,927 Accrued dividend — — — — — — — — (382) (382) Share based compensation — — — — — — 395 — — 395 Net loss — — — — — — — — (2,558) (2,558) Balance, March 31, 2019 3,488 $ — 381 $ — 10,761,684 $ 65 $ (4,989) 34,094 $ (28,788) $ 382 Series E Preferred Stock Series F Preferred Stock Common Stock Total Number Number Number Balance, December 31, 2019 3,478 $ — 361 $ — 10,869,530 $ 65 $ (4,719) $ 34,094 $ (39,327) $ (9,887) Accrued dividend — — — — — — — — (383) (383) Share based compensation — — — — — — 36 — — 36 Issuance of warrants with notes payable, net of discount — — — — — — — 239 — 239 Net loss — — — — — — — — (1,838) (1,838) Balance, March 31, 2020 3,478 $ — 361 $ — 10,869,530 $ 65 $ (4,683) $ 34,333 $ (41,548) $ (11,833) For the Six Months Ended June 30, 2019 2018 Cash Flows Used in Operating Activities: Net loss $ (5,338 ) $ (6,009 ) Adjustments to reconcile net loss to net cash used in operating activities: Share based compensation 493 Common shares issued for settlement - 250 Preferred shares issued for note settlement - 375 Common shares issued to license agreement - 75 Amortization of intangibles 35 247 Bad debt expense Amortization of debt discount - 113 Depreciation 5 - Non-cash interest expense 1 37 Non-cash lease expense 62 - Loss on settlement - 875 Changes in operating assets and liabilities: Accounts receivable (87 ) - Inventory 10 (80 ) Prepaid expenses and other assets 285 (193 ) Accounts payable 685 161 Accrued expenses 218 (330 ) Accrued fee payable - (320 ) Deferred revenue - 200 Due to related party (24 ) 250 Lease liability (62 ) - Net Cash Used in Operating Activities (3,533 ) (3,856 ) Cash Flows Used in Investing Activities: Purchase of furniture and fixtures - (10 ) Net Cash Used in Investing Activities - (10 ) Cash Flows Provided By Financing Activities: Proceeds from sale of preferred stock, net offering expenses - 12,258 Proceeds from loan payable 1,495 - Loan payable issuance costs (236 ) - Payments for notes payable - (144 ) Net Cash Provided by Financing Activities 1,259 12,114 Net (decrease) increase in cash (2,274 ) 8,248 Cash – Beginning of Period 3,918 106 Cash - End of Period $ 1,644 $ 8,354 Supplemental Cash Flow Information: Non-cash Investing and Financing Activities: Capitalization of operating lease right of use asset $ 240 $ - Issuance of warrants for liabilities, related party - 1,494 Preferred share settlement of debt and accrued liabilities - 3,438 Issuance of warrants - 31,107 Accrued dividends 739 271 Conversion of Series E accrued dividend for common stock 3 - For the Three Months Ended March 31, 2020 2019 Cash Flows Used in Operating Activities: Net loss $ (1,838) $ (2,558) Adjustments to reconcile net loss to net cash used in operating activities: Share based compensation 36 395 Amortization of intangibles — 18 Amortization of debt discount and fees 294 — Depreciation — 3 Non-cash interest expense 221 — Non-cash lease expense — 31 Changes in operating assets and liabilities: Accounts receivable — 9 Inventory — (17) Prepaid expenses and other assets 121 (22) Accounts payable 720 52 Accrued expenses 52 5 Due to related party — 25 Lease liability — (31) Net Cash Used in Operating Activities (394) (2,090) Cash Flows Provided By Financing Activities: Proceeds from loan payable, net of discount 500 — Notes payable issuance costs (91) — Net Cash Provided by Financing Activities 409 — Net increase (decrease) in cash 15 (2,090) Cash – Beginning of Period 50 3,918 Cash - End of Period $ 65 $ 1,828 Supplemental Cash Flow Information: Non-cash Investing and Financing Activities: Capitalization of operating lease right of use asset $ — $ 240 Issuance of warrants with notes payable 239 — Accrued dividends 383 382 AND SIX MONTHS ENDED JUNE 30, 2019 (formerly known as Marina Biotech, 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 emerginga specialty pharmaceuticalbiotech company that, leveragesto the extent that resources and opportunities become available, is strategically evolving focus in hopes of a return to a drug discovery and development company, and a departure from active commercialization and promotion of hypertension treatment options in the U.S. market.diseases. The Company is focusedand acute diseases with a focus on fixed dose combination (“FDC”) therapies in hypertension, with plans to expand the portfolio of drugs we commercialize to include other therapeutic areas.The Company’s mission is to provide effective and patient centric treatment for hypertension while actively seeking additional assets that can be commercialized through our proprietary Total Care System (“TCS”). At the core of our TCS system is DyrctAxess, our patented technology platform. DyrctAxess is designed to offer enhanced efficiency, control and access to the information necessary to empower patients, physicians and manufacturers to achieve optimal care.The Company ishypertension.demonstrating the therapeutic and commercial value of TCS through the commercialization of Prestalia®, a single-pill FDC of perindopril arginine (“perindopril”) and amlodipine besylate, (“amlodipine”) which is used as a first-line treatment for hypertension.we began marketing in June of 2018. 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 licensed bydistributed through our patented DyrctAxess platform.Symplmed in June 2017. By combiningoperations, including from the sale of Prestalia®, DyrctAxess and an independent pharmacy network, or any other product.created a proprietary system for drug adherencebeen working 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 patient counselingpotential transactions and prescription reminder services,capital raising initiatives involving the assets relating to our legacy RNA interference programs, as well as improving the distribution of blood pressure monitors for therapeutic drug monitoring (“TDM”).In 2018,business combination transactions with operating companies. There can be no assurance that the Company discontinuedwill 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 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 significant clinical development activitiesoperations and seek bankruptcy protection.dispositionall strategic options for its development assets, including but not limited to: (i) a next generation celecoxib program of drug candidates for the treatment of acute and chronic pain; (ii) an FDC used to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis; (iii) an FDC to treat Colorectal Cancer; and (iv) an FDC for irritable bowel disease (IBD). The Company plans to license out-license and/or divest these development assets since they no longer align withour existing intellectual property, including our DyrctAxess platform, which is designed to offer enhanced efficiency, control and access to the Company’s focus on the commercialization of Prestalia.2018.2019. 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 or six months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results for the year ending December 31, 20192020 or for any future period.June 30, 2019,March 31, 2020, the Company had cash and cash equivalents of $1.6 million$65,000 and has negative working capital of approximately $3.0$11.8 million.$2.8$1.8 million and $5.3$2.6 million for the three and six months ended June 30,March 31, 2020, and March 31, 2019, respectively. The Company had an accumulated deficit of approximately $31.9$41.5 million as of June 30, 2019.TheMarch 31, 2020.expects tocontinues its business operations, the Company anticipates that it will continue to incur operating losses ashave negative cash flows from operations, at least into the near future. However, the Company cannot be certain that it executes the commercialization planswill be able to obtain such funds required for Prestalia®,our operations at terms acceptable to us or at all. General market conditions, as well as other strategicmarket conditions for companies in our financial and business development initiatives.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 or on terms which are favorable to the Company.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. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.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.no0 liabilities or assets measured at fair value on a recurring basis as of June 30, 2019March 31, 2020 or December 31, 2018.Accounts Receivable, netAccounts receivable consists of amounts due from wholesale distributors and specialty pharmacy providers. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. The Company estimates its allowance based on historical experience, assessment of specific risks and discussions with individual customers. The Company believes the reserve is adequate to mitigate current collection risks. During the three and six months ended June 30, 2019 and 2018, the Company recorded an additional allowance of approximately $41,000 and $0, respectively.Goodwill and Intangible AssetsThe Company periodically reviews the carrying value of intangible assets, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.During the year ended December 31, 2018, the Company determined that goodwill was impaired and recognized a loss on impairment of approximately $3.5 million. The impairment determination was primarily a result of the decision to divest assets that no longer aligned with the Company’s strategic objectives. No impairment charges were recognized for the three and six-month period ended June 30, 2019 or 2018.●For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and●For indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any.not0t recognize any loss on impairment for the three or six-monththree-month periods ended June 30, 2019March 31, 2020 or 2018.Revenue RecognitionCustomers ConcentrationThe Company sells its prescription drug (Prestalia®) directly to specialty contracted retail pharmacies and indirectly through wholesalers. For the three months ended June 30, 2019, the Company’s three largest customers accounted for 46%, 31% and 23% of the Company’s total gross sales. For the six months ended June 30, 2019, the Company’s three largest customers accounted for 39%, 37%, and 24% of the Company’s total gross sales. The Company works with a third-party pharmacy network manager to attract, retain, and manage the Company’s pharmacy customers and distribution channels. The Company had no sales for the three or six-month periods ending June 30, 2018.(ASC (ASC 606), effective with the quarter ended March 31, 2018.2016-02,2016-2, Leases (Topic 842) (“ASU No. 2016-02”2016-2”). Under ASU No. 2016-02,2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities by class of underlying assets. ASU No. 2016-022016-2 became effective for the Company beginning in the first quarter of 2019. The Company adopted this standard on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The adoption did not have a material impact on its condensed consolidated statement of operations. The Company elected to not recognize lease assets and liabilities for leases with an initial term of twelve months or less.11Income (Loss)Loss per Common Share Three Months ended June 30, Six Months ended June 30, 2019 2018 2019 2018 Numerator Net loss $ (2,780 ) $ (4,648 ) $ (5,338 ) $ (6,009 ) Preferred stock dividends $ (357 ) $ (271 ) $ (739 ) $ (271 ) Net Loss allocable to common stock holders $ ) $ (4,919 ) $ ) $ (6,280 ) Denominator Weighted average common shares outstanding used to compute net loss per share, basic and diluted 10,860,049 10,821,230 10,811,138 10,672,082 Net loss per share of common stock, basic and diluted Net loss per share $ (0.29 ) $ (0.45 ) $ (0.56 ) $ (0.59 ) Three Months Ended March 31, 2020 2019 Numerator Net loss $ (1,838) $ (2,558) Preferred stock dividends (383) (382) Net Loss allocable to common stock holders $ (2,221) $ (2,940) Denominator Weighted average common shares outstanding used to compute net loss per share, basic and diluted 10,869,530 10,781,684 Net loss per share of common stock, basic and diluted Net loss per share $ (0.20) $ (0.27) Three and Six Months
Ended June 30, 2019 2018 Stock options outstanding 4,992,807 1,122,457 Warrants 36,267,329 33,028,829 Series C Preferred Stock 68,000 68,000 Series D Preferred Stock 3,000 3,000 Series E Preferred Stock 34,780,000 34,990,000 Series F Preferred Stock 3,810,000 - Total 79,921,136 69,212,286 NOTE 2 – InventoryInventory consists of raw material and finished goods stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. The Company reviews the composition of inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of expected demand, or otherwise non-saleable items.Inventory as of the following as of June 30, 2019 and December 31, 2018 are as follows: June 30, 2019 December 31, 2018 (in thousands) Raw Materials $ 173 $ 147 Finished Goods 59 95 Inventory, Net $ 232 $ 242 For the Three Months ended March 31, 2020 2019 Stock options outstanding 2,941,350 4,522,807 Warrants 36,272,500 36,267,329 Series C Preferred Stock 66,667 66,667 Series D Preferred Stock 50,000 50,000 Series E Preferred Stock 40,202,132 34,880,000 Series F Preferred Stock 4,086,178 3,810,000 Total 83,618,827 79,596,803 32 - Intangible AssetsAsset SummaryIntangible assets as of June 30, 2019 are as follows:
Useful Life
(Years) Annual
Amortization
Expense (in thousands) Intangible asset - Prestalia $ 292 4.50 $ 65 Intangible asset - DyrctAxess 65 12.09 5 Total $ 357 $ 70 June 30,March 31, 2019 and June 30, 2018 was approximately $17,000 and $123,000, respectively. Amortization$18,000. NaN amortization expense was recognized for the sixthree months ended June 30, 2019 and June 30, 2018 was approximately $35,000 and $247,000 respectively.43 – Notes PayableOn June 28,$1.5$5.7 million. The Company paid $236,000$707,000 in debt issuance costs which was recorded as a debt discount to be amortized as interest expense over the term of the loan using the effective interest ratestraight-line method. shall accrue interest at a rate of 12.0% per annum. Interest will beis payable quarterly with the first interest payment to be made on the six-month anniversary of the date of the closingDecember 28, 2019, and each subsequent payment every three months thereafter.$1,000$390,000 in interest expense related to Notes for the three and six months ended March 31, 2020 including $177,000 related to the amortization of debt issuance costs. The Company recognized 0 interest expense related to the Notes for the three months ended March 31, 2019.30, 2019.2017, Symplmed assigned to the Company an Amended and Restated License and Commercialization Agreement with LesDuring the period commencing November 15, 2016 (the “Effective Date”) and ending on the date that the Company had completed an equity offering of either common or preferred stock in which the gross proceeds therefrom is no less than $10 million (the “Equity Financing Date”), the Company paid Autotelic the following compensation: cash in an amount equal to the actual labor cost (paid on a monthly basis), plus 100% markup in warrants for shares of the Company’s common stock with a strike price equal to the fair market value of the Company’s common stock at the time said warrants were issued. The Company also paid Autotelic for the services provided by third party contractors plus 20% mark up. The warrant price per share was calculated based on the Black-Scholes model.After the Equity Financing Date, the Company paid Autotelic Inc. a cash amount equal to the actual labor cost plus 100% mark up of provided services and 20% mark up of provided services by third party contractors or material used in connection with the performance of the contracts, including but not limited to clinical trial, non-clinical trial, Contract Manufacturing Organizations, FDA regulatory process, Contract Research Organizations and Chemistry and Manufacturing Controls.In accordance with the MSA, Autotelic Inc. billed the Company for personnel and service expenses Autotelic Inc. incurred on behalf of the Company. For the six months ended June 30, 2019 and 2018, Autotelic Inc. billed a total of $0 and approximately $616,000, respectively, including personnel costs of $0 and $284,000, respectively. June 30, 2019March 31, 2020 and December 31, 2018.In April 2018, and in connection with the closing of our private placement on that date, we entered into a Compromise and Settlement Agreement with Autotelic Inc. pursuant to which we agreed to issue to Autotelic Inc. an aggregate of 162.59 shares of Series E Preferred Stock to settle accounts payable of $813,000 and Warrants to purchase up to 1,345,040 shares of common stock to satisfy accrued and unpaid fees in the aggregate amount of approximately $740,000, and other liabilities, owed to Autotelic Inc. as of June 30, 2018 pursuant to the MSA. The warrants have a five-year term, an initial exercise price of $0.55, and have a fair value of approximately $1.5 million resulting in a loss on settlement of debt of approximately $750,000.currentformer director of Adhera, is Executive Chairman.sixthree months ended June 30,March 31, 2019, and 2018, the Company recorded approximately $65,000 and $309,000, respectively,$22,000 for related party expenses incurred under the agreement. As of December 31, 2018, the Company recorded approximately, $24,000 as a related party liability on the accompanying balance sheet for amounts due BioMauris, LLC. NoNaN related party liability was recorded as of June 30,March 31, 2020 or December 31, 2019.ErikMr. Emerson, a member our Board of Directors and our former Chief Commercial Officer, became the owner of an equity interest of approximately 22% in Pharma Hub Network, our third-party network manager. During the six months ended June 30,third quarter of 2019, and 2018, the Company paid approximately $17,000 and $0, respectively, toterminated the relationship with Pharma Hub Network. An unpaid balance of $27,000For the three months ended March 31, 2020 and $0March 31, 2019, the Company recorded 0 related party expense for services provided by Pharma Hub Network. NaN related party liability was included in accounts payable and accrued expenses in the accompanying balance sheetsrecorded as of June 30, 2019 andMarch 31, 2020 or December 31, 2018, respectively.2019.5-year5 year warrant to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series E Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. TheIn July of 2018, the conversion price of the warrants was adjusted down to $0.50 upon issuance of the Series F Convertible Preferred Stock. Series E Preferred accrues 8% dividends per annum andwhich are payable in cash or stock at the Company’s discretion. The Series E Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in April 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.June 30, 2019,March 31, 2020, the Company had recorded accrued dividends of approximately $1.7$2.7 million on Series E Preferred Stock.5-year5 year warrant (the “Warrants”, and collectively with the Preferred Stock, the “Securities”) to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series F Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. The Series F Preferred accrues 8% dividends per annum andwhich are payable in cash or stock at the Company’s discretion. The Series F Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in July 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.five-yearfive-year term and an initial exercise price of $0.55 per share.5-year5 year warrant to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series F Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. We received total net proceeds of approximately $0.31$0.3 million from the issuance of the securities described above, after deducting placement agent fees and estimated expenses payable by us associated with such closing. In connection with the private placement described above, we alsofive-yearfive-year term and an initial exercise price of $0.55 per share.30, 2019,29, 2020, the Company had not repurchased the remaining shares.$138,000$238,000 on Series F Preferred Stock.June 30, 2019,March 31, 2020, there were 36,267,32936,272,500 warrants outstanding, with a weighted average exercise price of $0.79$0.56 per share, and annual expirations as follows:Expiring in 2019600,000Expiring in 20201,189,079Expiring in 2021 343,750 343,750Expiring in 2022 — 66,667Expiring in 2023 33,645,847 33,729,180Expiring thereafterin 2024335,453 338,653TotalExpiring thereafter1,947,450 Total 36,267,32936,272,500 totaling 34,737,030 shares.Noincluding 1,944,250 warrants issued with the 2020 term loan which are subject to adjustment based upon the final conversion price of the note.sixthree months ended June 30, 2019.Tender OfferOn May 28, 2019, the Company filed a Tender Offer Statement on Schedule TO. The Schedule TO related to the offer (the “Offer”) by the Company to all holders of the Company’s outstanding warrants that were issued to investors in connection with the Company’s private placement of its Series E Convertible Preferred Stock and Series F Convertible Preferred Stock during 2018, which warrants are exercisable for shares of the Company’s common stock at an exercise price of $0.50 per share (subject to adjustment) with respect to the warrants that were issued in connection with the Company’s private placement of its Series E Convertible Preferred Stock and $0.55 per share with respect to the warrants that were issued in connection with the Company’s private placement of its Series F Convertible Preferred Stock, to receive two (2) shares of common stock in exchange for every warrant tendered by the holders thereof.On June 6, 2019, the Company amended the Schedule TO to change the conversion terms on the issuance of warrant.As of June 30, 2019, no warrants have been accepted for exchange or been exchanged pursuant to the Offer. See Note 11 – Subsequent Events.sixthree months ended June 30, 2019: Options Outstanding Shares Weighted
Average
Exercise Price Outstanding, December 31, 2018 5,613,057 $ 0.83 Options granted 1,635,000 0.37 Options expired / forfeited (2,255,250 ) 1.03 Outstanding, June 30, 2019 4,992,807 0.77 Exercisable, June 30, 2019 2,186,414 $ 0.81 Options Outstanding Shares Weighted
Average
Exercise PriceOutstanding, December 31, 2019 4,071,333 $ 0.58 Options granted — — Options expired / forfeited (1,129,983) 0.66 Outstanding, March 31, 2020 2,941,350 0.55 Exercisable, March 31, 2020 1,991,350 $ 0.65 June 30, 2019. 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 $0.28 - $1.00 4,352,000 8.85 $ 0.57 2,024,500 $ 0.66 $1.50 - $1.80 493,207 8.18 $ 1.79 134,314 $ 1.78 $2.60 - $10.70 147,600 2.79 $ 3.43 27,600 $ 7.27 Totals 4,992,807 8.60 $ 0.77 2,186,414 $ 0.81 Options Outstanding Options Exercisable Range of
Exercise
PricesNumber Outstanding Weighted-
Average
Remaining Contractual Life (Years)Weighted Average Exercise
PriceNumber Exercisable Weighted Average Exercise
Price$0.28 - $1.00 2,933,500 7.99 $ 0.54 1,983,500 $ 0.64 $1.50 - $1.80 4,050 1.77 $ 1.70 4,050 $ 1.70 $2.60 - $6.35 3,800 0.77 $ 2.60 3,800 $ 2.60 Totals 2,941,350 7.97 $ 0.55 1,991,350 $ 0.65 8.06sixthree months ended June 30, 2019,March 31, 2020, the Company granted an aggregate of 1,635,0000 stock options to employees.$241,000$36,000 and $374,000$395,000 for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively and approximately $636,000 and $493,000 for the six months ended June 30, 2019 and 2018, respectively.June 30, 2019,March 31, 2020, the Company had approximately $474,000$172,000 of total unrecognized compensation expense related to unvested stock options.June 30, 2019,March 31, 2020, the intrinsic value of options outstanding was zero.Note 8 - Intellectual Property and Collaborative AgreementsLicense of DiLA2 AssetsOn March 16, 2018, the Company entered into an exclusive sublicensing agreement for certain intellectual property rights to its DiLA2delivery system. The agreement included an upfront payment of $200,000 and future additional consideration for sales and development milestones. The upfront fee was contingent upon the Company obtaining a third-party consent to the agreement within ninety days of execution. As of June 30, 2019 and December 31, 2018, the Company had not obtained consent for the sublicense and has classified the upfront payment as an accrued liability on its balance sheet.98 - Commitments and ContingenciesOther than the disclosure below, asAs of the date of this filing, the Company is not aware of any pending lawsuits against them,it, its officers or directors.Paragraph IV ChallengeThe Company’s Prestalia product was involved in a paragraph IV challenge regarding patents issued to perindopril arginine. This challenge, which was pending in United States District Court for the District of Delaware (No. 1:17-cv-00276), was captionedApotex Inc. and Apotex Corp. v. Symplmed Pharmaceuticals, LLC and Les Laboratoires Servier. The challengers (Apotex Inc. and Apotex Corp. (“Apotex”)) filed an Abbreviated New Drug Application seeking FDA approval to market a generic version of Prestalia and included a Paragraph (IV) certification. In the litigation, Apotex sought a declaratory judgment that no valid claims of the two patents Symplmed listed in the FDA Orange Book as having claims covering Prestalia, U.S. Patent No. 6,696,481 and 7,846,961, will be infringed by the Apotex proposed generic version of Prestalia and that the claims of those patents are invalid. The challenge was designed to provide Apotex with an opportunity to enter the market with a generic version of Prestalia, ahead of the expiration of the patents with claims covering that product.Apotex entered into negotiations with Symplmed Pharmaceuticals, LLC (which entity sold its assets relating to Prestalia to us in June 2017, including its License and Commercialization Agreement with Les Laboratories Servier) and Les Laboratories Servier (which entity owns or controls intellectual property rights relating to pharmaceutical products containing as an active pharmaceutical ingredient perindopril in combination with other active pharmaceutical ingredients, which rights have been licensed to Symplmed Pharmaceuticals) to resolve the challenge in the second quarter of 2017. Such parties, along with us, have reached an agreement on terms that result in a delay to the challengers’ ability to enter the market with a generic version of Prestalia, while still providing the challenger with the right to enter the market prior to the expiration of the patent covering such product. Specifically, the parties have entered into a Confidential Settlement Agreement in connection with the settlement of the matter, pursuant to which, among other things, the parties entered into a Confidential License Agreement, whereby Symplmed, Servier and our company agreed to grant to Apotex a non-transferable, non-sublicensable, perpetual, irrevocable, royalty-free, non-exclusive license to the two patents listed in the FDA Orange Book as having claims covering Prestalia to make, use and market a generic version of Prestalia, or import a generic version of Prestalia from India into the United States, on or after January 1, 2021.As a result of the foregoing, the matter is now settled.LeasesThe Company entered into a Standard Form Office Lease with ROC III Fairlead Imperial Center,ThreeCo Partners, LLC as landlord, pursuant to which we lease ourthe Company leased its corporate headquarters located at 47214815 Emperor Boulevard, Suite 350,100, Durham, North Carolina 27703 for a term of 3719 months starting on Octobercommencing January 1, 2018. Our2020. The base monthly rent for such space is currently $6,458, which amount will increase to $7,057 forwas $3,795. On February 1, 2020 the final month ofCompany terminated the term. lease.lease for our corporate headquarters, we doCompany does not own or lease any real property or facilities that are material to ourits current business operations. As we expand ourIf the Company continues its business operations, wethe Company may seek to lease additional facilities of our own in order to support ourits operational and administrative needs under our current operating plan.The Company adopted ASU No. 2016-02 on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The adoption did not have a material impact on its condensed consolidated statement of operations. However, the new standard required the Company to establish approximately $0.2 million of liabilities and corresponding right-of-use assets of approximately $0.2 million on its condensed consolidated balance sheet for operating leases on rented office properties that existed as of the January 1, 2019, adoption date. The total right-of-use asset was approximately $178,000 as of June 30, 2019 and is reflected in the operating lease right of use asset on the accompanying condensed consolidated balance sheet. The total related liability was approximately $185,000 as of June 30, 2019, of which approximately $78,000 is included in current portion of operating lease liability and approximately $107,000 is reflected in operating lease liability, net of current portion on the accompanying condensed consolidated balance sheet.119 - Subsequent EventsJuly 2, 2019,June 15, 2020, the Company announceddefaulted on certain covenants in the termination2020 term loan and the interest rate reset to the default rate of 18%.exchange offer contemplated byoriginal 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.certain Tender Offer Statementif an event of default has occurred under the Note, then the conversion price shall be 65% of the lowest closing bid price of the Company’s common stock as reported on Schedule TO thatits principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was originally filed on May 28, 2019. Asdelivered. The conversion price shall also be adjusted as a result of subsequent equity sales by the terminationCompany.Offer, no Warrants were accepted for exchange or exchangedCompany 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 Offer.On July 3, 2019, July 17,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 the Company completed a second, third, and fourth closing of term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes in the aggregate principal amount of approximately $4.2 million. The terms of such additional closings$5.7 million agreed to subordinate their lien and security interest in the assets of the loan areCompany and its subsidiaries as describedset forth in Note 4the Security Agreement dated June 28, 2019 that such holders entered into with the Company and its subsidiaries to the security interest granted to the holder of this filing.16, 2019.14, 2020. 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.●our ability to obtain additional and substantial funding for our company on an immediate basis, whether pursuant to a capital raising transaction arising from the sale of our securities, a strategic transaction or otherwise;●our ability to attract and/or maintain commercialization and manufacturing partners;●the ability of our company or partners to successfully execute our commercialization activities;●the ability of our company or partners to obtain required governmental approvals, including product patent approvals;●the ability of our company and/or a partner to develop and commercialize products that can compete favorably with those of our competitors;●our ability to satisfy our disclosure obligations under the Exchange Act of 1934 and to maintain the registration of our common stock thereunder;●our ability to attract and retain qualified officers, employees and consultants as necessary; and●costs associated with any product liability claims, patent prosecution, patent infringement lawsuits and other lawsuits.2018,2019, as filed with the SEC on April 16, 2019,14, 2020, 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 actualWe are an emergingpharmaceuticalbiotech company that, leveragesto the extent that resources and opportunities become available, is strategically evolving focus in hopes of a return to a drug discovery and development company, and a departure from active commercialization and promotion of hypertension treatment options in the U.S. market.diseases. We are focusedand acute diseases with a focus on fixed dose combination (“FDC”) therapies in hypertension, with plans to expand the portfolio of drugs we commercialize to include other therapeutic areas.Our mission is to provide effective and patient centric treatment for hypertension and resistant hypertension while actively seeking additional assets that can be commercialized through our proprietary Total Care System (“TCS”). At the core of our TCS is DyrctAxess, our patented technology platform. DyrctAxess is designed to offer enhanced efficiency, control and access to the information necessary to empower patients, physicians and manufacturers to achieve optimal care.We began marketinghypertension.(“perindopril”) and amlodipine besylate, (“amlodipine”)which we began marketing in June of 2018. By combining Prestalia, DyrctAxess and an independent pharmacy network, we have created a proprietary system for drug adherence and the effective treatment of hypertension, improving the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, as well as improving the distribution of devices for therapeutic drug monitoring (“TDM”) (e.g., blood pressure monitors), as well as patient counseling and prescription reminder services. We are focused on demonstrating the therapeutic and commercial value of our TCS through the commercialization of Prestalia. 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 iswas distributed through our patented DyrctAxess platform.we acquired in 2017.By combining Prestalia, DyrectAxess,is designed to offer enhanced efficiency, control and access to the information necessary to empower patients, physicians and manufacturers to achieve optimal care.specialty pharma network,member of the company’s Board of Directors, resigned from all positions with the Company.have createdare not able to obtain additional financing on a proprietary platform for drug adherence andtimely basis as required, or generate significant capital from the effective treatmentout-licensing and/or divestiture of hypertension, improving the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, devices for therapeutic drug monitoring (e.g., blood pressure and other cardiac monitors), as well as patient counseling and prescription reminder services.As our strategy is to be a commercial pharmaceutical company,existing assets, we will drive a primary corporate focus on revenue generation throughnot be able to meet our commercial assets, while continuingother obligations as they become due and will be forced to developscale down or even cease our technology platform and TCS. We intend to create value through the expanded commercialization of our FDA-approved product, Prestalia®, while continuing to develop and leverage our TCS to further strengthen our commercial presence.
operations altogether.20June 30, 2019March 31, 2020 to the Three Months Ended June 30, 2018$66,000,$3,000, net of related discounts for the three months ended June 30,March 31, 2019 comparedrelated to no sales for the three-month period ended June 30, 2018. The increase in sales represents revenues from the sale of Prestalia®.Costwere $81,000as a result of our termination of commercial operations related to the sale of Prestalia in December 2019. We recorded approximately $117,000 as the cost of sales for Prestalia for the three months ended June 30, 2019 and represents cost of sales from the sale of Prestalia®. We had no sales or cost of sales during the three months ended June 30, 2018.June 30,March 31, 2020 and 2019 and 2018 are summarized as follows: Three Months Ended June 30, 2019 June 30, 2018 (in thousands) Sales and marketing $ 1,148 $ 2,586 General and administrative expenses 1,599 1,059 Amortization 17 123 Total operating expenses $ $ 3,768 Three Months Ended March 31, 2020 March 31, 2019 Increase/(Decrease) (in thousands) Sales and marketing $ 784 $ 1,059 $ (275) General and administrative expenses 539 1,367 (828) Amortization — 18 (18) Total operating expenses $ 1,323 $ 2,444 $ (1,121) June 30, 2019,March 31, 2020, sales, marketing and commercial operations expense decreased by approximately $1.4 million, as compared to the prior period, primarily due to the 2018 commercial launch including marketing and sales activities related to Prestalia® and a reduction in costs associated with our go to market model.General and AdministrativeGeneral and administrative (“G&A”) expense increased by approximately $0.5 million for the three months ended June 30, 2019,$275,000 as compared to the three months ended June 30, 2018,March 31, 2019, primarily due to an increasethe Company's strategic decision to terminate the commercial sale of Prestalia in share-based compensationDecember 2019. Sales and marketing expense for the three months ended March 31, 2020, included approximately $679,000 of PDUFA fees for Prestalia.$0.2$0.8 million and an increasefor the three months ended March 31, 2020, as compared to the three months ended March 31, 2019 primarily due to the Company's strategic decision to terminate commercial operations related to the sale of Prestalia in personnel related expenses including severance payments made to former executive management.$106,000$18,000 for the three-month period ended June 30,March 31, 2019 primarily due to the write-off of intangibles in 20182019 as a result of our decision to divest assets that no longer align with our strategic objectives. Three Months Ended June 30, 2019 June 30, 2018 Interest expense $ (1 ) $ (5 ) Loss on settlement - (875 ) Total other expense, net $ (1 ) $ (880 ) Total net otherThree Months Ended March 31, 2019 March 31, 2019 (Increase)/Decrease (in thousands) Interest expense $ (410) $ — $ (410) Amortization of debt discount (105) — (105) Total other expense, net $ (515) $ — $ (515) June 30, 2019 decreased $0.9 millionMarch 31, 2020 increased by $410,000 compared to the three months ended June 30, 2018March 31,2019 primarily due to a loss on settlementaccrued interest and amortization of adebt issuance costs for our term loans. The amortization of debt discount was related party liability during the three months ended June 30, 2018.Comparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018Net SalesWe recorded net sales of approximately $69,000 for the six months ended June 30, 2019 and represents revenues from the sale of Prestalia®. We had no sales during the six months ended June 30, 2018.Cost of SalesCost of sales were approximately $198,000 for the six months ended June 30, 2019 and represents cost of sales from the sale of Prestalia®. We had no sales or cost of sales during the six months ended June 30, 2018.Operating ExpensesOur operating expenses for the six months ended June 30, 2019 are summarized as follows in comparison to our expenses for the six months ended June 30, 2018. Six Months Ended June 30, 2019 June 30,2018 (in thousands) Sales and marketing $ 2,207 $ 2,586 Research and development - 173 General and administrative expenses 2,966 1,979 Amortization 35 247 Total operating expenses $ $ 4,985 Sales, Marketing and Commercial OperationsFor the six months ended June 30, 2019, sales, marketing and commercial operations expense decreased by approximately $379,000, as compared to the prior period, primarily due to a reduction in commercial launch activities related to the sales of Prestalia® and a reduction in costs associated with our go to market model.Research and DevelopmentFor the six months ended June 30, 2019, research and development expense decreased by approximately $173,000, as compared to the six months ended June 30, 2018 due to the transition of our strategic focus from R&D activities to sales, marketing and commercial operations activities beginning in the second quarter of 2018.General and AdministrativeGeneral and administrative (“G&A”) expense increased by approximately $1.0 million for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, primarily due to an increase in share based compensation of approximately $0.2 million and an increase in personnel related expenses including severance payments made to executive management.Amortization ExpenseAmortization of intangible assets decreased by approximately $212,000 for the six-month period ended June 30, 2019 primarily due to the write-off of intangibles in 2018 as a result of our decision to divest assets that no longer align with our strategic objectives.Other Expense Six Months Ended (in thousands) June 30, 2019 June 30, 2018 Interest expense $ (1 ) $ (149 ) Loss on settlement - (875 ) Total other expense, net $ (1 ) $ ) Total net other expense for the six months ended June 30, 2019 decreased approximately $1.0 million compared to the six months ended June 30, 2018 primarily due to a loss on settlement of a related party liability and interest expense on notes payable during the three months ended June 30, 2018 as compared to the same period of 2019.(in thousands) June 30, 2019 December 31, 2018 Current assets $ 2,154 $ 4,677 Current liabilities (5,160 ) (2,214 ) Working capital (deficit) $ (3,006 ) $ 2,463 (in thousands) March 31, 2020 December 31, 2019 Current assets $ 315 $ 420 Current liabilities (12,148) (10,307) Working deficit $ (11,833) $ (9,887) June 30, 2019March 31, 2020 was approximately $3.0$11.8 million as compared to negative working capital of approximately $2.5$9.9 million as of December 31, 2018.2019. The decrease in working capital is primarily related to an increase in our current liabilities as of June 30, 2019March 31, 2020 including approximately $1.3$0.5 million of notes payable net of issuance costs, an increase in accrued dividends for our convertible preferred stock of approximately $0.8$0.4 million and an increase in accounts payable and accrued expenses related to our operating activities.$3.5$0.4 million during the sixthree months ended June 30, 2019.March 31, 2020. This was primarily due to our net operating loss of approximately $5.3$1.8 million, partially offset by non-cash share-based compensation of approximately $0.6 millioninterest expense related to our term loans and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses.$3.9$2.1 million during the sixthree months ended June 30, 2018.March 31, 2019. This was primarily due to the net operating loss of approximately $6.0$2.6 million offset by non-cash charges of approximately $2.5$0.4 million for share based compensation expense and other changes in working capital of approximately $0.3 million. Non-cash charges for the three-months ended June 30, 2018 included the fair value of equity issued for settlement of an outstanding liability including a loss on the settlement of approximately $0.9 million.sixthree months ended June 30,March 31, 2020 or March 31, 2019. Cash used in investing activities for the period ended June 30, 2018 was approximately $10,000 for the purchase of furniture for the corporate office.sixthree months ended June 30, 2019March 31, 2020 was approximately $1.3$0.4 million from the issuance of promissory notes to certain accredited investors on June 28, 2019.investors. For the sixthree months ended June 30, 2018,March 31, 2019, no cash was provided by financing activities was $12.1 million primarily due to the issuance of preferred stock. during the third quarter of 2019 in order 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.substantial additional funds to implementcontinue our strategic initiatives and continue the commercialization of Prestalia®.business. Historically, we have raised additional capital to supplement our commercialization, clinical development and operational expenses. We will need to raise substantial 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.June 30, 2019,March 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.June 30, 2019March 31, 2020 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.June 30, 2019.March 31, 2020.Securities Exchange Act of 1934, as amended (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.conducted an assessment ofassessed the effectiveness of our internal control over financial reporting as of June 30, 2019March 31, 2020 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 June 30, 2019March 31, 2020 was not effective.indicativecritical to the accomplishment of many small companies with small number of staff:●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.Management has and continues 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 include:●Identifyincluded: the expertise of our staff required to meet the financial reporting requirements of a public company; and●Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures.During the three monthsexpertise of our staff required to meet the financial reporting requirements of a public company; andJune 30,December 31, 2019, we continued to execute upon our planned remediation actions which are allwere intended to strengthen our overall control environment. Our CompanyFor example, in November 2019 we engaged a Senior Vice President of Finance & Accounting, and allwe and our subsidiaries use a well-regarded accounting software which restricts personnel access and standardizes daily accounting procedures on journal entries. The software includes built-in controls and documentation to facilitate accounting review of the books and records. Our Audit Committee continuesWe will continue to exercise oversight responsibilities relatedreassess our plans to financial reporting andremedy our internal control deficiencies in light of our personnel structure and we have commenced a search to replace our Chief Financial Officer, who recently resigned. In the meantime, the Company’s Chief Executive Officerfinancial condition. We hope that such measures will assume the responsibilities of the Chief Financial Officer until we hire a full-time executive. We have hired an external consultant with GAAP expertise to assist in the preparation of financial reporting under management oversight as of May 2, 2019.The aforementioned measures taken are expected to lead to an improvement in the timely preparation of financial reports and to strengthen our segregation of duties at the Company.our company. We are committed to maintainingdeveloping a strong internal control environment, and we believe that thesethe remediation efforts that we will representimplement 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.ChangesInternal Controlthis annual report, which may increase the risk that weaknesses or deficiencies in our internal control over Financial ReportingJune 30, 2019March 31, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.Paragraph IV ChallengeOur Prestalia product was involved in a paragraph IV challenge regarding patents issued to perindopril arginine. This challenge, which was pending in the United States District Court for the District of Delaware (No. 1:17-cv-00276), was captionedApotex Inc. and Apotex Corp. v. Symplmed Pharmaceuticals, LLC and Les Laboratoires Servier. The challengers (Apotex Inc. and Apotex Corp. (“Apotex”)) filed an Abbreviated New Drug Application seeking FDA approval to market a generic version of Prestalia and included a Paragraph (IV) certification. In the litigation, Apotex sought a declaratory judgment that no valid claims of the two patents Symplmed listed in the FDA Orange Book as having claims covering Prestalia, U.S. Patent No. 6,696,481 and 7,846,961, will be infringed by the Apotex proposed generic version of Prestalia and that the claims of those patents are invalid. The challenge was designed to provide Apotex with an opportunity to enter the market with a generic version of Prestalia, ahead of the expiration of the patents with claims covering that product.Apotex entered into negotiations with Symplmed Pharmaceuticals, LLC (which entity sold its assets relating to Prestalia to us in June 2017, including its License and Commercialization Agreement with Les Laboratories Servier) and Les Laboratories Servier (which entity owns or controls intellectual property rights relating to pharmaceutical products containing as an active pharmaceutical ingredient perindopril in combination with other active pharmaceutical ingredients, which rights have been licensed to Symplmed Pharmaceuticals) to resolve the challenge in the second quarter of 2017. Such parties, along with us, have reached an agreement on terms that result in a delay to the challengers’ ability to enter the market with a generic version of Prestalia, while still providing the challenger with the right to enter the market prior to the expiration of the patent covering such product. Specifically, the parties have entered into a Confidential Settlement Agreement in connection with the settlement of the matter, pursuant to which, among other things, the parties entered into a Confidential License Agreement, whereby Symplmed, Servier and our company agreed to grant to Apotex a non-transferable, non-sublicensable, perpetual, irrevocable, royalty-free, non-exclusive license to the two patents listed in the FDA Orange Book as having claims covering Prestalia to make, use and market a generic version of Prestalia, or import a generic version of Prestalia from India into the United States, on or after January 1, 2021.As a result of the foregoing, the matter is now settled.company other than as disclosed above.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.20182019 (the “Annual Report”), as filed with the SEC on April 16, 2019,14, 2020, 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, and the additional risk factor noted below, 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.Risks Relating to Inventory and Product SupplyThe company may experience inventory outages as a result of increased demand for Prestalia. The company’s efforts to mitigate this risk may not be successful, resulting in patient supply interruption. Any interruption in the supply of this product could have a material adverse effect on our financial condition, business performance and the results of an investment in our securities.In April 2019, we issued 107,846 unregistered shares of our common stock to a holder of our Series E Convertible Preferred Stock in connection with the conversion of $53,923 of “Stated Value” of our Series E Convertible Preferred Stock. These shares were issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.ADHERA THERAPEUTICS, INC. Date: August 14, 2019July 6, 2020By: /s/ Nancy R. Phelan.Uli HacksellNancy R. PhelanChief Executive Officer and DirectorUli Hacksell
Chairman
(Principal Executive Officer, Officer)Date: July 6, 2020 By: /s/ Rhonda L. Stanley Rhonda L. Stanley
Senior Vice President of Finance
(Principal Financial Officer and Principal Accounting Officer)